The St. Petersburg residential real estate market is on the road to recovery after the crisis, but the annual launch of residential buildings is still yet to meet levels from 2008.
“The demand for new buildings is increasing, the volume being offered is growing and new, more profitable mortgage programs are emerging,” said Nikolai Kazansky, general director of Colliers International St. Petersburg.
As a result of a decrease in the mortgage interest rate at the beginning of last year, the number of mortgage applications increased in 2011. This year, demand continues to grow, according to Anastasia Razvarzina, head of retail business development at Sviaz Bank in St. Petersburg, which receives between 30 and 60 million mortgage applications every week, Razvarzina said.
The banks try to support those who have a good credit history by lowering interest rates for them, she said, noting that the interest rate should be no more than 12.5 percent.
According to Razvarzina’s forecast, the percentage of people applying for a mortgage will increase by 30 percent this year.
“The main tendency for 2011 was the launching of large-scale development projects; development will continue in 2012,” said Kazansky.
“Small-sized one and two-room apartments in economy and comfort-class buildings will be launched on the market,” he said.
In 2011, the annual launch of residential buildings increased by 2.3 percent, and totaled 2.7 million square meters, according to data from Colliers International. Although the figures are increasing, they still haven’t reached 2008 levels when the annual launch of residential space was more than 3 million square meters.
In order to meet the market’s demands, about 4 million square meters of residential space should be built every year for the next five to six years, according to data from the Prok group of companies, published by the Big Server of Real Estate (BSN) at www.bsn.ru. Prok specialists, however, predict that the total volume of launched residential space will stay at the same level.
Location, Location, Location
The city’s Primorsky and Vyborgsky districts are considered to be among the leading areas when it comes to newly completed residential space, according to Colliers International specialists.
The overall total of completed projects and those under construction in the Primorsky district is 1.5 million square meters with 57 new buildings and six more projects preparing to be sold, according to NDV-Real Estate data. In the Vyborgsky district, the total area of newly constructed buildings is about 1.1 million square meters. Third place in the ratings goes to the Krasnoselsky district with 747,000 square meters on the market. All of the leading districts are located in the north of the city.
“Promising offers for 2012 to 2014 are expected in the Moskovsky district,” said Kazansky.
The smallest number of construction projects is in the Admiralteisky district where only one building is under construction, according to NDV-Real Estate data. Developers are however preparing five new projects in the district. The highest number of residential buildings are under construction in the Vasileostrovsky and Moskovsky districts, with 12 and 10 projects, respectively, said NDV-Real Estate experts.
Sales in 2011 increased by 13 percent compared with 2010 and totaled 2.2 million square meters overall, according to Colliers International data.
“There is now more demand for more spacious and luxurious apartments, whereas previously small-sized economy-class apartments were the most popular,” said Kazansky.
“In general we do not expect a lull in the construction of new buildings in the near future. The existing demand is met by large-scale development projects,” he said.
“By 2015, two thirds of all residential space is expected to be built within large-scale development projects.”
“There is still a deficit of new high-quality residential projects located within the vicinity of metro stations in the city,” added Kazansky.
Apartments in pre-fabricated buildings usually cost about 79,290 rubles ($2,620) per square meter, according to BSN data from Jan. 31. Newly constructed brick buildings cost 93,480 rubles ($3,090) per square meter and apartments in brick and concrete buildings cost 73,950 rubles ($2,445) per square meter. The most expensive districts are the Vasileostrovsky, Tsentralny and Petrogradsky. During 2011, the price of economy and comfort-class apartments increased by 8 to 10 percent and 15 percent respectively, according to Prok data.
The Cream of the Crop
Elite residential real estate prices increased during the last year by 13 percent and, according to Knight Frank St. Petersburg data for December 2011, range from $8,500 to $48,000 per square meter.
At the end of 2011 and beginning of this year, about 650 new apartments were planned to be built in the elite residential real estate sector, according to Knight Frank data. The number has decreased from previous years, since in 2011 developers exercised caution and were in no hurry to launch new projects on the market. Now there is a lack of high-quality projects on the market, but new projects are expected to be launched this year.
Developers are now looking for original strategies to attract clients.
“New projects with apartments that are ready to be lived in whose interiors have been designed and furnished with expensive brand-name furniture are being introduced on the market,” said Yelizaveta Konvey, head of the elite residential real estate department at Knight Frank.
“Clients prefer apartments in buildings that have already been completed rather than in those that are still being constructed,” she said. “In spite of the wide variety and appealing offers, continuing construction on neighboring buildings has posed a problem for some seeking to buy an apartment. Potential buyers fear that construction on the neighboring buildings could last three to five years, and therefore opt for another choice,” she said.
Last year also saw increasing interest in elite out-of-town residential real estate. Sales were nevertheless half of what they were in 2010, according to Knight Frank data.
Escape to the Country
The main influence on the development of the out-of-town market was the completion of some very large transport infrastructure projects, including the tunnel under the Gulf of Finland, whose construction completed the ring road. Construction work was also carried out on the Priozerskoye and Kievskoye highways. Increased access to some areas made possible by transport has had an influence on the out-of-town real estate market, and there is growing demand from those choosing to live out-of-town or in the countryside.
The biggest plans are for the Kurortny district where six cottage settlements are planned, making up 43 percent of all projected developments on the out-of-town market. The Vsevolozhsky and Vyborgsky districts are also popular, according to Knight Frank data. The Lomonosovsky district has the potential to host the most building projects, with more than 9,000 vacant land plots, both with and without buildings. More than 50 percent of all cottages sold the city last year were sold in the Vsevolozhsky district.
Prices have not changed much during the last year. The average price of an elite cottage at the end of 2011 was a little more than $1.6 million, according to Knight Frank data. A lot of special offers were available, which decreased the total cost slightly, but experts advise buyers to be wary of such offers.
“Price bonuses are not an indication of the developer’s generosity, and they ultimately lead to additional expenses for new owners when it comes to the engineering and infrastructure of the property,” said Tamara Popova, manager of strategic consulting projects at Knight Frank. “Typical extra charges incurred in exchange for discounted land are between 500,000 and 800,000 rubles ($16,520 to $26,430) to set up access, electricity, water and sometimes gas,” she explained.
“The choice for consumers is rather limited,” said Konvey. “Last year, buyers could spend several months looking for a property that met their requirements. Nowadays buyers often involve technical specialists, designers and lawyers in the process of looking for and pricing a property. The availability of transportation, appearance of the property and social and welfare infrastructure development are all important,” she said.
There has also been a trend toward budget residential space that has made developers with experience in the premium segment to develop projects oriented towards a wider audience, said Knight Frank specialists.
Buying apartments in townhouses — two or three-story buildings in the suburbs containing several apartments — has become the most recent trend in the Leningrad Oblast.
“You can buy a three-room apartment for 1.5 million rubles ($49,560) in a townhouse with a parking space on the out-of-town market, while in St. Petersburg for that money you will only get a room in a communal apartment,” said Sergei Budko, commercial director of the Kivennapa group of companies.
The most popular areas in the LenOblast are Kudrovo, Novoe Devyatkino, Murino, Koltushi and Vsevolozhsk, according to Knight Frank data.
“These settlements are interesting for those looking for real estate as they are within close distance of St. Petersburg and are not highly-priced,” said Popova. “Furthermore, such out-of-town buildings don’t have as many stories as residential complexes in the city, fewer people live in the area and the ecology of the area is better [than that of the city],” she added.