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Paul Holmes · Lounge Wizard Joined: 12 Apr 2005 Posts: 1071

From the Moscow Times

Property Prices Seen Down 60% Next Year
16 December 2008
Falling personal incomes, capital flight and tightening credit markets could lead to a drop of up to 60 percent in property prices by the end of next year, a report released by Sberbank on Monday warned.

The report, which was posted on the bank's web site, outlines the effect several economic scenarios could have on real estate prices. The first scenario, labeled "base line," assumes GDP growth of 2.5 percent to 3.5 percent, 11 percent inflation and an exchange rate of 30 rubles to the dollar. Under these economic conditions, the study says, property prices in the primary market could fall by 34.3 percent in ruble and by 46.6 percent in foreign currency terms, while those in the secondary market could fall by 23.1 percent in rubles and 37.4 percent in foreign currency.

A second variant, called the "stress" scenario, assumes stagnant GDP growth, "slightly higher" inflation and a "significantly weaker" ruble. Under this scenario, property prices would plunge on the primary markets by 38.1 percent in rubles and 59.6 percent in dollars, and by 25.1 percent in rubles and 50.6 percent in dollars on the secondary market.

Prices will fall less sharply outside of major centers like Moscow, St. Petersburg and Nizhny Novgorod because these areas of the country have not seen the development of a significant real estate bubble, the report said.

Under the "base line" scenario, prices in these areas would fall by 7.5 percent in rubles and 24.9 percent in dollar terms on the primary market, and by 7.6 percent in ruble and 24.9 percent in dollar terms on the secondary market.

The "stress" scenario has prices outside of the major cities falling by 11.8 percent and 41.8 percent on the primary market and 9.7 percent and 40.4 percent on the secondary market.

Prices for apartments in dollars have already fallen by 8.1 percent since the beginning of October, according to statistics compiled by the Internet real estate portal IRN.ru.

Konstantin Aprelyov, vice president of the Russian Realtors Guild, said that he expects property prices to be cut in half next year, and added that he thought prices in the regions would suffer more than those in the capital.

"After [the default crisis in] August 1998, property prices in Moscow fell by 32 percent," Aprelyov said. "But they dropped by much more in the regions, by 59 percent in Perm, for example."

Not all industry players agree, however, with the report's conclusions.

Andrei Pankovsky, deputy general director of developer DSK-1, said that it is unlikely that prices [in rubles] would fall even by one-third.

"At that point, any sort of construction will be unprofitable and the sector will completely freeze," he said.

State Duma Deputy Alexander Kogan predicted that in a year, the market would face a deficit of residential property, as a result of developers freezing their construction projects.

Konstantin Popov, CEO of Inkom Group, said that more than 80 percent of existing construction projects have already been put on hold.

The Sberbank study said that falling prices could have negative repercussions on the mortgage market, as well as other credit markets that relied on real estate as collateral.

"Although mortgages account for less than 10 percent of GDP, the current situation could lead to a further destabilization of the market for residential real estate and the real estate market as a whole," the study said.

Lower prices could also spell trouble for those who have already bought property on credit, experts said.

"As a rule, most credit agreements say that a drop in the value of collateral gives the bank the right to demand early repayment of the loan," said Dmitry Solovyov, a senior attorney at the firm Avakyan, Tuktarov and Partners.

The government has promised a variety of measures to help struggling homeowners avoid defaulting on their mortgages.

Finance Minister Alexei Kudrin said earlier this month that the government plans to work out criteria by which people can get receive extensions of as long as several years on their mortgage payments if they have lost jobs or received a substantial cut in their salaries.

Prime Minister Vladimir Putin said around the same time that banks should restructure homeowners' mortgage payments next year.

Kogan said that the government is also looking out for the rights of homeowners, and promised to step in if banks begin demanding early payments on loans.

"We warned the banks that if they start demanding prepayments, the State Duma will make corresponding amendments and pass legislation regulating their activities," Kogan said.

Sberbank representatives, however, said the bank had no intention of demanding that borrowers repay early.

"We don't plan to ask buyers to pre-pay loans or raise rates on loans that have already been given," said Irina Kibina, a spokesperson for the bank. "The bank plays a major social role, and we need to give people a feeling of stability."

Paul Holmes · Lounge Wizard Joined: 12 Apr 2005 Posts: 1071

MOSCOW (Reuters) - Deputies from the pro-Kremlin United Russia party have criticised the Finance Ministry for overspending, a move which could put further pressure on veteran Finance Minister Alexei Kudrin.

An open letter signed by some prominent deputies was posted on Monday on the website of United Russia, www.edinros.ru., which has a two thirds majority in the Duma lower house of parliament and previously voted for Finance Ministry budgets.

"The speed of spending the money we have been saving for years forced us, a group of deputies from the United Russia faction, to openly state our opposition to the policy carried out by the Finance Ministry's bureaucrats," the deputies wrote.

Prime Minister Vladimir Putin, a leader of United Russia, authorised an over-$200 billion plan to support the economy but the deputies said the money is not being spent efficiently.

They said the money went mostly to large corporations and banks, which converted it into foreign currency because, with the rouble being gradually devalued, this was more profitable than to invest or issue loans.

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Putin and President Dmitry Medvedev used verbal attacks on banks and threatened to cut off government support, but with the rouble down 19 percent against the dollar since its July peak the warnings were ignored.

"It looks like the orders of the President and the Prime Minister are fulfilled only on paper," Alexander Khinshtein, one of the letter's signatories, told a news conference on Tuesday.

Instead, the deputies propose to raise direct subsidies to the citizens through higher pensions and public sector wages. They also sought to cancel the planned increase in regulated prices such as domestic tariffs for gas and electricity.

The influence of Kudrin, finance minister since 2000, has risen since the crisis started and his harshly criticised policies of saving windfall oil revenues for a rainy day proved right, enabling Russia to face the crisis fully armed.

However, several recent incidents, such as criticism of the Finance Ministry from Medvedev over a delay in drafting a law which will enable the central bank to place agents in commercial banks, suggest that Kudrin's opponents are gaining ground.

Russia, whose economy grew at an average rate of 7 percent in recent years, is facing an abrupt economic slowdown and Deputy Economy Minister Andrei Klepach said last week the country was already in recession.

The signatories of the letter belong to a so-called populist wing of the party, with some 2 million members. The deputies said they want discussion but still trust their leader. For a TAKE A LOOK on Russia's financial crisis