Moscow sets new housing construction record
Published on 15/01/2016
As the country faces down a recession, Russia’s housing market appears to be travelling in the opposite direction. A new housing construction record was set in the country in 2014, outstripping outstripped previous records set in 2007 and 2008.
Nowhere is showing off the Russian housing market’s performance better than Moscow. In 2015, the capital enjoyed a sharp rise in residential construction, setting yet another new record.
Moscow’s construction record broken
2015 saw the construction of 3.8 million square metres of new housing in Russia’s capital. This is a 14.4% increase on the amount built in 2014, which totalled 3.326 million square metres. Much of this new spate of building activity, around 2 million square metres, took place in the New Moscow development.
Inside of the Moscow Ring Road system, a further 1.8 million square metres of housing was built – an increase on the 1.6 million square metre figure set in 2014. For contrast, Moscow built around three times as many new apartments in 2015 than New York did in 2014.
According to Marat Khusnullin, Moscow’s Deputy Mayor for Urban Development and Construction, over 16 million square metres worth of building permits were awarded in 2015. This is a huge increase over the total area of real estate permits issued in 2014 – the total of which came to 3.37 million square metres.
This means the construction increase could continue in 2016. However, an official from Moscow’s Mayor’s Office commented that 2015’s activity was record breaking, but unlikely to be repeated in the coming years.
Why did the housing market grow in Moscow?
Despite recent events such as the devaluing of the ruble and the drop in oil prices, housing has been enjoying particularly robust growth in the CIS.
There are a few possible explanations for this. Production volumes in the housing sector were boosted by a moderate increase in personal incomes and a gradual development in the country’s mortgage industry, although interest rates have risen sharply over the past year.
Playing a smaller, but no less vital, role in this expansion were state-run programmes, such as the “maternal capital” program, which offered cash payments for the birth of second or third born children. These payments could have contributed to down payments for apartments.
Will this continue?
Although the Russian housing market takes up a relatively small slice of the country’s GDP, compared with commodities and other areas, real estate developers may be cautious in 2016.
It was reported by the Moscow Times that apartment prices in the city dropped some 10-15% in 2015. However, this is matched by a drop in household incomes of around 10%. The state of the Russian economy will likely have a major effect on the construction industry in 2016 and onwards.
According to Russian website Vedomosti, much of the construction that took place in 2015 is from projects that were begun two to three years earlier. Vedomosti also reported that, while developers would like to extend construction timelines, or even mothball major projects, they may find this harder to achieve.
What is likely is that developers will instead continue into the New Year in an attempt to recoup at least some of their initial investment.
In general, however, it appears the market slipped last year. Minister of Construction and Housing Mikhail Men reported that, at year’s end in 2015, total construction built totals between 70-75 million square metres. In 2014, the figure was higher – some 81 million square metres.
Again, while recording a record year in actual housing developments constructed, Moscow reported a similar decline in the level of housing permits awarded. The 2015 total was 7.8 million square metres, nearly 1 million less than in 2014.