Russian property in trough till mid-2011

Source : Business Times – 24 Nov 2009

Russia’s property market will suffer until mid-2011 as demand stays weak and landlords are forced to offer lower rents to avoid defaulting on their loans, the Moscow head of broker CB Richard Ellis said. ‘We expect to stay at the bottom for another 12 to 18 months,’ Darrell Stanaford told Reuters, adding that although demand was starting to pick up it remained some way below levels seen before the 2008/09 financial crisis.

CBRE estimates Moscow office space has grown to 12 million square feet from two million over the past decade, with a vacancy rate of nearly 20 per cent after demand slumped and access to financing froze in 2008.

‘The level of activity is increasing now but the amount of demand is not going to grow (significantly) this year,’ Mr Stanaford said. ‘Most landlords are servicing debt, and their ability to service that debt is continuing to get worse … Some therefore have to sell or to get tenants at any price. That puts downward pressure on rents.’

Moscow property prices down despite mayor’s denial

Source : Business Times - 15 Jan 2009

Property prices in Russia’s previously booming capital are steadily falling even as city authorities tick off local media for predicting a price collapse, newspapers reported yesterday.
Newspapers said that city mayor Yury Luzhkov had given a news conference dismissing talk of a 50 per cent drop in residential property prices and advice by analysts that buyers should hold onto their money and wait for better deals.
Such views were misplaced given a housing shortage and continued migration to the capital from other parts of Russia, and could spell a ‘collapse in the city’s entire building system’, he said.
Mr Luzhkov’s wife, Yelena Baturina, is a leading property developer and has been ranked by Forbes as Russia’s richest woman, with a net worth of US$4.2 billion.
But the daily Izvestia newspaper pointed to prestige projects such as the Federation Tower, due to become Europe’s tallest building, and said that evidence of sharp falls in commercial property prices was incontrovertible.
Office space in the tower is now being offered at US$1,300 per square metre compared to US$2,000-2,500 in the third quarter of last year, reflecting falling prices across the city, Izvestia said.
‘According to real estate experts, 25 per cent of office space in Moscow is currently vacant,’ said Izvestia.
‘This is due to the opening of a large amount of new office space built in recent years and an increase in space for rent as many companies are unable to pay their rents and are looking for cheaper options, even outside the city,’ the paper added.
Vedomosti quoted the head of consultancy Finekspertiz Konsalting as predicting that residential prices in rubles would hold steady or even rise due to progressive devaluation of the ruble, while in dollars, prices could fall by 10-20 per cent by the middle of the year.
The business daily quoted state bank Sberbank as predicting that dollar prices on the primary market in Moscow would fall by 47-60 per cent by the end of next year and in rubles by 34-38 per cent.

Global commercial property sales halved: study

Source : Business Times - 9 Aug 2008

World sales of major commercial properties fell 49 per cent to US$306 billion in the first six months of 2008 from the same period last year, as sales in developed countries were hit hard by the credit crisis and slowing economies, a report released on Friday said.

In the first half of 2008, Tokyo overtook London and New York as the most active sales market

Real Capital Analytics said dramatic shifts in the capital flows for commercial property became evident in the first half of 2008 as Tokyo overtook London and New York as the most active sales market and investors began favouring Asian markets.

Sales activity fell sharply in many developed Western economies while Brazil, Russia, India and China, and most other emerging markets posted gains.

Emerging markets accounted for 25 per cent of all property sales in the first half of 2008, up from 10 per cent in the same period a year ago, according to the report that tracks transactions worth at least US$10 million.

Development sites were the only type of property to see a rise in sales, up 11 per cent and led by a record US$2.3 billion paid for Chelsea Barracks in London.

‘However, with new developments in Europe being delayed and new regulations limiting land sales in China, this sector may soon experience the same declining investment other property types have,’ the report said.

Overall office sales were down 60 per cent in the first half of the year versus a year ago, and sales of hotels were off 68 per cent.

Sales of shopping centres were down 54 per cent in the first half of 2008. Industrial property, comprised of warehouse and distribution centres, fell 38 per cent. Apartment building sales were off 34 per cent.

Of the 84 countries the report tracks, 35 posted higher property sales in the first half of 2008. All but five were emerging economies.

Indian sales doubled, Brazil rose 40 per cent, Russia was up 19 per cent, while China’s previous robust growth slowed to 7 per cent.

Among developed countries, US sales dropped 63 per cent.

UK sales were off 57 per cent and Germany slid 65 per cent.

Tycoon sees hard landing for developers in Russia

Source : Business Times - 19 Jun 2008

Mikhail Prokhorov says he is looking to acquire distressed firms

Russia’s property market, facing soaring materials and credit costs, risks a hard landing that could cause many developers to collapse, the country’s fifth-richest man said yesterday.

In an interview with Kommersant newspaper, tycoon Mikhail Prokhorov said he was looking to acquire distressed companies and was studying nine property projects worldwide, including a big elite resort development in South-east Asia.

‘Many (Russian) developers will collapse because of rising project costs and worsening access to capital markets. It will become possible to buy some firms,’ he said, adding that firms with projects of over 500,000 square metres were most at risk.

Moscow has become the world’s second-most expensive city after London, based on the price of a square metre, and many analysts say the rise could continue because the market depends little on mortgages and is driven by cash-rich buyers as the country enjoys record revenues from oil, gas and metals exports.

According to Reuters calculations, Mr Prokhorov is estimated to have around US$10 billion in cash after selling some companies following a split of assets with former business partner Vladimir Potanin.

Mr Prokhorov said he would also invest in elite property around the world. Lack of space and liquid assets are making investment difficult in Europe and more feasible in Asia.

‘If you make elite property your only business, then you can get trapped because it is illiquid. But if it is a small division, in the area of US$1.5 billion, then it is OK and is also very convenient as collateral,’ said Mr Prokhorov, estimated to be worth US$22.6 billion by US Forbes magazine.

‘As part of diversification and to hedge risks I want to develop elite property projects. It will be a separate company,’ said Mr Prokhorov, who is already a large shareholder in property developer Open Investments.

‘One of the projects will be in South-east Asia. We are looking at a total of nine projects,’ he added. — Reuters