IRN.ru: Oil painting: elite real estate in Moscow. Part I

IRN.ru

Analysts from the international consulting company Knight Frank reported in April 2015 a historic record of sales of luxury new buildings in Moscow. 165 apartments and apartments found new owners, which, according to the company, is a historic maximum for the entire existence of the luxury residential real estate market in the capital. In one month, 1.5 times more properties were sold than in the entire first quarter.

However, other participants in the premium real estate market are more restrained, considering Knight Frank's estimates somewhat overestimated and the talk of excitement premature.

On the other hand, an important trend of transitioning to ruble pricing in this segment and lowering average purchase budgets is confirmed by almost everyone, according to experts from the analytical center "Indicators of the Real Estate Market IRN.RU". And this should definitely be taken into account. In April, there was a decrease in the average transaction budget for premium housing on the primary market in ruble prices by 24%, in foreign currency by 13%. These are the calculations of the analysts from the Kalinka Group company. According to the firm, the average transaction budgets in April 2015 amounted to 70.7 million rubles and $1.3 million, respectively.

So what's happening? The number of transactions is increasing, but budgets are decreasing. Moreover, even in February-March, the most affordable offers were recorded, which a year ago could not be considered premium based on price levels alone. For example, according to Est-a-Tet, the cheapest offer in the premium segment in the first quarter of 2015 was a one-room apartment with an area of 32.6 square meters for 8.5 million rubles in the Na Shlyuzovoy Naberezhnoy club quarter; in the elite segment - a one-room apartment with an area of 58.75 square meters for 24.1 million rubles in the second phase of the Sadovye Kvartaly residential complex. These are deals at the price level of the business class a year ago.

The number of transactions has increased, and budgets have fallen
From this point on, let's get into more detail. According to Knight Frank, 83% of transactions in April were in the price range up to $2 million, and the share of sold apartments and apartments priced below $1 million amounted to 50% of the total sales volume. Thus, the average transaction value in April 2015 was almost halved compared to the first quarter of 2015 and amounted to $1.2 million.

Distribution of demand in the luxury new building market in April 2015 by price	Distribution of demand in the luxury new building market at the end of April 2015 by area
Source: Knight Frank Research, 2015

 

In total, according to Contact Real Estate, there were 110 apartments and apartments sold in the primary market for the first quarter. Compared to the previous quarter, the number of sold apartments (161 transactions) decreased by 31.6%, compared to the same period in 2014 (123 transactions) - by 10.5%. The number of transactions in April exceeded the indicators of the first quarter of 2015 by 66% (99 apartments and apartments throughout Moscow, according to Knight Frank; 110 properties only in the Central Administrative District, according to Contact Real Estate), and more than eight times the sales volume of April 2014 (19 apartments and apartments). The previous peak value recorded by Knight Frank was in the pre-crisis April 2008, when 159 apartments were sold in the luxury new building market. And if we look at quarterly statistics, according to Contact Real Estate, the peak of the post-crisis history fell on the fourth quarter of 2010. At that time, 277 apartments and apartments were sold, and this figure far exceeds the results of the panic-stricken fourth quarter of 2014 - 161 properties.

The sales volume in square meters amounted to 14,500 square meters, which is 38.2% lower than the previous quarter and 14.7% lower than the same period in 2014.

Trends in the number of transactions in luxury new buildings in the Central Administrative District, II quarter of 2010 - I quarter of 2015.

Source: Contact Real Estate

Оценки Kalinka Group are more modest. According to the company's data, in April, 52 deals were concluded on the primary market, which is comparable to the level of the previous month. Compared to April 2014, the sales volume increased by 48.6%. However, overall demand for premium real estate has decreased by 6.7% compared to the same period last year. The average size of purchased apartments or apartments was 122 square meters, which is 11% lower compared to March.

The supply volume remains, but…
In April 2015, the supply volume of luxury new buildings in Moscow decreased by 4.5% compared to March, according to Knight Frank, and amounted to 1570 apartments and apartments. According to Kalinka Group, approximately 1650 apartments and apartments in 45 objects were showcased. According to Contact Real Estate, the supply volume of luxury residential real estate on the primary market in the Central Administrative District (CAD) at the end of the first quarter of 2015 amounted to 1539 apartments and apartments, or in square meters - 218,800 sq. m. Open primary sales in this period were carried out in 44 residential complexes in the CAD of Moscow.

For reference: Taking into account the new supply and sold objects, the share of apartments (in square meters) was 64% of the total supply volume, and the share of apartments was 36%.

The average price of the offer was $17,400 per square meter, which is 2% higher than March prices. The cost of objects showcased in ruble prices increased by 7-10%, according to the Kalinka Group report. According to Knight Frank's estimate, the average cost of the offer in the luxury new buildings market in April 2015 increased by 6.5% and amounted to $15,460 per square meter. However, according to the company's specialists, this is due to the washing out of the most inexpensive offer: the share of apartments and apartments costing up to $1 million continued to decrease and in a month decreased from 35% to 27%.

Nota  bene: The supply of apartments and apartments with an area of more than 250 square meters significantly exceeds the demand: their share accounts for almost 25% of the total supply volume, while the number of deals with large apartments and apartments accounted for only 8% of all sales.

And small apartments with an area of up to 150 square meters continue to be the most popular among buyers, accounting for 70% of transactions.

According to the Kalinka Group's data, the average budget of a transaction in the premium real estate market decreased by 24%. According to Contact Real Estate, about 75% of transactions in the first quarter of 2015 were concluded for objects nominated in rubles. In addition, there was a decrease in the average cost and average area of sold apartments. The average budget of a sold apartment in the first quarter of 2015 amounted to $1,328,948, compared to $1,963,383 for the same period last year. As for the area, in 2015 the average size was 132.4 square meters, while in 2014 it was 138.9 square meters.

According to www.irn.ru, these trends may put pressure on the business-class segment and, indirectly, on the entire market as a whole. If it is now possible to purchase premium housing at a price of less than $1 million, which until recently was classified as business class at best, then potential buyers of the latter automatically begin to claim a higher segment. This means that sellers of business-class, effectively left without a target audience, will have to either offer discounts, reducing the price level to just above the comfort class, or sharply increase advertising budgets, simultaneously inventing new marketing techniques. Compare:

Index of cost (rubles/sq.m.) of expensive/cheap housing (www.irn.ru)

There are other factors influencing the market. But this, paraphrasing the classics, is a "slightly different story". I'll tell you about it a little later.