Moscow's elite market: yesterday's forecasts and today's layouts

At the end of 2022, analysts of the elite segment were very cautious in their forecasts. And yet, was the balance of power in the market of the most high-budget capital housing by May 2023 the way it was seen in December 2022?

Last December, summing up the results of the dashing 2022 for the elite segment of Moscow, analysts were very cautious about the prospects of the coming 2023. In particular, almost no one dared to give specific price forecasts — too many circumstances depended on whether prices would move up or down. In general, it was assumed that in the secondary market, the share of objects that are exhibited by sellers in foreign currency prices may begin to grow, and the volume of the offer presented on the market will definitely not increase significantly, and maybe even decrease. And in the primary market, we will see, for example, a complete rejection of discounts or at least their serious reduction. And everyone said that you should not wait for customer hyperactivity: these will be rational, deliberate purchases, but we will still not see a significant subsidence in terms of the volume of transactions.

BFM.ru I asked the market players to what extent these expectations were met. Was this the balance of power in the segment of the capital's elite housing by May 2023, as it was seen in December 2022? Well, absolutely everyone agrees that the word "rationalism" has become the key word for elite buyers, but further there are discrepancies in the estimates. Studying the comments of today, you understand how ambiguous the final of 2023 may be for the elite market.

Dmitry Khalin, CEO and Managing Partner of Intermark Real Estate

"Assessing the situation on the secondary market, we really see that the number of offers for which sellers have switched to prices in dollars or euros is growing, although so far it is only about 10% of the total supply of housing at a price of 60 million rubles and above. If you look at lots with a budget of more than 250 million rubles, then the share of offers denominated in foreign currency will approach 20%. In addition, a significant proportion of sellers (about 15%) have chosen a quasi-currency strategy: they do not switch to foreign currency, but nevertheless adjust the ruble price depending on the dollar exchange rate. Such a strategy keeps sellers from switching to purely foreign exchange prices, which buyers would perceive as a signal to the need to pay a resident in foreign currency, while the currency itself is not in demand in such volume on settlement accounts now. Therefore, most sellers are more eager to receive payment in rubles; when the exchange rate starts to rise and the share of such applicants grows. In total, both categories of sellers account for about 20% of the total number of offers. If we talk about discounts, the average discount remains approximately at the same level as before (6-8%), but there is a kind of stratification: more and more transactions are made without discounts or with small discounts up to 3%. There is also a second group of transactions, where we are talking about higher adjustments: initially, such sellers wanted to test the market, put up objects at a fairly high price in the hope that there would be a bidder for them, but such buyers are less frequent, and such sellers are forced to adjust their request price much more than the average indicators reflect. As for the supply, it has really stopped growing. I think that in the first months of this year, conditionally, two apartments sold or withdrawn from sale account for one and a half newly released. We see that, on the one hand, the rental market has become more active, and if the current price does not suit sellers, then they find it optimal for themselves to rent an apartment from sale and rent it out. Those who put the object up for sale are becoming fewer and fewer. I think that if everything goes at this pace, then by the end of this year the volume of supply may be reduced by 20-25%. Assessing the forecasts that you should not expect hyperactivity, it is worth noting: everything is confirmed by current market observations. If we consider March and April 2023, the number of transactions is approximately comparable to March and April of last year after the start of its. But in general, activity, of course, for four months in annual terms shows a significant decrease, since at the beginning of last year the market was quite active. Summing up, I will say: we really will not see a serious subsidence and an increase in the number of transactions. The market will remain at its own, unless serious shocks of an economic or political nature follow."

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Sergey Mikhailov, Commercial Director of GC "BEL Development"

"The primary luxury real estate market has been and remains ruble-denominated. The volatility of the ruble makes the exposure of lots in the currency inappropriate. Quite a lot of projects were announced in the elite segment at the beginning of 2023, and now they are in varying degrees of readiness. The volume of housing provided is not growing and will not grow in the near future. Considering that last year there was a serious outflow of some expat buyers who were one of the key investors in the luxury real estate market, in the current situation, many developers are ready for discounts. They openly or in negotiations with a specific client provide discounts. All purchases today are rational and deliberate. The reduction in income, the increase in taxes and the cost of the food basket, the rejection of "near-zero" mortgage rates and low down payments also significantly restrain the growth of consumer demand. At the same time, elite projects that are almost ready or have already been commissioned are in a comfortable situation. After all, today for a rational buyer of such lots, the quality of the house is important: he cares who is the manufacturer of air conditioning systems, heating, elevators, furniture and finishing materials of MOPS. It makes no sense to expect customer hyperactivity from a demanding buyer, but we will not see a significant subsidence in the volume of transactions in high-quality projects."

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Ekaterina Rumyantseva, founder of the Kalinka ecosystem

"Taking into account the realities of 2022 and the events that have taken place, which have made significant adjustments to the development of the real estate market, in principle, we do not fully agree with most of the provisions of the forecasts presented. If we talk about the realities of 2023, then the vector of development that was outlined in 2022 has been preserved. So, since the beginning of the year, there has been a fairly high development activity: sales of seven elite projects have started, and new queues of existing projects have also entered the market. In April, the release of new projects continued at a high level, four more new projects were launched. Against this background, with restrained demand, the total volume of supply increased to 40% over the year, exceeding 411 thousand square meters. The volume of the secondary market of the elite offer also increased by 42% over the year, to 165 thousand square meters. The weighted average cost of the elite offer in the primary market remains at a high level, amounting to 1.39 million rubles per square, but over the year the indicator decreased by 10%. At the same time, the decrease is due not only to the adjustment of the pricing of elite projects, but also to a high share of the supply exhibited a year earlier in foreign currency with high exchange rate volatility in March 2022. The new offer comes out mainly in rubles, as a result, only 3% of the offer is exposed in the primary market in foreign currency against 19% a year earlier. In the secondary luxury housing market, there was also a fairly massive transfer of exposure prices in rubles over the year: the share of lots with prices in foreign currency decreased from 47% to 20% over the year. The weighted average cost per square meter in the secondary market amounted to 1.16 million rubles, a decrease of more than 30% over the year. There is still a fairly active use of discounts and the provision of discounts, including individual ones. In some projects with the lowest demand, the pricing adjustment continues (in full or for certain lots). However, in the first quarter of 2023, there was a decrease in demand in the primary market by 12% per quarter, despite maintaining sales through the provision of installments and discounts. Compared to the indicator of the first quarter of 2022, demand fell by more than 50%. At the same time, the competition for the primary market is the secondary market, where the price level in the same location may be significantly lower, and the lots are ready for living."

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Olga Zyblaya, Sales Director of Club houses Turandot Residences & Artisan

"There is no need to talk about hyperactivity in the premium segment, but there is activity. Since the beginning of the year, those customers who took a wait-and-see attitude throughout 2022 have been entering into transactions. There are even such "archived" buyers who have been postponing the deal since the end of 2021. New buyers are also very rational and do not differ in impetuosity, although they are more determined. The volume of supply in the high-budget housing market has increased over the past year, but is now undergoing adjustments. Some developers are withdrawing expensive lots from sale, for example penthouses, hoping to sell them during the stabilization of the ruble. Other developers follow a different strategy and provide good individual discounts at the stage of concluding deals to speed up the process of selling lots. Discounts, like advertising, are the engine of trade, so they will always be, this is an important component of market relations. We now have a practice in demand when an individual installment schedule is formed based on the budget for buying an apartment, calculated taking into account the cost of the upcoming renovation. Thus, the client sees the whole picture of his expenses, and our interior designers and cost estimators help him with calculations. This approach allows you to significantly increase customer loyalty and shorten the time for making a purchase decision. As for currency prices, there are practically no clients ready to discuss a transaction in foreign currency right now."

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Dmitry Novikov, Residential Real Estate Sales Director, R4S Group

"Now there is an active growth in the number of objects exhibited in rubles on the market, and soon their share will reach almost 100%. For the most part, projects in dollars or euros were implemented with the involvement of foreign investors or global brands that left Russia. This practice gave a status to the lot, despite the fact that at the time of purchase its value was converted into rubles and payment was accepted in rubles. Clients were attracted by the involvement of foreign companies, the level of trust in the object increased, and foreign exchange prices were a good marketing move in the luxury real estate market. To date, a foreign presence is unlikely to attract buyers, and real estate exhibited not in the national currency has remained mostly only outside the city. Further: in the primary market of the elite segment, there are no large discounts and are not expected, the maximum that a buyer can get is 3-5%. All projects, the delivery of which is announced for 2023-2026, are estimated at 2-2.5+ million rubles per square meter, and some apartments have already been sold at a price of 3.5 million rubles per "square", even without a foundation. All this indicates a high customer demand and customer solvency in the luxury real estate segment. Developers have announced a large number of new construction projects, the average price of which is at or above the market level. In the secondary market of deluxe real estate, you can still find discounted lots. This is mainly due to the owner's desire to speed up the sale process, however, the share of such offers has greatly decreased. Now there is a shortage in the market of sold deluxe class objects: the volume of finished supply is falling due to growing consumer activity. Developers had a small forced pause, but already now premium developers have begun to rapidly withdraw new volumes. I would like to note that the terms of implementation of the elite facility are two to three years. Thus, the difference between supply and demand will decrease, but slowly and systematically. I agree that customers have become more rational in their purchases. The need to realize the accumulated capital has increased, but there are almost no hyperactive and thoughtless real estate transactions on the Moscow market, decisions are made point-by-point and consciously. People still need quality housing in the right location, and consumer demand for it will always be stable."

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Alexey Turkin, General Director of the holding "RSTI" ("Rosstroyinvest") in Moscow

"At the end of last year, the market forecasts were different. As for our ideas and expectations, we assumed that the crisis phenomena would inevitably lead to price adjustments, but not in all projects. As a rule, liquid lots in popular objects do not lose in price even in turbulent times. Now developers approach pricing with jewelry precision, taking into account all the nuances of each of the exhibited lots. At the moment, the situation is beginning to level out. The size of the discounts offered is gradually decreasing, but a discount of 10-20% can be found on the market. Minimum discounts are offered in facilities whose financial models were calculated in 2021, when sales volumes showed peak values. Indeed, for a number of previously announced new projects, the start dates were postponed to a later period due to the need to adjust financial models. However, there is no significant decrease in the supply of high-budget housing. In general, we see that customers have adapted to the new realities and are showing more interest than at the end of 2022. We can say that sales volumes are now comparable to the indicators of 2019-2020. Clients purchase real estate rationally, choosing the most comfortable and cost-effective option. In the high-budget segment, we are seeing a slight increase in personal offers."

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Marina Rudneva, Managing Partner of the development company Vos'hod

"Participants in the market of new buildings in the segment of high-budget real estate have been nominating prices in rubles for quite a long time, and this trend, with rare exceptions, persists in the current conditions. Against the background of currency volatility, the nomination of prices in rubles is preferable, since it does not carry risks for the developer to implement the project cheaper than planned indicators and excludes numerous refusals of buyers from transactions due to a price less attractive than that of competitors. At the moment, currency prices in the elite residential real estate market in Moscow have been preserved in literally three residential complexes, although this practice is still common in the secondary market. Throughout 2022 and in the first quarter of 2023, the volume of supply in the segment of luxury real estate in Moscow gradually grew due to the release of new projects. In April 2023, about 60 projects were presented on the primary market in the CAO, including those that are in the stage of closed sales. Demand in the segment persists even in turbulent times. The target audience of high-budget projects is the least affected by crises and often uses them to strengthen their financial positions, which confirms a number of major deals with penthouses and apartments of rare formats concluded over the past three months. Judging by the data for the first quarter of this year, the quality indicators of transactions in the deluxe segment have increased. For example, the average price and budget of the transaction increased by almost 20%."

As for the size of discounts provided in the deluxe segment, they, according to Marina Rudneva, have been gradually decreasing since February 2023, when demand began to recover. "If, for example, in the autumn of 2022, discounts during the conclusion of transactions could reach 10-15% or more, now they rarely exceed 7%. Of course, with the exception of projects where large discounts are embedded in the sales strategy and, accordingly, initially included in the price by the developer," the expert emphasizes.