Prices are rising, but where will the new buildings go up?

The real-estate market is experiencing its second summer of big sales, with prices of top-level houses continuing to rise – although space may be running short for elite units in the most desirable areas.

Prices for Class A housing have broken the psychologically important $10,000 per-sq.-meter barrier, according to Yury Lakeyev, general director of Baut-L, and prices in the sector could soon hit $15,000 per sq. meter. Meanwhile, Class B housing goes for about $4,000 per sq. meter, and Class C housing costs about half that much.

Mikhail Yakimov, marketing director at Novy Mir, said that, as far as location for exclusive housing goes, the best bets are within or close to the Garden Ring. The Plyushchikha or Botanichesky Sad districts are also desirable sites for top-level housing.

"Prices for Class A housing are growing faster than prices in other market segments," Yakimov said. "We predict a price rise of 20-25 percent this year, while we think prices in the Class C segment will increase by not more than 15 percent."

Lakeyev said that Class B and C housing, however, are where investors stand to make the most profit at the moment. "You can expect at least a 30 percent per annum increase in value for the investor at the initial investment stage," he said.

One reason for this is that there are few opportunities for developers in the elite-housing sector, with little space remaining available in the popular districts for new projects, experts say.

"The problem today is that there is hardly any suitable space for building comfortable housing," Yakimov said. "Ostozhenka, the only district with more-homogenous type of housing throughout, has been almost totally developed now, and so construction is moving into other districts. In the other central districts, though, exclusive housing will have to be placed near less-elite buildings, which some people may not be happy about."

In Zamoskvorechiye, for example, it is possible for a new, exclusive building to end up a stone’s throw from an old five-story and anything-but-exclusive apartment block.

Lakeyev said the big problem now is that there are too many Class A buildings and not enough Class Bs, a state of affairs confirmed by sales trends. Previously, Class A buildings would be entirely sold off before construction was completed, while, today, completed buildings tend to have a fair number of unsold apartments.

Prices for exclusive
apartments in Moscow
(per sq. meter) Average price$4,000Ostozhenka
(the most popular district)$6,000Zamoskvorechiye$5,000Central (Patriarshy Prudy, Tverskaya, Arbat)$3,000-$4,000West (Kuntsevo, Krylatskoye, Vorobyovy Gory)$2,000 (average)

About 90 percent of customers interested in the upscale-housing market are looking for Class B housing, realtors say. This is driving up prices in the category: It is now virtually impossible to find a Class B apartment for $3,000 per sq. meter.

One segment that stands out within the exclusive-housing sector is penthouses, with prices about 50 percent higher than the rest of the units in any particular building. Penthouses are larger and feature high ceilings and an entrance to the roof that provides even more usable space – and, above all, they offer the best views from their large windows.

Dmitry Kuznetsov, the new real-estate department director at MIAN, said that, among the most expensive offers on the market at the moment are the 150 meter-high penthouse in the Eliton building in Ostozhenka and a 250 meter-high penthouse at Patriarshy Prudy. The Eliton penthouse features a unique view out over the Christ the Savior Cathedral and central Moscow. The penthouse is selling for $9,000 per sq. meter. In the second building, at 1/14 Bolshoi Palashevsky Per., where the average price is $4,000 per sq. meter, the penthouse is selling for $8,000 per sq. meter.

There is also the new exclusive residential complex Vyensky Dom, being built by an Austrian company in a historic part of old Moscow on 1 Neopalimovsky Per. between Smolensky Blvr and Plyushchikha. The 400 sq.-meter penthouse has ceilings higher than three-and-a-half meters, large arched windows and an exit to the roof. The average price in the building is $4,000 per sq. meter, but the asking price for the penthouse is around $6,000 per sq. meter. Construction has also begun on two other exclusive buildings in this district – one on the intersection of Truzhenikov Per. and Savvinskaya Nab. and the other on Olsufyevsky Per.

Things may be changing soon in the sector, according to some market participants.

"The luxury market has a clearly defined investment cycle," warned Alexei Sidorov, a consultant at Kalinka Realty. "We’re right at the end of this cycle. Most of the completed buildings will be sold this year. This means that, next year, it will be hard to find something ready on the new housing market."

That might make it more difficult for realtors to make sales as quickly as before.

"Not so long ago, it was normal to have a kind of aura of silence surrounding buildings under construction," said Lakeyev. "Now, this no longer works. As a PR tactic, it doesn’t get people excited the way it could before. Now, we have to use the available advertising techniques – Internet advertising, banners in the street and, of course, the specialized real-estate magazines. It’s essential to advertise offers in the press; then, the potential buyers know where they can call and get a qualified consultation."

As well as using tried-and-tested advertising methods, realtors are also looking for new ones. "We are always trying out different ways of working with potential clients," said Kalinka Realty’s Sidorov. "We make statements to the press, send out information to targeted recipients and hold presentations and other informational activities. We’re going to try organizing an auction, too."

Sidorov complained that there have been no technological innovations since 2001 that would make buildings safer and improve service. "We’re waiting for a new breakthrough," he said. "Perhaps there will be a few new projects that will set the tone. We’re hoping to see them take shape by this autumn."