Review of real estate market in Belarus, 3d quarter 2014

Property buyers give up capital dreams, seek other cities

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With the onset of autumn, the revival of Belarus’ housing market has not abated. Apartment demand in the national capital has reached again a level equal to the average for 2013, and shows no signs of any impending reduction. Despite the supply of apartments increasing at a rate that sets one record after another, the demand created by newly arrived buyers continues to match this pace.

At the same time, commercial office space in Minsk’s “secondary market” (essentially, older buildings that have held previous owners) has shown a tendency from September to become cheaper as a result of large amounts of new floor space being made available. The cost for participating in new construction and for leasing space in newer buildings, meanwhile, has remained unchanged from August, while older properties have seen a drop in price. Commercial retail properties, on the contrary, are becoming more expensive.

Meanwhile, the latest data and real estate investing keywords statistics shows that a new wave of demand for housing is now hitting the regions, out beyond the city limits of Minsk. In the third quarter of 2014, most cities in Belarus reported a growing interest by home-buyers, a situation which has resulted in an increased number of transactions. The conditions in Minsk were such that these residential buyers were seeking alternatives, and they began looking to the many places outside the capital where there exists already-built housing, all waiting only for developers and future homeowners to sign a sales contract.

This sort of situation often occurs in the regions, but this year the share of the transactions carried out for ready-built apartments in new buildings increased seven-fold compared to similar sales in the third quarter of last year. Apartment blocks built in 2012-2013 are being actively sold and now present a serious competition to Minsk apartment sellers.

In the first half of the year, however, this wasn’t the case. The amount of people looking to buy a new home in cities outside the national capital was fairly low, and buying activity has only in the past few months returned, and in some place has even surpassed, where the market was last year. This wasn’t reflected in prices, though. Only 4 of 17 cities finished with gains in housing prices. Last year, the pricing peak came in October. This year, it came in September.

In Hrodna, transactions that involve newly completed apartments met 1/3 of the total demand in that city, while for Brest, Mahiliou, and Homyel, new apartments were involved in 1/4 of all contracts. Only Vitsebsk bucked this trend, with only 5 percent of all contracts involving new housing.

City of Minsk – residential property
When compared with the level of demand seen a year ago, the market for new apartments in Minsk has grown by 19.3 percent. For the second time since the beginning of the year, the number of transactions in September exceeded 1,000 per month, and high demand in late summer and early autumn drove the buying activity in the national capital even higher than the same time in 2013. The last time that this sort of situation took place was in 2008, when September’s figures recorded 100 more transactions than was seen this year. However, the intensity of the market now may adversely affect the buying activity in early 2015.

Meanwhile, new apartment offers continue to storm new heights. With the onset of autumn sellers, the activity has become even more intensified. When compared with August, the number of apartments available has grown by 1.4 percent. As an indicator of how well things are going, in the Frunzenski, Maskouski, and Savetksi districts alone, apartment sales in August were equal to the total number of sales across Minsk in the same month in 2013.

Demand for apartments in September remained the same, but the structure of purchase and sales transactions changed somewhat. There was a 5.9 percent decrease in demand for 1-room apartments, and a 9.7 percent drop for 3-room flats. At the same time, the demand for 2-room options grew by 7.1 percent, and for 4- or more room apartments by 15.6 percent.

September also marked a decline in purchases of accommodations in the most expensive and cheapest ranges. The Fruzenski District in the far west of the city has in recent years been the area where the highest number of transactions has taken place. However, in August, the number of apartment sales in that area of town, located along the western end of the Avtozavodskaya Metro line, dropped 10 percent. A similar situation was observed in the Zavodski district along the other end of the same Metro line.

In the Tsentralni and Savetski districts, demand for apartments weakened even more than in the Avtozavodskaya Metro districts; the number of completed sales dropped year-to-year by 20 and 23 percent, respectively. Meanwhile, the two northeasternmost districts, Pershomayski and Partyzanski, on the contrary, saw a 37 percent increase of housing sales. Situated on the eastern end of the Maskouskaya Metro line, a large number of these newly transacted homes are clearly visible along Praspyekt Nyezhalyeznastsi between the MKAD beltway intersection and where Minsk’s main thoroughfare turns into the M2 motorway.

Meanwhile, a very high demand for mostly mid-range apartments keeps the prices stable in the Minsk market. Although the average price per square meter of apartment did in fact drop in September, this demand kept the decline very small, at 0.2 percent.

Going beyond this average, actual transactions depended on the size of apartment, and the different categories of these performed across a wide range. This has resulted in asking prices for 1- and 2-bedroom apartments in September rising an average of 3-4 percent, while at the same time the 3- and 4-bedroom apartments jumped in price by 11-14 percent. Judging from this, the growth of apartment demand shows that sellers are optimistic at this point in time. The overall growth of the urban price index for Minsk was 0.3 percent, with the highest segment in this index was associated with 1-room apartments (0.6 percent).

Among the fast growth leaders for home styles in Minsk was any type of flat situated in buildings that were not built with concrete panels (an increase of 1.2 percent), especially brick building layouts (an increase of 1.4 percent). In contrast, the Stalinka, post-constructivist urban apartments typically built for the Communist elite during the reign of Joseph Stalin (up to the mid-1950s), dropped an average of 1 percent in price, particularly where they were constructed of either panel or cinder block. Later architectural styles, Khrushchevka (notoriously small apartments typically constructed in the Khrushchev era that followed in the decade after the death of Stalin) and Brezhnevka (slightly larger apartments imprvoved over the Khrushchevka design, typically built in the Brezhnev era of the late 1960s and 1970s) both dropped by 0.8 percent. Modern pre-fabricated housing, meanwhile, exceeded all three of these traditional Soviet-era designed homes, dropping 1.7 percent in value.

More than half of the districts in Minsk saw drops in price, but few of these exceeded a few percent. The maximum decline in value was seen in the collection of historical houses off Starovilenskaya Street, near the Niamiha Bridge over the Svislach River; prices there dropped 4 percent. The next highest decline was seen at Privakzalnaya Square across from the train station; prices in this central location dropped 3 percent. The third highest decline was recorded near the once-popular Kamiennaya Horka Metro station in the Fruzenski District; prices out there dropped 2 percent. The largest jump in price, meanwhile, was seen on two streets in different parts of town – Stepyanskaya and Velozavodskaya, each registering a price gain of 4 percent.

Throughout the first 9 months of 2014, most of Minsk’s districts lost market momentum. The worst cases were among the less expensive homes on Kabushkina Street near the Avtozavodskaya Metro Station (8 percent drop in price), and Dryazhnya Street in the Partyzanski District (9 percent). On the other end of the pricing spectrum, Hrushauskaya Street (off Dzyarzhinskaha Praspyekt in the Maskouski District) and the Brylevichy neighborhood (off the Malinauka Metro station on the other end of Maskouski District) are the citywide leaders in growing prices. Compared to their costs at the beginning of the year, their price per square meter valuation grew an average of 7 percent.

Meanwhile, drops in housing prices have become common in neighboring national capitals. Since the start of the Ukrainian crisis in February, Kyiv apartments have lost value at an average of 1 percent per month. Dollar equivalent prices for Moscow apartments began to fall in September 2013, resulting in an overall decline of 2.5 percent, or 125 USD per sq. meter in absolute terms. In the Baltic States, prices for apartments were growing, but deflation of local currencies ate into these increased values, and now prices in Latvia, Lithuania, and Estonia are all seeing a drop in dollar equivalency valuation. The sharpest that this is felt is in Vilnius, where for two months, dollar-to-lita exchange rates knocked the real estate prices for many properties back to the level seen at the beginning of the year. This will probably be less a factor when Lithuania adopts the Euro in the coming year.

Brest city and voblast real estate market
In Brest, apartment prices rose 2.6 percent from July to September, and demand for housing increased in Belarus’ western-most city 20 percent compared with the same period in 2013. Among all the regional capitals, Brest presented the highest levels of comfortable options, with a higher than normal number of 2-, 3-, and 4-room apartments being purchased in that city. In contrast, within neighboring Hrodna, where more new apartments were on offer, most of the apartments sold were those with a single, albeit larger, room. Brest transactions for 4-room flats were almost double those carried out in Minsk. In contrast, the proportion of homes set in buildings constructed of concrete slab panels (mostly Soviet-era structures) was only 41 percent, less than in any other regional capital.

Brest voblast likewise differed from other major cities in one other major way. Despite the rise in demand for housing to the level of the previous year, the average price fell by 4.7 percent in the rail center of Baranavichi, and 4.3 percent in Polesia region’s main city, Pinsk.

Vitebsk voblast real estate market
In Belarus’ northernmost region, in contrast, apartment prices rose in July-September in all major cities. The lowest of the main cities was the regional capital, Vitsebsk, with a 1.2 percent jump, compared with 1.6 percent in historical Polatsk, 1.8 percent in industrial Navapolatsk, and 3.6 percent in the Dnepr River port of Orsha. Since the start of the year, housing prices have increased the highest in this region, growing by 17.7 percent.

Perhaps as a result of this, but also certainly other factors, Vitsebsk is the only regional center to see a drop in demand in the third quarter of 2014 when compared to the same period in 2013. This turned out to be a major decrease of 21 percent. Nevertheless, compared with the very low rates at the beginning of the year, the demand had actually grown, which contributed to the rising price.

Vitsebsk also stood out from the other regional centers by the fact that 5- and 7-room apartments were on offer. Only in Minsk, itself, could similar housing options be found.

Homyel voblast real estate market
In Belarus’ southeast, the demand for housing in the third quarter of 2014 was higher than in the first and second. However, when broken down monthly, the rise in market activity actually rose rather unevenly. The number of purchases and sales of property decreased in September by half from that seen in July. The rise in prices for apartments across the three months rose 2.8 percent.

The preference for apartment size in Homyel appeared to be mostly for 1-room flats, with 2- and 3-room options simply not as much in demand as in other regional centers. The average area of a 3-room flat in this city was nearly 10 sq. meters less than those found in Brest.

Despite the fact that apartment sizes were inferior in Homyel than what was on offer in Brest and Vitsebsk, two of the apartments that managed to be sold for the highest price were sold here. These included a 4-room flat purchased for 210,000 USD, and a 3-room flat for 191,000 USD. Third place went to another 3-room flat sold in Mahiliau for 165,000 USD.

In Mazyr, the quarter-by-quarter trend for apartment demand followed in 2014 the same pattern seen in 2013. However, the third quarter in Belarus’ refinery city saw the biggest increase nationwide for apartment prices, with the July-September jump reaching 7.8 percent.

Grodno voblast real estate market
Hrodna presented a most contradictory situation where despite the fact that 20 percent more transactions were made in the third quarter over the same period in 2013, the average residential property price dropped 5.5 percent from the same period last year. This was the largest drop in valuation nationwide during the three-month reporting period.

As mentioned earlier, the engine behind this odd phenomenon is the mass entry into the market of newly-constructed buildings. Where other regional capitals sold apartments at a rate 10 percent less than Minsk, Hrodna sold at a rate almost 25 percent greater. The number of new apartment blocks and the strong demand for these new flats brought down the price of housing in the rest of Hrodna so that the average cost there was cheaper than even Mahiliau. Once the newly developed housing market is excluded from the analysis, the rest of the market actually exhibits zero growth.

In Lida, the major rail junction halfway between Minsk and Hrodna, the significant market fluctuations seen in the regional capital were not observed. The average transaction price for home sales in the third quarter increased in this city by a steady 1.9 percent. During the first nine months of 2014, Lida apartment prices rose by 13.6 percent, the second highest increase in this period nationwide.

Mahiliau voblast real estate market
In Belarus’ easternmost region, third quarter results showed a growth in the regional capital of 3.5 percent for housing prices, the highest for all the regional capitals. Demand for apartments noticeably increased compared with the first half of 2014, and came close to the average levels seen the year before. In August, Mahiliau set a three-year record for the number of concluded property transactions. However, when measuring the number of transactions per 1,000 population, Mahiliau’s rate was markedly inferior to that seen in Minsk, Hrodna, and Brest.

In the region’s second largest city, Babruysk, a military center that maintains the large Belshina tire plant, the situation is reversed. Demand for housing decreased by 19 percent from the year before, which spurred a price drop over the past three months of 2.3 percent. This resulted in the city holding the dubious distinction of being the least expensive municipality of over 100,000 population in which to buy an apartment.

Minsk voblast real estate market
All of the major urban centers in the region encompassing the national capital ended the quarter in positive territory with respect to housing prices. For most, the situation reflects a lot what is happening in Minsk. In the national capital, apartment prices increased in the third quarter by 1.3 percent, while at the same time demand has caught up with the levels seen last year.

In the football-champion city Barysau, housing sales for the third quarter decreased slightly, by 1.3 percent, from what was witnessed in 2013, but prices continued to rise by 0.9 percent. In the former regional capital of Maladzyechna, the average price per square meter remains higher than in Homyel, Hrodna, and Mahiliau. During the July-September period, prices rose 1.7 percent, while from the beginning of the year, housing costs have jumped a full 8 percent.

The potash city of Salihorsk, a post-Stalin industrial city in the southern part of the region, is gradually regaining lost ground after a large number of homebuyers left town for other parts of Belarus in recent years. In the third quarter of 2014, 38 percent more transactions were completed than was witnessed over the same period last year. Apartment prices rose by 1.8 percent, reaching a historic high.

Minsk commercial office space prices practically frozen
According to the consulting and analytics group of the “Tvoya Stolitsa” real estate firm, September provided potential businesses the chance to participate in collaborating and occupying space in one of 15 Class B (“average quality”), or one of 11 Class C (“bargain rate”), commercial centers. The price range for Class B space was 1,700-2,800 USD per square meter with VAT, averaging 2,190 USD per unit of floor space. The price for Class C space was 1,500-2,500 USD per square meter with an average price of about 1,840 USD. In general, the average cost for participating in constructing a collaborative commercial construction project was 2,040 USD, a 40 USD decrease from August. This represented a return to July prices.

In the first nine months of 2014, the total available spaces for collaborative construction amounted to six units. In September, only four were left. Analysts point out that only two of these spaces offer Class C commercial property within the recently-built Magister commercial-residential property, and the Portal commercial center planned for the intersection of the MKAD beltway with Ihumyenski Trakt in the southerly Leninski District. None of these sites, however, were big enough to seriously affect commercial construction costs in the national capital.

Rental prices for offices, meanwhile, are practically frozen. In September, commercial space averaged 24 EUR per square meter with VAT. This amounted to a decrease in price from August of 0.4 EUR per unit of space.

In terms of the internationally-recognized BOMA (Building Owners and Management Association) grading scale, Class A (“premier”) space runs at 30.5 EUR, Class B at 23.7 EUR, and Class C at 17.8 EUR per square meter. If September’s average for Class B and Class C space were considered the framework for available new office space in Minsk for the current year, Class A space could be regarded as minimally significant. As such the trend from last month is likely to continue, while declared figures suggest certain discounts for participants in projects. Consequently, a large amount of newly created commercial space can be expected to become rental.

The availability of new office space, meanwhile, has had a significant effect on the “secondary market” for commercial property. Specialists at “Tvoya Stolitsa” are already suggesting Minsk has become a buyers’ market. According to their estimates, by the end of the year, the national capital will have no less than 200,000 square meters of office available.

The increase of competition for businesses entering the market has led to office building owners actively reducing prices. As a result, the average cost per square meter for older office space dropped in 2,070 USD per square meter by October (with VAT). This went down considerably, 13 percent, from 2,385 USD per square meter in August. The lowest-priced commercial property was located in the Zavodski District, while the highest-priced has traditionally been on Praspyekt Nyezhalyeznastsi.

Seasonal factors, meanwhile, have played a significant role in the reduction of commercial property prices. “Business center owners are fighting to win customers by paying their VAT, thereby massively reducing property prices,” said Natalya Novikova, director of office projects for Tvoya Stolitsa. “As a result, asking prices fell by the amount of this discount, which was provided at the time of purchase. It is likely that the cost of the actual transaction will affect the current trend to a lesser extent, as sellers eventually reduce the amount of this discount, or abandon it altogether.”

Because of value added tax (VAT) concerns, many companies are hesitant to acquire new real estate near the end of the tax year. However, this seasonal factor isn’t expected to last very long. “In the next month or two, prices should level off,” said Novikova. “The oversaturated market will continue to apply pressure to prices, but within reasonable limits. As soon as you lose the seasonal factors, the major causes for the sharp price decline on office space will disappear.”

In any case, according to Novikova, the office space glut in the Minsk market will play into the hands of buyers and tenants, making it easier for them to find the right location at a good price. She noted that although new contracts are being signed at a steady rate, the demand imposed by new companies has remained practically unchanged. The market is mostly geared toward companies seeking to better their location, migrating to new business centers with developed infrastructure and affordable prices. This sort of activity is greatest among IT firms.

“If the price of office space is objectively overvalued, this will significantly reduce the number of potential buyers,” said Novikova. “A competent and flexible pricing policy, in contrast, will allow applicants to find a location in a short period of time.”

Minsk retail space sizes increase in range, both small and large
The retail commercial market is much more stable. Prices in older buildings suffered a small decline in August, but they are now beginning to grow again. In September, the average asking price for premises in a shopping center ran at about 3,350 USD per square meter with VAT, which represented a growth of 30 USD over the previous month. As with office property, upon conclusion of the transaction, business building owners usually offer to reduce the price to some degree.

However, several guidelines have changed: in the earlier sellers’ market, retail commercial property was usually kept to just 50 square meters. In September, buyers could demand even more room, up to 100 square meters.

Meanwhile, commercial retail property rental rates have begun to decline. In September, the average rental rate reached 29.9 EUR per square meter with VAT, which is 7 percent below August. The largest demand given by tenants were similar to that of commercial retail property purchasers, with the highest level of demand going to premises in the 51-to-100 square meter range. However, there has also been a marked increase in demand for small space footage (4-8 square meters), which is usually occupied by coffee shops and other sorts of catering businesses.

Average prices (m 2 ) apartments  in September in Minsk  were:

1-room apartment – 1781 $ / m 2 (0.5% per month);
2-room apartment – 1656 $ / m 2 (0.4%);
3-room apartment – 1542 $ / m 2 (-1.0%);
4-room apartment – 1485 $ / m 2 (-1.4%).

 

 

Translated from articles published by Realt.by and Belorusy i Rynok
By contributing writers Artem Saharevich, and Alexey Alexandrov