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Back To the Future

Sometimes in order to see or predict the future we don’t have to invent a time-machine or go to a fortune-teller. Ironically all we have to do is look back in the past. History repeats itself! And you don’t have to read Confucius to realize that. The events, which took place 2008-2009 are no different from those in 1998-1999. The time was different, the reasons were different, the technology way too old, and politics were of a different tone. But the causes and effects are always very similar.

We are in the first year after the crisis and trying to predict what the future will hold for us. Well, let’s first of all see what really happened and what were the effects of crisis.

2009 was unusual for the residential market in terms of demand and supply figures. For the first time in many years a landlords’ market became a tenants’ market, due to a demand/ supply imbalance that was caused primarily by the global financial crisis. At the beginning of the year we saw a large number of new apartments being offered on the rental market. Some of the properties were of high-quality and were in great demand, but the majority were presented with a serious quality-price imbalance.

The reasons that a greater than expected number of properties came onto the market were many. Firstly the financial crisis, which manifested itself in lower activity on apartments sales, and forced owners to try their luck on the rental market, hoping to receive some type of financial return during the crisis. Another important reason was companies’ new policies of cutting the number of foreign staff working in Moscow and delaying the arrival of new expats to the capital’s offices. The main reason was of course lack of financing for new projects and ones already operating in Russia. The reduction of staff in turn contributed to the vacation of quite a few apartments in a matter of a few months. A further reason was that many Russian professionals lost their jobs due to staff reductions or bankruptcy. Some of them owned good centrally-located apartments which they had to offer for rent to earn additional income.

All these factors led to a rise in the vacancy level in Moscow. This situation influenced rental rates which have fallen 30- 50%. Moreover, during negotiations some landlords would agree to tenants’ additional demands as well as significant extra rental reductions.

Beginning in June of 2009, the situation started to reverse. A decrease in the number of buyers led to an increase in the volume of tenants. Last year the number of applicants looking for apartments to rent exceeded those in 2008.

However only 25 % of the properties offered on the market were apartments of the appropriate quality-price ratio. It took on average 14 days for those apartments to be rented out. Landlords were not willing anymore to compromise when negotiating and the prices for such apartments started to steadily grow. In the second half of 2009, rental prices for those offered rose by 5-7%. At Penny Lane Realty this trend is expected to continue into 2010 with a quarterly rise of 3-5%.

Currently all apartments for rent can be classified into 5 types:

affordable housing (priced below $1000 per month)
economy class housing (priced between $1001-2500 per month)
business class housing (priced between $2501-5000 per month)
elite class housing (priced between $5001-12000 per month)
deluxe class housing (priced between $12001-50000 per month)

Additionally, there are two more types of housing referring to houses rather than apartments:

• Detached house located in a deluxe cottage community (priced from $7000 per month)
• Townhouse located in a deluxe cottage community (priced from $7000 to $20000 per month)

Each of these types can be divided into 2-, 3-, 4-room housing except economy class segment where one can rent a good 1-room or studio apartment.