Apartments in Moscow on the secondary market are mainly sold by investors.

Introduction

Apartment is still a small segment in the secondary market and is not available in all areas of the capital. According to Dmitry Khalin, Managing Partner at Savills in Russia, the "era of apartments" began in 2008. The mass entry into the market started in 2012, according to Maria Litinetskaya, Managing Partner at Metrium Group. The majority of properties in the secondary market come from the earliest complexes of this format. According to Metrium Group, in 2012 there were only 32 apartments in Moscow: 16 in renovated buildings (such as Kadashevsky Chambers, Danilovskaya Manufactory, etc.) and another 16 in new buildings (including seven in Moscow-City). Currently, 206,000 square meters of apartments in completed apartment complexes are offered in the secondary market, which accounts for 32% of the total supply of apartments in Moscow, as estimated by Est-a-tet (over 600,000 square meters are sold in the primary market). According to Ekaterina Rumyantseva, Chairman of the Board of Directors at Kalinka Group, apartments already make up 20% of the total volume of the secondary luxury market. Litinetskaya estimates that there are about 1,200 apartment listings. "This is a small number. Developers sold 9,000 units in 2016," she compares.

Skyscrapers or Factories

Apartment developments in Moscow appear in areas where housing construction is restricted by regulations. However, the market started with the skyscrapers of Moscow-City, according to Alexey Treshchev, Director of Urban and Country Real Estate at Knight Frank. Nearly half of the apartments on the secondary market today are concentrated in Moscow-City, confirmed Rumyantseva. According to Savills in Russia, there are a total of 97 apartments with a total area of 20,000 square meters. Two-thirds of this volume is concentrated in the first projects, such as "City of Capitals" and the "Federation" tower, says Khalin. According to Savills in Russia, there are 50-60 transactions made each year in this segment in Moscow-City. Sometimes, apartments are preferred over regular flats here. Denis Popov, Managing Partner at Contact Real Estate, shared the story of clients, a couple whose children had grown up and child-friendly infrastructure was not important to them. They were looking for property for themselves. They initially chose the "Shokolad" residential complex (150 square meters for $1.5 million), but their broker convinced them to see what was available in Moscow-City. The head of the family, a businessman who frequently visits Hong Kong and New York and stays in skyscrapers, agreed to continue the search. As a result, the couple bought ready-made apartments in the "City of Capitals" complex (107 square meters for $1.3 million). According to Treshchev, prices in the established towers of Moscow-City - "City of Capitals", "Federation" ("Zapad") and the business complex "Imperia" - are around 700,000-800,000 rubles per square meter.

New or Old

Currently, buyers prefer new buildings. "Clients have the choice to buy an apartment that has already been lived in and most likely needs renovation, buy in a building under construction, or buy a ready-made apartment in a recently completed complex (about 3,400 listings) from developers. The choice will most likely be made in favor of the latter two options," says Litinetskaya. This is especially true as developers strive to outdo their competitors in all aspects, and new properties are better than their predecessors. What is particularly valuable is that the distinction between apartments and regular flats in terms of layout is disappearing, says Rumyantseva: "If the first projects mainly consisted of studios, now they have a well-thought-out mix of bedrooms, walk-in closets, kitchens-dining rooms, and living rooms." The modern trend in the luxury housing market is to offer apartments with finishes and services from global brands, such as "Novy Arbat, 32" and "MOSS Apartments," adds Popov. Anastasia Mogilatova, CEO of Welhome, believes that the availability of finishes from developers (the units are sold fully ready for living) sets new projects apart from their predecessors.

In the beginning, apartments were located in converted industrial, administrative, or office buildings in prestigious areas of Moscow. Today, there are many such lofts in the secondary market, says Litinetskaya. Many projects have unconventional architecture, and sometimes the layouts are not the most comfortable, and there is a small number of parking spaces (or none at all). However, it is difficult to say whether these complexes are worse or better than modern apartments, says Popov: "They are simply different, it's a matter of taste. Loft-style spaces are still popular among enthusiasts of industrial aesthetics." Apartments "from the owner" in Clerkenwell House on Komsomolsky Prospekt attracted a buyer because they were looking for ready, but not old housing with modern finishes, Rumyantseva gives an example. A 72-square-meter space with a loft

For Connoisseurs

Traditionally, apartments in Moscow are 10-20% cheaper than similar-class apartments in the same area. Builders have partially compensated buyers for the inability to register permanently, higher operating costs, and property taxes.

Lofts are usually located in small, almost club-like houses, and therefore sell out quickly. Among the buyers are investors, so, according to Timur Davydov, CEO of Integro Group, "if a client is looking for a loft in a completed project, they will likely find offers on the secondary market."

In some cases, investors sell at a lower price than the builders. For example, at the "VTB Arena Park" complex, which is being built on Leningradsky Prospekt and is almost half sold by the developer, transactions are already taking place on the secondary market. Rumyantseva explains the project's popularity among investors due to attractive starting prices and an interesting concept. One of Kalinka Group's clients fell in love with the apartments here, even though they had already paid a deposit for an apartment on the secondary market, and the company's broker found an owner who purchased a pool of apartments at the start. "He sold them for 7% less than the developer's price," says Rumyantseva. "Of course, not every developer will like this situation. But it's the investor's right to sell property at a price that suits them. The developer, on the other hand, must adhere to the sales plan." In her opinion, the "VTB Arena Park" project is quite successful, so individual transactions on the secondary market cannot harm the developer's sales. Kalinka Group's client lost the deposit for the apartment but became the owner of a business-class apartment measuring 82 square meters for 20.5 million rubles.

Experts generally believe that many apartment transactions on the secondary market were concluded thanks to investors who bought several lots even before the foundation was laid. According to Rumyantseva, more than 70% of sellers at one time purchased apartments for investment purposes. According to Savills' estimates, in 2006-2007, about 40% of buyers of apartments in the Moscow City business district were investors, purchasing units measuring 100-120 square meters. In 2011-2012, at the start of sales in several loft projects, the share of investment transactions reached 30%, with buyers taking the most compact lots measuring 35-50 square meters, Halin clarified.

Investor Strategies

Litinetskaya believes that investors often try to make a profit from resale even before the complex is put into operation. And they sell at 5-15% less than the builders thanks to the fact that closer to the completion of construction, the property's price has increased sufficiently, added Rumyantseva. But if an investor is not in a hurry and is willing to wait a few years until primary sales are completed or there are few lots left, their income can significantly increase. Halin mentioned that in 2016, a 68-square-meter unit without finishing in Clerkenwell House was sold for 33 million rubles. In 2011, when the project had just entered the market, the same apartments were purchased for $578,000 ($8,500 per square meter), or 18.1 million rubles at the exchange rate at that time. "The seller was able to earn almost 15 million rubles," Halin calculates.

According to Kalinka Group, as of February 2017, on the primary market, one could buy apartments without finishing in the "IQ Kvarl" multifunctional complex starting from 296,000 rubles per square meter, with finishing in the "Neva Towers" multifunctional complex starting from 299,700 rubles per square meter, and in the "OKO" multifunctional complex starting from 463,000 rubles per square meter. According to Litinetskaya, owners of expensive housing are still inclined to hold onto their properties and not sell on a declining market. According to Rumyantseva's estimates, in 2017, the supply will increase by no more than 12-15%. "These will be either forced sales or 'long sales,' when the owner continues to live in the apartment while waiting for a buyer with the desired amount, without bargaining," she explains.