Possible impacts of the global crisis on the Russian real-estate industry
The current situation on the global financial markets is far from stable. In Russia, the resultant uncertainty has pushed up rates and lowered the volume of loans on the interbank market. This is especially critical for real-estate property developers, who, due to long-production cycles, need long-term funding, and thus most vulnerable, from the point of view of demand for additional loans. Consequently, the current crisis is expected to seriously ‘hit’ the real-estate market. This impact will not be seen easily, but will surely become more visible, when the time comes for re-financing loans. Besides, the conditions for granting additional loans are becoming stricter, including the requirements of using parts of these projects as collateral or the creditors (banks) could become stakeholders in such projects. In both ways, the developers will be forced to share their profits with the banks, which will base their evaluations of these projects on the prevailing market conditions.
"The current crisis is expected to seriously ‘hit’ the real-estate market. This impact will not be seen easily, but will surely become more visible, when the time comes for re-financing loans."
Besides, property developers will be forced to review their existing policies, and this could mean selling parts of their projects and freezing the others. Thus, the most liquid assets could be sold at discounts to get the needed resources to foot other projects, while those that cannot be sold and/or developed further, could be frozen. At the same, banks, which have acquired huge stakes in these projects, will be exerting more control on the ways the projects are being developed, which will consequently impact on the construction processes and delivery timetables.
"Stabilization of the Russian real-estate market will only be possible after the normalization of the situation on the global credit markets, and this is not expected, at least, till the end of 2009."
This means that prices on real-estate properties will come under the influences of two divergent factors — mass sale of uncompleted projects on one side, and the freezing of projects/acquisitions of stakes in these projects by investors, who will certainly introduce additional methods of control that could lengthen the development processes and their eventual deliveries to the market. Due to the high degree of the current volatilities, the first factor is likely to prevail — a scenario that will lead to a reduction on real-estate prices. In the coming months, we are going to see the developers’ attempts to refinance their debts, a move that will reinforce the all these trends, thus further lowering real-estate prices. Stabilization of the Russian real-estate market will only be possible after the normalization of the situation on the global credit markets, and this is not expected, at least, till the end of 2009.
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