BUSINESS-CLASS HOUSING MARKET

Currently, the business-class segment is experiencing a decrease on the supply side. Following the peak year of 2016, the supply of newly built housing had been on the decline. The recovery took several years, but the supply is still behind its record highs.

Supply and demand in Moscow’s market of new business-class housing, thousand sq m
Sources: newly built housing database, Rosreestr, Company’s proprietary databases

The supply of newly built housing doubled in 2H 2020 compared to 1H 2020. 2H 2020 also saw the highest demand since 2016. Absorption growth was associated with lower mortgage rates and the introduction of the subsidised mortgage programme, which drove buyers from comfort to business class. Further tailwinds came from economic volatility and rouble exchange rate fluctuations, which push investors into conservative assets, including real estate. In addition, 2020 was the first year to enjoy the full transition to escrow accounts, which made the real estate market more transparent and reliable.

In 2018 to 2020, the share of mortgage transactions in the sales of business-class properties increased by 10 pp. In 1H 2021, it is expected to go further up, driven by the discontinuation of the subsidised mortgage programme from July 2021 and the key rate hike.

Share of mortgage transactions in the sales of new business-class housing, %
Sources: newly built housing database, Rosreestr, Company’s proprietary databases

A surge in demand in 2020 triggered a rapid increase in the price per sq m. Housing quality improvements also played a role, bringing the business class closer to the premium one and blurring the boundaries between classes.

Since early 2018, the price has been growing steadily, which signals a stable demand for high-quality business-class projects. In 2020, the price growth in the segment was 18%, and we expect it to continue in 2021 at least for the duration of the subsidised mortgage programme. The projected price increase in 2021 will be around 16%, with 10–12% to be gained in 1H 2021 and the remainder — in Q3 and Q4 2021.

Average selling price per sq m of new business-class housing in Moscow, RUB thousand
Sources: newly built housing database, Rosreestr, Company’s proprietary databases

In terms of the demand structure, properties with an area of up to 60 sq m account for over half of the segment’s demand. The average area of properties sold in 2019–2020 was virtually flat at 61–62 sq m, entering a slowly declining trajectory.

Moscow’s new business-class housing market is fairly well consolidated. In early 2021, the top 10 players accounted for over 70% of total sales, up from 60% back in 2016. Among other factors, the consolidation is driven by newly introduced escrow account settlements, which support the demand for projects of major developers. In the medium term, the consolidation may intensify with small developers hardly able to enter the market and major players potentially offering joint partnership projects to landowners.