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08 april 2014

Anna Kalinina: ‘The demand on elite residential real estate remains stable despite difficult economic situation’

Anna Kalinina, Head of Elite Residential Market Department at ASTERA an alliance member of BNP Paribas Real Estate, spoke to about some peculiarities of St. Petersburg elite housing development and future perspectives of this market segment.

- What apartments in St. Petersburg are considered as elite housing segment? Can luxury suits be referred to this market segment?
- Location is the main characteristic according to which elite housing can be referred to premium-class premises. In the first place, elite property is situated in Central and Petrogradsky Districts of Saint Petersburg, in so-called ‘Golden Triangle’, in suburbs of Tavrichesky Garden, on Krestovsky and Kamenny Islands. There are several new houses on Vasilevsky Island and one building (Elite Residential Complex ‘Mont Blanc’) on the border of Vyborgsky and Petrogradsky Districts of St. Petersburg which belongs to premium-class elite housing. Recently Kolomyagi Area was considered as elite real estate area; however, today it is not in great demand among customers. People would rather purchase townhouses and cottages out of the city where they can afford more comfortable life for the same price.
Some luxury suits can also be referred to elite housing, but in fact these are commercial real estate. Residential Complex ‘Fifth Element’ on Krestovsky Island which was commissioned in 2003 is one of the best examples of these premises. This project received its elite status due to its unique location and high-quality of construction. Today, among the projects under construction, ‘Avenue-apart’ on Petrogradskaya Side and apartment complex on Kamenny Island can be referred to elite housing.

- How long ago did elite residential complexes appear on the market? Was the demand high on this kind of housing in the beginning? Or did people of wealth prefer to purchase apartments on the secondary market?
- To my opinion, the first project, which fairly had a status of elite housing, was a building on 12A, Italiyanskaya Street. At that time it was a unique project implemented according to the highest standards.
Before 2000s the demand, of course, was concentrated on the secondary market until modern elite residential complexes have been put on the market. Buyers did not have a choice, but to purchase an apartment in an old building with a prestige location. ‘Golden triangle’ and streets near Tavrichesky Garden had the same popularity on the secondary market as today. In time, with the introduction of new projects the demand shifted to their advantage due to quality engineering, modern materials, favorable planning, etc.

- What is the situation today on elite real estate market?
- Demand on elite residential property market remains stable despite difficult economic situation. However, supply in Q1 has increased slightly: only two objects of elite housing have entered the primary market: RC ‘Smolny prospect’ from ‘YIT Saint Petersburg’ and RC ‘Privilege’ on Krestovsky Island from ‘Eurostroy’.
The average price of one square meter of premium-class elite housing on the primary market estimates at 255 thousand rubles.

- Where new elite projects are concentrated? Where and in what city districts are they situated?
- The majority of all elite residential complexes are now being built in Petrogradsky District of Saint Petersburg (10 houses). Moreover, residential house of premium-class is being raised on Victory Square in Moskovsky District. In Central District the construction of residential complexes ‘Paradny Kvartal’ on Smolnaya Street and ‘Hovard’ on Fontanka Embankment is almost finished.

- New real estate tax suggests that owners of expensive apartments will pay significantly more. Do you think this will affect St. Petersburg elite residential market?
- When speaking about new real estate tax, we should pay attention to the peculiarities of tax base assessment - cadastral value of housing. For example, market value of 3-bedroom apartment of 137th series on Bolshevikov prospect amounts to approximately 6 million rubles when its cadastral value is about 5 million rubles. Thus, the tax base assessment matches practically the real cost of apartment. At the same time, the apartment on 40, Pesochnaya Embankment with a sale price of 32 million rubles has cadastral price of 9.5 million rubles. Such difference in market and cadastral values can be explained by the fact that elite real estate is not typical. Also due to the absence of sufficient base for the comparison, it is very difficult to be evaluated.
Thus, while wealth tax is not introduced (for example, according to the number of square meters per person), absolute tax amount will not significantly change for the owners of elite real estate, especially today, when property tax rate is within 0.1 – 2.2% of inventory value of the housing. In the future the rate will estimate 0.05-0.3% of cadastral value of the object, and probably soon, tax on premium apartments will be close to the tax on typical housing.

- Will the elite real estate market be affected by the depreciation of the ruble happened due to the events in Ukraine?
- In Moscow developers and elite real estate owners advertise their elite residential premises and try to have deals in currency. In Saint Petersburg the situation is vice versa: there are no advertising sources that put prices in currency.
Of course, all St. Petersburg owners now wish to be pegged to dollar or euro. The buyers do not agree to this, though there are developers who are strongly pegged to currency, for example, RBI. This company always declared price in conventional units pegged to dollar, but even they have not been able to bring conventional units’ value to the current dollar rate.
On the secondary market there are also owners who would like to receive 1 million dollars (changed to rubles) for their premises and they continue declaring this number. But the fact is that today the owner will be able to receive only 900 thousand dollars for their premises because prices in rubles haven’t increased.

- What are the most successful project being realized now? What are their advantages over the other projects?
- On primary elite real estate market in Saint Petersburg there is no project more requested against other offers.
Apartments in RC ‘Smolny Park’ from Group of Companies ‘Vozrozhdenie’ and RC ‘Evropa City’ from LCR are sold very well. Main advantages here are location, developer’s brand, and good quality of leased premises at a reasonable price (about 150 thousand rubles per sq.m). However, it is difficult to refer these projects to elite real estate. It is more like high-quality business-class. As for ‘Smolny Park’, only premises of the 1st phase are actively sold out. They were put into commission more than a year ago and are in developer’s ownership. The second phase premises that refer to accommodation of higher class are in less demand.

- Are elite apartments in new housing sold with interior finish? If yes, can a buyer take part in apartment’s decoration before it is commissioned?
- The majority of customers in Saint Petersburg prefer make renovations themselves and as they like. As a result, now only few developers in elite residential segment offer apartments with full interior finish. The only project I know is RC ‘Hovard’ on Fontanka Embankment. In the future, apartments with interior finishing will be offered also in RC ‘Evropa City’. Mainly, this type of finish is offered in apart-projects where most of apartments will be leased out.

- Has the image of a potential buyer of elite housing changed during last few years? Who purchases this kind of apartments today?
- In general, elite apartments are acquired by business owners and top managers. Usually a typical customer of elite premises is a married man aged from 37 to 50 years old with two children. Some buyers purchase apartments not for themselves, but for their children. But this rarely happens.
The average price of a transaction in this segment of Saint Petersburg is about 30-40 million rubles. Real estate can be purchased at 100% payment as well as by taking out a mortgage loan or by installments.

- What are the perspectives of elite real estate market development in Saint Petersburg? Will the apartments of this kind be in demand?
- Three-bedroom apartments with wide kitchen, a living-room, two bathrooms, two parking spots and good view characteristics will remain the most demanded. Most transactions in the near future will be concern premises with the price range from 30 to 50 million rubles.
Despite economic instability, the demand on elite real estate remains relatively stable. Many customers, who have been preparing for a deal, try to close it now while the situation doesn’t become worse. As for the buyers who just think about purchasing elite housing, it is very difficult to forecast their actions. They can delay their housing question for the next several years.
Also there is a group of buyers who has 1-2 million dollars available and is ready to invest this amount in residential real estate in order to solve their personal problems and to keep their savings.


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