Page 89 - RusRPTJul19

9.1.4 Construction & Real estate sector news
Rosstat has reported May completions surging 29.6% y/y to 4.6mn sqm in Russia, underpinning the 2% y/y addition for 5mo19. Monthly completions are of a volatile nature and we highlight the low comparison base for May (last year, the month saw a 17.9% y/y decline). On an accumulated basis, completions are rebounding after three years of declines. The performance was driven by improving sales in 2017-18, with a recovery in the number of deals on the primary market (1% CAGR). We note the seasonally high completions for 2H19 and see volumes being supported in the next couple of years, reaching 80mn sqm by 2021F. Thereafter, the figure is to rely on medium-term sales, which we anticipate cooling somewhat, and the impact of implementing escrow schemes (including their impact on sector consolidation). We note that the national project in development targets 120mn sqm of completions by 2024 and could represent an upside risk as renovation programmes accelerate and affordable mortgages are rolled out.
The Russian capital has been taken off the list of top-100 most expensive cities in the world for foreigners because of the ruble depreciation amid the drop in oil prices and continuing anti-Russian sanctions, an ECA International consulting agency Cost of Living Index report published on Thursday reads. According to the report, Moscow dropped 66 places to hit 120, while St. Petersburg exhibited a similar trend, falling by 31 spots and landing in 172th place. Weaker euro resulted in EU cities becoming less expensive for foreigners working there - overall, Europe only takes up 19% of the rating, while the United States demonstrated the polar opposite tendency. Stronger dollar saw 25 US cities being ranked in the top-100, while only ten made it into the list last year.
Residential demand has been strong in Moscow of late. In 2018, the number of registered deals were up 47% and 26% y/y on the primary and secondary markets, respectively. In 1Q19, they rose 25% and 17% y/y. Demand was supported by client concerns over supply and the prices of real estate after the introduction of escrow schemes from 1 July, as well as the still appealing mortgage rates (10.6% in April). We consider the demand as front- loaded, since we have not seen similar support across household budgets. In the short term, we anticipate a certain cooling and for listed developers factor either flattish or declining sales. According to Inkom, secondary demand was down 30% y/y in Moscow in May. The figure is measured by advances for future buy-sell agreements.
The area under construction increased 14% y/y in April 2019, posting growth for 13 consecutive months, with the share of the ten largest developers increasing from 2016, to 18%. We mainly attribute this to the effect of the developers’ rush to gain additional construction permits in the previous year in order to secure construction on favourable terms under outgoing legislation.
Completions declined 3% y/y to 20mn sqm in 4mo19, reflecting a cooling in the sector at a time of pressured demand on lower household budgets and the high interest rate environment since 2015-16. Moscow commissioning increased more than 4.7x, due to the cumulative effect of previous years, caused by a larger amount of building permits and project documentation, and a sharp increase in mortgage lending in previous year. In 2019, we see upside risks from the renovation programme. Government officials estimate completions in Russia at a level broadly comparable with 2018.
89 RUSSIA Country Report July 2019 www.intellinews.com