Ruble-denominated prices of immovable properties are sinking in Moscow

Regulator's unbiased and delicate understanding of what is really going on in the market is difficult to overestimate in times of crisis.

It was noted at a meeting of the Moscow City Duma (Council) on 16 April 2015 that "ruble-denominated prices of apartments and office and commercial properties didn't fall". This has to be pinpointed, because this is not illusion of a single person interested in advocating the cadastral value as tax base. Market participants also support the illusion of healthy ruble. A searching examination of market reviews has revealed a single (!) statement, by ILM, of the fact that ruble-denominated prices have declined.

The conversion of prices denominated in U.S. dollars into rubles at the exchange rate quoted by the central bank shows that ruble-denominated prices fell in Q1 2015. The searching examination is supported by analysis of monthly measurements of the statistics available from the CIAN Data Base on asked and offered rent prices. For instance, in February, rent prices of office and commercial properties declined by 2.5% and 1.7%, respectively (as was reflected in our article dated 06.03.2015).

Rent rates in March 2015 lowered by 2.6% for office properties and 8.9% for commercial properties. Offered rent prices declined within the two months by 5% for office properties and 10.5% for commercial properties.

The foregoing trend is supported by the dynamics of offered rent prices: the price of office properties as of the end of March declined 18.1% versus the price seen as of the end of January, while the price of commercial properties dropped 19.3% within the two months. The diagrams below show the results of analyzed offered prices of office and commercial properties as well as prices of commercial properties at various administrative districts of Moscow (medians of offered prices according to respective sub-samples are used).

The steady downtrend is supported by the statistics on various municipal administrative districts (in the Western District of Moscow in February, a property unit was re-rented as smaller accommodations at a respectively higher rate, resulting in higher median price).

Russia has left behind France and the United Kingdom on the floor space of shopping centers and is ranked 1st in Europe on gross leasable area (17,7 million sq. meters). Together with the decline in the real personal income and trade turnover, this has led to a supply glut and a decline in rent prices, income of properties and, hence, sales prices.

Natalia Korniyenko, Ph.D. in Law, the Head of Tax System Development Department;
Natalia Krivova, Ph.D. in Economics.