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Housing prices have gone wild, says Moscow vice-mayor


MOSCOW. (Yury Filippov, RIA Novosti political commentator) - Moscow apartment prices keep breaking records. Housing in Russia has been growing in value ahead of inflation ever since a housing market appeared in the country, but the prices have made a particularly impressive leap only recently.

Moscow in this respect is ahead of all its closest rivals, living up to its reputation as the world's costliest city.

In 2005, the average price of a Moscow apartment rose by about 40%, and it has risen by another 40% since the beginning of this year to reach about $3,500 per square meter of floorspace. In a city where average monthly wages have just recently reached 24,000 rubles (roughly $900, or twice as high as in the rest of Russia) this is prohibitively expensive. Even assuming that prices freeze, a rank-and-file Muscovite can earn in a year only enough to buy four square meters of living space, with the impossible condition that he give up all other expenses.

Has the increase in prices been deliberate? The Prosecutor-General's Office and the Federal Anti-Monopoly Service have launched a probe to find out. They suspect Moscow developers of price collusion. Official estimates put the average fair value of a Moscow apartment at $1,300 per square meter - enough to cover costs and make a profit.

But builders and realtors cite the high cost of land in Moscow and of the latest equipment for modern sewage and other services installed in upmarket buildings in accordance with European standards.

Natalia Kirpichenko, general director of MIEL Brokerage, laughed at the official figures. She said the Moscow market "is poised for housing costs of six or six and a half thousand dollars per square meter".

She appears to be right. The fact is that well-to-do people in Moscow and Russia have nowhere else to invest their extra money. The banking system suffers from constant jitters, the shock from the 1998 national default, when deposits in foreign currency were frozen, has not fully worn off yet, and the Russian securities market is still in its infancy. In these conditions, the ever-rising prices of Moscow accommodations are a fantastic investment instrument comparable in yields only to oil futures.

Early this year, Vladimir Resin, responsible for the capital's construction industry, said that the growth of Moscow real estate prices would soon slow down by a factor of four to come level with the rate of inflation in the country. But his comment turned out to be an unsuccessful psychological attack on housing market players. They proved to be hard nuts with quite a different mindset. At least Resin admits today he was mistaken. "Housing prices have gone wild. No other investment comes close to them," he told a news conference early in August. "The whole of the country has rushed to Moscow to buy apartments, creating a boom."

The Moscow housing market is heating up to the boiling point. Demand is twice as high as supply, with new apartments selling like hot cakes the moment the foundations are laid. Non-Muscovites are the main buyers, especially on the primary market. They are believed to account for two-thirds of all purchases. Thirty per cent of the deals are done as investments - apartments may be sold, resold or change hands several times, but never lived in.

It would be more correct to say that "the whole of post-Soviet Eurasia" and not only "all of Russia", or at least the most moneyed part of it, has dashed to Moscow for apartments. And not only with rubles, whose issue is controlled by Russian authorities (hence the remark that real estate should grow in price at the same rate as inflation), but also with dollars, euros, pounds sterling, and Swiss francs, as well as with a shrewd business instinct and, most importantly, with a fixed determination to own property in the Russian capital.

This massive migration of millionaires and billionaires (conservative estimates say they make up around 80,000 of Moscow's 10 million residents, not counting newly arrived tycoons) fills ordinary Muscovites with a mix of pride and jealousy. On the one hand, weekly growth of Moscow property prices adds to the assets of every local apartment owner. On the other, most of these former and current workers, clerks, intellectuals and military men - all those who obtained their accommodation free from the state during the Soviet times and then privatized it - know perfectly well that their housewarming parties are a thing of the past, that they will never be able to afford new housing, and that different people are now feeling the pulse of city life and running things.

Of course, the "new" Muscovites have not yet fully ousted the old-timers, but the latter's exodus has already begun. Not only pensioners, but even relatively young people find it profitable to sell at a margin or lease out their Moscow apartments and settle down in a suburb where living and housing costs are much cheaper. They will also probably seek jobs there. Many of the jobs (hundreds of thousands at minimum) that have been created in Moscow over the past few years, in trade or construction, do not require that the worker have a separate apartment. Millions of vendors or migrant workers from Azerbaijan, Moldova or Ukraine make do with a place in a dormitory or a rented room. They will never have dwellings of their own in the Russian capital, even if they decide to put down roots here. There are, of course, exceptions: ethnic pockets appear here or there in Moscow, but these are not the norm.

Meanwhile, city authorities are optimistic. Runaway demand is creating conditions in which, to quote Moscow mayor Yuri Luzhkov, we have only "to build, build and build." Before the year's end Moscow plans to have completed 4.7 million square meters of floorspace - nearly 80,000 new apartments if we take a 60 sq m unit as standard. Not all of them will be for sale - over one-third will be distributed through social programs. The Moscow authorities are loath to abandon the programs even with commercial demand for Moscow apartments running so high.

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