Flat prices tend to drop during a recession like the one Russia is currently going through. The downward trend is made even more pronounced by the fact that there are a huge number of new housing developments that have been finished in the past few years. The rental market is flooded with flats in recently completed buildings that were purchased by investors during their early construction stages.
Will this crash the rental market? What’s the lowest price you can pay for a flat in Moscow? Dom.Lenta.Ru asked real estate analysts to find out.
Lately, rental rates have been declining by about 6 to 9% each year, said Alexander Pypin, head analyst for CIAN, a leading Russian online real estate service. Pypin noted that the decline is almost over and the market is about to experience stagnation, which is likely to persist until there is a macroeconomic shift in either direction. “We expect no changes in the macroeconomic situation this year or the next. However, rental rates (adjusted for inflation) will decline. The market will continue to be oversaturated with new offers from real estate developments that are currently being completed,” Pypin said.
The majority of these new flats were bought years ago and they are unlikely to be sold for a profit for now. At the same time, the owners still have to pay property taxes and utilities. Renting out the properties is only logical since housing and utility bills are often included in the rental contracts as the tenant’s responsibility.
“As there are new residential projects being completed every day in Moscow and its suburbs, the supply is continually inflated, “ said Pavel Lutsenko, general director of the federal website Mir Kvartir. “The demand simply cannot keep up, thus rates will continue to drop. Rental prices may continue to drop 1 to 3% until the end of 2016 and another 6 to 8% lower than the current rates over the next year,” Lutsenko noted.
Flats in new buildings generally go on the market after the interiors are finished. Moreover, new construction projects regularly offer flats with already finished interiors, so owners can start renting out the place as soon as they receive the keys instead of spending time and money finishing the flat. A representative of Lider, a financial construction company, said that up to 20 to 25% of newly finished real estate projects have completed interiors and are ready to be moved into.
Maria Zhukova, head of MIEL Arenda, agreed with such analyses of market trends. “Lately, rental rates are being affected not only by demand, which hasn’t been increasing in the past few years, but also by supply, manifested by the large selection of recently finished buildings in the New Moscow region,” Zhukova said. “These flats are offered both with the interiors finished and as ‘bare concrete,’ which have lower asking prices. These are the main trends today: a growing number of flats in finished residential buildings, especially in New Moscow, a decline in the average rental price and an increase in the time for flat listings to receive responses and offers.”
“In the first three years after a residential building is put into use, there are still things that need to be fixed: the utilities are not fully operational, and a lot of flats are still being worked on,” explained Oksana Polyakova, deputy director of the residential rental department at INKOM Real Estate. “It is customary to reflect these inconveniences financially – flats in such buildings are usually 7 to 10% cheaper than in older buildings. The discount may reach up to 15% if, for example, the flat is located on the top floors but the elevator does not work yet.”
New economy-class residential buildings are being built mainly in New Moscow, Krasnogorsk and other suburbs, said Roman Babichev, head of the rental department at the ABC Housing real estate agency. These new buildings offer strong competition in their respective areas, Babichev said. “For example,” he explained, “when they finished a new development in Peredelkino, there was fierce competition between the new development and flats in older buildings.” Regardless, analysts working for websites that post real estate listings all agree that the lowest mean rates are not found in New Moscow. The lowest rental price for a typical one-room flat is in the Zelenograd municipality at about 18,095 roubles ($290) per month, according to CIAN. Nekrasovka is second with rates starting at 18,830 roubles ($300) while Vostochnyy has offers as low as 20,475 ($330) per month.
Sub-25,000 rouble ($400) rates for a one-room flat can be found in Vnukovo, Novoperdelkino, Kosin-Ukhtomsky, Severnyy, Yuzhnoe Butovo, Vostochnoe Biryuliovo and Solnsevo. It should be noted that most of these areas have problems with transportation infrastructure.
Eric Segerborg, general director of Domofond.ru, noted that among districts located within the Moscow Ring Road, the lowest rates are in Golyanovo and Severnoe Izmaylovo at 27,800 and 28,000 roubles ($445 and $450), respectively. These districts border the Moscow Ring Road but they are poorly suited for commuting.
Zhukova said that the lowest average rental rates are in Moscow’s South-Eastern Administrative Municipality, with rates of 28,200 roubles ($450) for a one-room flat per month. The Eastern Administrative Municipality is a close second with rates of 28,800 roubles ($460), followed by the Southern, Northern and South-Western administrative municipalities with rates of 29-30,000 roubles ($465-480) per month for a one-room flat.