A lack of residential construction is pushing up prices and threatening a new real estate bubble as demand for housing outstrips supply.

That’s the message from Prime Minister Vladimir Putin, who last week warned that Russia faced a housing bubble similar to the one that hit many countries before the crisis that struck in 2008.

“A possible repetition of the pre-crisis conditions, when we were faced with rapid growth in apartment prices – this is what we must not allow,” Putin said at a meeting on housing construction in the Moscow region.

Experts say that a high for rouble mortgage loans will be reached by mid-autumn. This could mean the cost of buying a Moscow apartment in a new building could surge to 2008 levels, when the average price per square metre was around $6,000.

The current Moscow average is about $4,400 per square metre, according to Metrinfo.ru.

Mortgages the key

“We can see the revival of demand through reviving mortgage lending,” said Yevgeny Nadorshin, associate director at Jones Lang LaSalle.

Central Bank statistics indicate that the number of mortgages issued in the first half of this year was twice that for the whole of 2009, when the crisis was taking its toll.

One factor preventing apartment prices from rising too far is lower wages, which still have not returned to pre-2008 norms, experts say.

“Wages are still below pre-crisis levels,” said Anastasia Mogilatova, Welhome’s general director. She forecasts that there will be no sharp rise in prices until the end of 2010, while an inflation adjustment is possible.

Speculative capital has also disappeared from the market, helping prices stay low.

“On the demand side there are different motives now – people buy homes to live in,” said Nadorshin, of Jones Lang LaSalle.

The absence of speculation makes the market look “balanced” said Dmitry Taganov, an analyst at Incom.

Secondary market activity

Up to 80 per cent of deals are currently trade-offs on the secondary market, when, for example, a family swaps a three-bedroom apartment for two smaller ones so they can live separately from their grown-up children.

At his Moscow region meeting to discuss housing, Putin reminded local officials that the government had set a goal of building one square metre per capita every year until 2020.

In the last year, residential construction has fallen by more than 6 per cent despite the government injecting more than one trillion roubles in 2009-2010 programmes to support mortgages and construction.

“However, the government cannot always be the principal client and homebuyer,” said Putin.

Oleg Nikishenkov

The Moscow News