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17 Oct 2012

Time to build and sell

After fall of the real estate market in 2011 outlook is getting better and there is potential for developers to improve volume of sales, and for price increase.

This year Minsk real estate market has seen departure of several big investors. The result was that some of the projects such as Minsk City was canceled. Not enough own money and lack of bank credits were main reasons to stop building activities.

But there is another group of developers - those who remain on the market. They continue to build and sell. After a significant (around 25%) reduction of number of buildings sold last year, now this segment demonstrates stability. In September 2012, the primary real estate market included more than 70 projects.

It is not that there were no problems. Flow of labor to Russia and more expensive building materials, combined with the desire to keep the cost per meter for real estate investors down have sometimes led to delays in timing and quality of construction.


But there is an upside: after shock the developers who are still on the market  begun more carefully assess  risks and potential profitability of their projects. Profit margins and projected sales volume is several times more severe than a few years ago. Is it easy to sell newly build apartments in the primary real estate market of Minsk today? What happens to the demand? Which project will be relevant and therefore more profitable? Specialists of CENTRE MART analytic center share some figures and conclusions. Two main indicators have been evaluated: the pace of construction and its cost.

Speed of construction

Market demand remains stable, as compared with the previous year - even consistently high, and there are prospects for its increase. This trend can be traced back on the number of transactions of purchase and sale of apartments in new buildings. The vast majority of the objects offered for sale at the time of excavation. In contrast to the growing market and low interest rates on loans, today the vast majority of projects are being built at the expense of shareholders. "As a rule, before commissioning - through introduction of housing bonds and shares – developers sold from 70 to 100% of the apartments in the house, - the director of  CENTRE MART Tatiana Nedereva-Arhipets. - Moreover, this percentage reaches a maximum in the segment of economy class and is reduced when it goes on sale in high-end buildings. Buyers of expensive housing often want to immediately see what they pay for. "

In general, the quality of the object class - one of the main factors influencing the pace of its construction. The most popular objects are in economy class in residential areas. The number of sales in these homes can be up to 30-50 apartments per month, sometimes more. For example, the period of exposure of two panel houses at Kamennaya Gorka was not more than nine months.

Rates of apartments in the more expensive frame-block houses (which are majority of houses being built in Minsk – around 77%) lower. A satisfactory result for the developer is to sell 15-20 apartments per month at market prices. With so many monthly sales average house with 350 apartments will be build and sold in 1.5 years. Most often, such speed of sales actively helps to carry out construction without delaying payments to its contractors.

This segment, called business-class housing, is vulnerable to fluctuations during the crisis. Its target audience is most active and adventurous one, often use bank credit facilities and monitors trends. At  time when access to credit is limited, income declines rapidly, and the prerequisites for the growth of the market is dubious, customers switching to cheaper housing or leave the market altogether. Then the special programs offered by the developers: credit, installment and work on the unique selling proposition of the project keep market running

Competition also affects sales of a specific project. For example, in residential areas - between the new house and neighboring ones. Sometimes competitors are even clients of the developer who bought apartments on early stage of construction and now offer them on open market. This is especially the case fort he projects, started last year when a lot of people invested in real estate properties to save their savings from devaluation.


Prices
 In the primary real estate market after the recession in the spring of 2011, the average selling price remains stable and is around 1.250 USD / sq. m  The price meter facility significantly affect the stage of its implementation. Square meter of finished apartment now costs an average of 10-15% more than when under construction. The average bid price of construction projects (co-construction and housing bonds) in the primary market is about 1.200 USD / sq. m to the zero, the preparatory phase involves building and a minimum price. Completed apartments are offered at a price of around 1.350 USD / sq. m

The market price of a particular project also depends on the class rating of the object. In early autumn, apartments built prefabricated houses Economy Class is offered on average for about 970-1.000 USD / sq. m Price for business-class facilities, such as modular, block and brick, was around 1.310-1.350 USD / sq. m  and luxury property, a proposal which is limited in Minsk, were offered at prices up to 3.000 USD / sq. m

So, what do we have now? Today real estate market is relatively confident and looks quite attractive for companies which managed adapt to new situation, and now they have the potential to both increase sales and raise prices.

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