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City news
St. Petersburg Sees Increasing Demand for Elite Apartments
09.30.2003 13:42

Prices for residential real estate in St. Petersburg more than doubled forecast levels in the first half of 2003 with the elite sector leading the way, market analysts say. The trend is likely to continue until the end of the year, after which the market may stabilize.

Although the supply of residential real estate in St. Petersburg hardly meets growing demand, St. Petersburg's housing situation is the worst in the country.

Major problems arise from the density of St. Petersburg's population. Slightly under five million citizens live on a territory of 300 square kilometers, which makes the city one of the most densely populated in the world, according to Advecs-Rosstro real estate agency. St. Petersburg covers a territory that is five times less than Moscow's, while the area of Leningrad Oblast, with a population of just 1.5 million, is twice the size of the Moscow region. Some real-estate specialists believe that a merger of St. Petersburg and Leningrad Oblast coupled with development of the transport infrastructure may help solve the problem of overpopulation.

Unlike in Moscow, high-rise housing is not common in St. Petersburg. There are no high-rises in the center due to bans enforced by the St. Petersburg Administration Architecture Office to protect the city's architectural unity, while on the city's outskirts unstable, wet soil and the inability of fire departments to put out fires higher than 17th floor are limiting factors.

Another problem is that St. Petersburg has the highest percentage of communal apartments in Russia. According to different estimations, there are about 150,000 communal apartments in St. Petersburg, down from more than 210,000 in the early 1990s. Khrushchyovki - outmoded and worn-out five-story housing for the masses built during the Khrushchev era - also pose a challenge. In both cases the buildings are plagued by problems such as worn-out infrastructure - water supply, sewage system and other utilities - along with a high rate of heat loss.

Philippe Bogdanoff, a partner at Kirsanova Realty, an affiliate of Sotheby's International Realty that specializes in the top end of the market, says that Khrushchev embarked on mass production after seeing examples of prefabricated housing in France in the late 1950s. "That really solved the problem of housing at that time," Bogdanoff said. "It was a very good solution. There was just no way that they could have done it differently."

According to the St. Petersburg Administration Construction Committee, although these houses built between 1958 and 1970 were intended to have a service life of just 20 years, they are still in use today. About 11 percent of the city's inhabitants live in such houses, which adds up to around 190,000 apartments.

"After we studied the situation thoroughly, we came to the conclusion that demolishing such houses will not be economically feasible or cost-effective, and decided to launch a program of renovating the khrushchyovki in St. Petersburg," Natalia Sheludko, the Committee spokeswoman, says.

In July 2003, the Moscow Administration, which has a good track record of rebuilding khrushchyovki in Moscow, signed an agreement with the St. Petersburg Administration according to which Moscow construction companies will help St. Petersburg solve the problem of renovating these mass-built houses.

Meanwhile, St. Petersburg's new construction market is booming. Some 795,600 square meters of new residential real estate was built in the first half of 2003, while by the end of the year this indicator is expected to exceed 1.5 million square meters, which is 300,000 square meters more than in 2002. The Construction Committee says the same growth rate is expected for at least two years.

Along with the increasing amounts of new housing being built, prices and costs are also growing, with stable demand guaranteed.

In the first half of 2003, prices for apartments in newly built houses grew 15 to 17 percent, against an expected growth rate of only 10 percent. The main reason for this is ruble inflation, shrinking U.S.-dollar purchasing power, the growth of tariffs and building supply costs, as well as the rising wealth of the population.

According to construction companies, everything built in St. Petersburg finds a buyer, although the share of apartments not sold by the date of state commissioning is growing slightly and stands at 9 percent, as opposed to last year's figure of between 2 and 3 percent. Nevsky Syndicate real estate agency says that apartments not sold during construction may enter the category of "apartments in newly built houses," while now it's almost impossible to buy a one- or two-room apartment in a new building.

Peterburgstroi-Skanska analysts say that in 2002 people in St. Petersburg spent $570 million on apartments in houses still under construction, and in 2003 they will spend $851 million.

The main cause for such enormous demand is dissatisfaction with present living conditions for most of St. Petersburg's inhabitants, according to research carried out by Systema-Hals Northwest.

Forty seven percent of St. Petersburg's population is dissatisfied with their living conditions. Statistics say that 16 percent of all families in the city live in communal apartments, while 9 percent rent apartments or rooms.

Twenty eight percent plan to improve their living conditions, while 46 percent of these people intend to buy an old apartment, 24 percent go for new apartments and 19 percent are investing in apartments in buildings still under construction.

Sistema-Hals research also shows that market capacity in the next five years amounts to 6.2 million square meters, which translates to investment of about $3.8 billion.

From the construction point of view, the leading districts are Vyborgsky and Primorsky, while most St. Petersburg residents plan to acquire real estate in the same district they already live in.

However, most St. Petersburg residents agree that the quality of the house is just as important as location. According to the Toy-opinion research company, major reasons why St. Petersburg residents change their apartments are the low quality of the house and utilities, small size of the apartment and lack of adequate transportation in the district.

According to research, brick houses are the most attractive kinds of houses, with a popularity rate of 38 percent, while multi-storied panel apartment buildings place second, at a rate of 36 percent.

Sistema-Hals analysts say that St. Petersburg residents now demand more from apartments in terms of size, layout and building infrastructure.

"Most people say that they prefer three-meter-high ceilings, so including high ceilings in the design is not so much a competitive advantage for construction companies as a requirement of the market, a norm," said Irina Payusova, the company's spokes-woman.

According to Sheludko from the Construction Committee, the most popular kinds of apartments are either one-room apartments or elite real estate. "That just proves again that we do not have any middle class whatsoever," she says.

Petersburg Real Estate research also points to the increasing interest of developers in cottage and suburban development with the volume of construction in this sector doubling over the first half of the year. Analysts say that while there is a deficit of construction plots suitable for mid-range and elite housing, suburb areas might be the next popular territories for construction companies.

Moreover, the overwhelming majority of St. Petersburg residents believe that fiber-optic telephone lines, Internet and water-filtration devices should also be part of the housing package.

Experts estimate that prices for new apartments vary from $520 per square meter in places like the Krasnoselsky district to between $550 and $570 per square meter in the Kalininsky, Frunzensky and Nevsky districts, and can go up to $636 in the Moskovsky district and $665 in the Vasileostrovsky district.

The situation in the old-apartment sector looks a bit different. The average price for a square meter of used housing grew from $650 in Jan. 2003 to $735 in June. This resulted in the City Bureau of Registration processing 30,399 contracts for sale or purchase of existing apartments during the first half of the year, which is 6 percent more than during the same period last year. The bureau expects the total number of real-estate contracts for 2003 to reach 67,000.

Although analysts predicted that prices would not go up by more than 5 percent to 15 percent in 2003, they've already soared 12 percent to 15 percent.

However, most researchers exclude the so-called elite sector from statistics, mainly because of the limited number of deals and the huge range in prices in this category. Still, according to various real estate agency studies, prices in the elite sector have gone up by 30 to 40 percent over the first half of the year.

The elite sector is still largely untapped, which is why a number of newcomers have recently appeared on the scene. RBI construction company entered the elite housing market by launching a $50-million project called Star House, which will offer 14,000 square meters of housing and the same amount of commercial space. Prices for apartments in this complex may reach $5,000 per square meter.

St. Petersburg Renaissance is a veteran of this sector with several elite housing projects underway. The first project is a development of cottages on Kamenny Island, including the reconstruction of the 18th-century Yeliseyev cottage. "This will result in eight new elite cottages and a restored canal between Bezymyanny Canal and Bolshaya Nevka, which was filled in several years ago," Victoria Pereira, the company's spokeswoman, says.

Other projects of St. Petersburg Renaissance comprise the reconstruction of the house just under the General Staff Arch at 4 Bolshaya Morskaya, construction of a new building at 135-137 Nevsky Prospect, and a new housing project at 60 Shpalernaya Ulitsa. The latter will take the form of eight towers made from granite and glass with glass halls on top. The total area of the plot is 1,028 square meters, with a planned 22,500 square meters of residential space, 2,400 square meters of commercial space, and 9,000 square meters of parking.

Pereira says that criteria for elite housing in St. Petersburg differ from those in Moscow. "Firstly, an elite house in St. Petersburg can only be in the center, while in Moscow the notion of the city center has been considerably expanded over the past few years."

"Secondly, an elite house in St. Petersburg can't have more than 30 or 40 apartments."

However, there are also some similar features, such as use of high-quality building materials resistant to cold and humidity, unique architecture, top-quality infrastructure and location.

According to Pereira, the elite sector can be broken down into the mid-range, premium and exclusive sectors. "There are some apartment blocks where facade apartments are exclusive, while those overlooking inner yards are considered premium apartments."

As for elite locations in St. Petersburg, these are still the historic areas of Nevsky Prospect, Chernyshevskaya metro station, the Petrograd Side and Kamenny and Krestovsky islands, a recreation area before the 1917 Revolution, and reserved for state cottages during the Soviet era.

Peterburgstroi-Skanska is constructing an elite apartment house at 17 Krestovsky Prospect with 60 apartments consisting of between two and six rooms each, some of which will be as large as 53 square meters.

Another Peterburgstroi-Skanska project is the apartment building at 2 Tavricheskaya Ulitsa near the Suvorov Museum.

Experts say that new construction has a promising future because most buyers who can not afford a mid-range or elite apartment now prefer a new apartment in a newly built structure to an old apartment slated for capital repairs. "There's a high demand for expensive, high-quality real estate, which is why new construction in the so-called historic center of the city is inevitable," says a Petersburg Real Estate study.

"At the same time, demand is going down for communal apartments bought through resettlement of current tenants. Apartments larger than 150 square meters are hard to sell because of the growing competition from new elite housing." The study also shows that demand for real estate both in the city center and in suburban districts will continue to increase.

Dmitry Kiselyov, vice-chairman of the management board of Okhta Group, agrees on this point. "Most buyers are looking not only for an apartment in the center, but an 'elite' place. And now we are witnessing a new trend for St. Petersburg in the migration of elite housing to the suburbs."

Most analysts believe that the sector will continue to grow in the near future, mainly because residential real estate in St. Petersburg is underestimated. If the government launches a successful mortgage system, then real estate prices will soar again, experts say.

Pereira of St. Petersburg Renaissance sounds less enthusiastic and says that the elite sector will level out next year, when both demand and the number of construction lots could stall.

News source: www.sptimes.ru
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