Moscowís Residential Market: Opportunities and Challenges for the Years to Come

Moscow is the largest residential market in Russia (and in Europe); with population projections from the UN suggesting that the population will continue to grow over the next decade (+2.8%). This reflects the continuation of Moscow as the dominant economic and political centre in Russia, which also offers considerable employment and leisure/social/networking opportunities, and the anticipated continued high immigration. In the early 1990s, realtors estimated that Moscowís housing market represented up to 75% of the whole turnover of the Russian housing market. The number of sales on its primary market has been steadily increasing: from 8,800 housing units p.a. in the mid-1990s to about 30,000 by 2002. And the trend has continued strongly well into 2006. Moscow residential prices saw a ìperfect stormî in 2006: individual income growth and frenzied media coverage led to an explosion in demand, while supply was constrained by heavily-regulated building regime, ill-timed government decrees and opportunistic behaviour by real estate developers. The dramatic transformations in Moscowís residential market form the primary focus of this paper. The latter explores the affordability issues emerging from the social restructuring of the city (the emergence of the new super-rich class of Moscovites) and the liberalization of the mortgage conditions (loan rates reduced and the term for mortgage repayments prolonged). The role of the Government remains key to Moscowís future growth in terms of foreign direct investment, new developments and infrastructure, market transparency, and overall investorsí confidence. Political uncertainty has been identified as the major threat to investment by the World Bank, and the upcoming elections in December 2007 is adding to the pressure. As the Government struggles to hit the right balance between a rigid legal framework and attracting foreign capital, we experience the emergence of some very interesting trends in the residential market of Moscow. Suburbanisation being one of them, as Moscovites looks for affordable housing options and quality of life outside the city centre and even the Oblast. Another key trend looks at developers being forced to differentiate themselves with greater levels of service ñ boosting the market for western-style, professionally managed housing services (for sale or rent). The objective of this paper is to look at all these trends and evaluate the attractiveness and risk of the Moscow residential market from the perspective of an investor.