Investirem News No Demand, No Construction

No Demand, No Construction


No Demand, No Construction

The volume of housing construction in Russia’s northern capital continues to decline.

In St. Petersburg, Russia’s second-largest city by population, there has been a significant slowdown in housing construction. 

Various reasons have been given for this downturn, but the prevailing sentiment attributes it to negative market expectations held by both real estate developers and potential home buyers. Consequently, very few analysts hold out hope for a swift turnaround in the situation.

Transition to Standby Mode

In absolute terms, the decline in construction volumes is noticeable, though not catastrophic. From January to April of this year, builders in the Northern Capital commissioned 1.18 million square meters of housing. This is roughly 15 percent less than during the same period the previous year. Meanwhile, in the Leningrad region, essentially a sprawling suburb of St. Petersburg and part of the same agglomeration, the decline reached 18%, with the final volume of constructed housing standing at 1.28 million square meters.

A month-to-month comparison paints a bleak picture for April of this year. Only 143,000 square meters were delivered within the city limits during the month, marking a 43% decrease from a year prior. In the Leningrad region, the April drop exceeded 50%.

Many experts believe that the current lull in the market mirrors the situation that emerged shortly after the onset of the coronavirus pandemic three years ago. At that time, both sellers and buyers adopted a wait-and-see approach. Sellers halted much of their construction, awaiting clarity on the market’s trajectory, while buyers postponed their housing purchase plans. This period of stagnation persisted for several months, but by the start of 2021, the market experienced a resurgence. By year-end, multi-year records were shattered in both construction volume and home sales.

Many anticipate a similar trajectory for the St. Petersburg real estate market now. The uncertainty lies in the duration of this pause and the pricing landscape once it ends. Current predicaments make forecasting challenging. No one can accurately predict the duration of the current international political turmoil and associated economic challenges. Indeed, many experts attribute the downturn to economic disruptions, which have led potential buyers to pivot from investment strategies, including in real estate, to more conservative financial savings.

This shift is evident in sales outcomes. By some estimates, transaction numbers in the first four months of this year plummeted by 40 to 50% compared to the same timeframe last year. And the downturn appears ongoing; according to data from Tsian, the largest housing selection service, 15% fewer apartments were sold in the St. Petersburg agglomeration in the first quarter of this year compared to the fourth quarter of the prior year.

However, some insiders point to specific, tangible reasons for the construction volume drop, beyond just broad market sentiment. A notable factor is the growing shortage of construction land within the city. This scarcity has compelled St. Petersburg authorities to curtail the issuance of construction permits.

Following in the Footsteps of UAE Builders

Some optimistic indicators are emerging despite the challenges. For instance, housing construction has shown a promising uptick in recent months. According to forecasts from the Development Institute, an estimated 3.4 million square meters of multifamily housing will be constructed in the region within the year. This figure surpasses the 2020 results.

It’s worth noting that the land shortage within St. Petersburg is partly driving this growth. Developers, facing space constraints in the city, are turning to plots in the Leningrad Region. But the land shortage isn’t the sole reason; evidence suggests that housing in the region is gaining traction among potential buyers, prompting developers to ramp up construction.

Several factors contribute to the growing allure of suburban housing. Firstly, cost plays a pivotal role. Even though some large communities in the Leningrad region are in proximity to the city, their real estate prices remain considerably lower than in St. Petersburg. Moreover, there’s a discernible trend, both in the northern capital and globally, where urbanites are increasingly relocating to suburban areas. Many opt for private residences, propelling the growth of individual housing in the Leningrad region. This segment now constitutes nearly half the total housing market.

Yet, many potential buyers are also attracted to the sprawling housing complexes in the region. Regional developers, unburdened by strict space limitations, can invest in comprehensive, liveable communities, complete with social facilities, public spaces, and green areas.

Over time, as income levels rise, individuals tend to focus beyond their immediate living quarters. The external environment, amenities, and communal spaces take precedence. This pattern, observed globally, underscores that a vibrant housing market recognizes and addresses these preferences sooner. The UAE stands as a testament to this. Emerging from desert sands, they’ve not only constructed thriving cities but have also pioneered innovative construction methodologies. Today, the UAE is a leading exporter of technologies and management practices in urban development.

Increasingly, signs indicate that Russian developers, especially in the Leningrad region, recognize the appeal of conditions similar to those in places like Abu Dhabi. The market is seeing projects prioritizing comfort and communal spaces.

Euroinvest, led by Andrey Berezin, is at the forefront of this movement. They introduced the 3ID construction concept, which mandates that every residential complex incorporate diverse spaces for shared leisure, education, or work.

“In every project, we incorporate public spaces tailored to the residents’ needs. For instance, iD Park Pobedy includes an educational space for ten classes, suitable for tutor-led sessions or remote work. We are championing the trend of community-focused living, evident in our commissioned projects. Additionally, each of our communities boasts essential infrastructure: shops, cafes, bakeries, and other day-to-day services,” stated Andrey Berezin in an interview.

Experts opine that the more projects embrace the Euroinvest model, the quicker sales will rebound, spurring construction momentum. For now, forecasts for 2023 indicate a continuing decline in housing delivery compared to the previous year. However, this deficit is expected to shrink as the year progresses.

Top developers of the Leningrad region on the volume of housing in 2023, portal EPZ.rf
Developer, regionCommissioned, m2Change of position in the ranking
1EUROINVEST DEVELOPMENT, St.Petersburg42831+12
2CDS Group, St. Petersburg34196-1
3SK PETROSTROY, St. Petersburg31658+6
4Stroitelny Trust, St. Petersburg28270+1
5Leader Group, St. Petersburg25027-1
6ISG MAVIS, St. Petersburg14402-4
7ISK VITA, St. Petersburg11790+25
8SK Sputnik, St. Petersburg8638+19
9Zapstroy, Leningrad region34380
10Algorithm Development, St. Petersburg3183+24

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