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M M EXPAT HOUSING REVIEW 2013: Review & Conclusions 2014: Tendencies & Forecast

Expat Housing Market 2014

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Page 1: Expat Housing Market 2014

M

M

EXPATHOUSING REVIEW

2013: Review & Conclusions

2014: Tendencies & Forecast

Page 2: Expat Housing Market 2014

Overall supply figures for 2013 show an optimistic 27% of increase in available properties – which is good news after the alarming 34% decrease last year. At the same time supply is still consider-ably below the level of 2009-2011 which results in shortage of quality properties, particularly of larger size and in the most popu-lar areas. The growth of supply in 2013 is also influenced to a large extent by newly built residential complexes in Moscow city – some small and medium sized investors have entered the market with a significant number of rental properties of various sizes in these complexes.

Supply has grown in 2013 by 27% - which is a new and posi-tive trend compared to 2012, when it has shown a decrease of 34%. Budget and room struc-ture of supply remained similar to last year, whereas there are different dynamics in supply in different areas.

Territorial structure of supply in the residential rental market of Moscow (high-budget segment), December 2013

SUPPLYSUPPLY

Property supply: areas

20% 25%15%10%5%0%

Arbat-Kropotkinskaya

Lubyanka-Kitay-Gorod

Zamoskvorechye

Tverskaya-Kremlin

Leningradsky Prospect

Leninsky Prospect

Kuntsevo

Krasnopresnenskaya

Patriarshie Prudy

Kutuzovsky Prospect

Others

Tsvetnoy Boulevard

2012 2013

Supply of properties for rent: 2009-2013

I II III IV V VI VIIVIII IX X XI XII

120%

110%

100%

90%

80%

70%

60%

50%

40%

30%I II III IV V VI VIIVIII IX X XI XII I II III IV V VI VIIVIII IX X XI XII I II III IV V VI VIIVIII IX X XI XII I II III IV V VI VIIVIII IX X XI XII

2009 2010 2011 2012 2013

- 1 -

Diagram 1.2

Diagram 1.1

Page 3: Expat Housing Market 2014

Historically in Moscow there is a huge shortage of large apartments – this connected with the Soviet part of history when people were just not supposed to live in apartments larger than 70 sq.m. and 2 bedroom. Since 20 years of real estate market evolution developers started to build more larger apartments but the disproportion is still there.

Another reason that large apartments are low in supply is that despite high rental prices sale prices are even higher – and investment income is not that high – 3-5% annually. For comparison inflation rate is circa 10%, and bank interest for sum of money equivalent to price of Moscow apartment – 8-10%. This is why there are few professional landlords on the Moscow – mostly people rent apartments they do not live in because they do not want to sell for some reason.

Reasons for low supply of large apartments in Moscow

Supply analysis of the high-budget segment of the residential rental market in Moscow in terms of number of rooms, December 2013

Analysis of supply – number of bedrooms

1 bedroom4 bedroom

4+ bedroom

19%

2 bedroom40%

3 bedroom19%

13.5%

7.1% 1.8% studiostudio

1 bedroom

2 bedroom

0.5%

38.4%

16.8%

27.9% 3 bedroom

4 bedroom

4+ bedroom

9.7%

6.6%

2012 2013

Asking prices in 2013 have been quite stable with an annual increase of 8% compared to 2012.

Average rental rate

21021102 2013

$ 8 500

$ 8 000

$ 7 500

$ 7 000

$ 6 500

$ 6 000I II III IV V VI VIIVIII IX X XIXII I II III IV V VI VIIVIII IX X XI XII I II III IV V VI VIIVIII IX X XI XII

- 2 -

Dynamics of asking prices, 2011-2013

Diagram 1.3

Diagram 1.4

Page 4: Expat Housing Market 2014

Another new trend of 2013: companies resumed hiring and bringing to Russia new top and high level managers. Majority of these were accompanied by their families with children vs. single moves. In figures: 42% vs. 58% respec-tively, which accounts for 12% growth in family moves.

2013 – for the first time in the past 4 years – has seen actual growth of the expatriate population coming into Russia vs. local hires and Russians. This year overall figures are 70% vs. 30% respectively.

The same tendency – more families with children looking for larger apartments/houses which in the Russian market are typically unfurnished – accounts for growth in the demand for unfurnished accommodation. At the same time due to high import duties overall the demand for unfurnished properties is still low – only 14% vs. 86% demand for furnished accommodation.

Structure of demand – tenant profile

2012

2011

2013

Russian/CIS

65% 35%

60% 40%

66% 34%

InternationalAssignee

DEMANDDEMAND

Overall demand in 2013 has remained at the same level as in 2012 – with a marginal 4% decrease. It has been characterized by regular seasonal peaks connected with the school calendar – with most active months in April, July and September – period when most families are relocating due to the end/beginning of the school year.

Main changes in tenant profile in 2013 – more international assignees and more families with children are relocating to Moscow.

Supply analysis of the high-budget segment of the residential rental market in Moscow in terms of rental budget, December 2013

28.2% $40006.8% $15000

14.4% $10000 - $15000

11.9% $8000 - $10000

17.3% $6000 - $800021.4% $4000 - $6000

9% $1500028% $4000 12% $10000 - $15000

11% $8000 - $10000

15% $6000 - $800025% $4000 - $6000

Analysis of supply – rental budget

2012 2013

- 3 -

Diagram 2.1

Diagram 1.5

Page 5: Expat Housing Market 2014

Structure of demand – number of bedrooms

Demand analysis of the high-budget segment of the residential rental market in Moscow in terms of number of rooms, January-December 2013

The structure of demand in 2013 clearly correlates with the changes in the tenant profile and the growth in number of assignees relocating with families. Demand for smaller and less expensive properties have decreased, the demand for larger and consequently more expensive apartments has increased compared to last year.

By the end of 2013, the average budget of rental apartment requested by a prospective tenant amounted to $7000 , which is 19% higher than in 2012 ($5900).

studio

3 bedroom

4 bedroom

4+ bedroom

16%

10% 3%

28%

2 bedroom26%

1 bedroom17%

studio

2 bedroom32%

4+ bedroom4% 7%

4 bedroom 14%

3 bedroom 21%

1 bedroom22%

2012 2013

2012

2011

2013

60% 40%

70% 30%

58% 42%

Single/Coupleswithout children

Families with children

2012

2011

2013

80% 20%

89%

11%86%

14%

Furnished Unfurnished

- 4 -

Diagram 2.2

Diagram 2.4

Diagram 2.3

Page 6: Expat Housing Market 2014

Supply-demand correlation (most popular areas)

Area Supply Demand

Arbat-Kropotkinskaya

Lubyanka-Kitay-Gorod

Zamoskvorechye

Tverskaya-Kremlin

Leningradsky Prospect

Leninsky Prospect

Kuntsevo

Krasnopresnenskaya

Patriarshie Prudy

Kutuzovsky Prospect

Frunzenskaya

20%

10%

9%

10%

9%

11%

5%

7%

5%

4%

2%

17%

7%

9%

13%

12%

6%

1%

7%

5%

3%

4%

Demand analysis of the high-budget segment of the residential rental market in Moscow in terms of number of rooms, December 2013

Potential tenants have not changed their preferences in 2013 – the most popular areas are still either downtown (Arbat-Kropotkinksaya and Tverskaya) or around international schools (Leningradsky prospect).

Structure of demand – areas

Supply-demand correlation- number of rooms

1% 7%

17% 22%

38% 32%

28% 21%

10% 14%

6% 4%

Number of Bedrooms Supply Demand

Studio

1 Bedroom

2 Bedroom

3 Bedroom

4 Bedroom

4+ Bedroom

0.0%

Arbat-Kropotkinskaya

Tverskaya-Kremlin

Zamoskvorechye

Other

Lubyanka-Kitay-Gorod

Krasnopresnenskaya

Leningradskiy boulevard

5.0% 10.0% 15.0% 20.0%

- 5 -

Chart 2.1

Chart 2.2

Diagram 2.5

2012 2013

Page 7: Expat Housing Market 2014

Though smaller properties in the budget below $4000 still take the majority of demand volume - 38% - it is 10% less than last year. At the same time the demand for larger properties in the budget over $10000 has increased by 9% com-pared to 2013.

By the end of 2013, the average budget of renting an apartment, requested by a prospective tenant amounted to $7000 per unit per month, which is 19% higher than in 2012 (January-November 2012 - $5900).

Rental rates and budgets

Demand analysis of the high-budget segment of the residential rental market in Moscow in terms of rental budget, January-December 2013

Structure of demand – rental budget

Supply-demand correlation

28% 37%

25% 21%

15% 13%

11% 9%

12% 12%

9% 8%

Price USD Supply Demand

< 4000

4000–6000

6000–8000

8000–10000

10000–15000

> 15000

37.9% $4000

7.7% $15000

9.1% $10000 - $15000

11.8% $8000 - $10000

13% $6000 - $800020.5% $4000 - $6000

53.1% $4000

4.0% $15000

6.4% $10000 - $15000 7.5% $8000 - $10000

10.8% $6000 - $8000

18.2% $4000 - $6000

2012 2013

- 6 -

Diagram 2.6

Chart 2.3

Page 8: Expat Housing Market 2014

Analysis of average asking prices/Number of bedroom/Class

Apartments in pre-revolutionary, Stalin-period or ministerial buildings. Clean secure entrance with concierge or quality intercom arrangement. Quality renovation with the use of standard renovation materials (not designer renovation), in many cases furnished in IKEA style/quality.

Apartments in pre-revolutionary renovated bulidings or new buildings. Presentable entrance with high quality renovation and concierge or security, in most cases the building has underground or enclosed parking. Apartments with high quality designer renovation, furniture and appliances.

Apartments in new premium class buildings - mostly "club buildings" - premium quality designer entrance renovation, underground parking, high multi-level security. The apartments have renovation of high quality, furniture and appliances of top brands, very often unique features like size of more than 300 sq.m., terraces.

$8000-$10000 $8000-$10000

Close to International schools (Leningrasky prospect, Kuntsevo)

Arbat/Kropotkinskaya, Patriarshy Ponds, Tverskaya, Lubyanka/Kitay-Gorod,

ZamoskvorechieArea

Description

$2500–$4000 $3500–$5000

$3500–$5000

$4500–$5500$6000–$8000

$4500–$8000

$2500–$3000 $3000–$4500

$9000–$12000$5000–$8000

$8000–$12000

$12000–$17000 $12000–$17000

$12000–$20000$15000–$23000

$17000–$30000 $17000–$30000

$6000–$11000

$6000–$10000$4000–$5500 $4000–$5500

$7000–$9000

3 bedroom

4 bedroom

2 bedroom

Studio

Business classElite class Elite classPremium class

(unique properties)

Premium class (unique

properties)

5+ bedroom

Business class

Business class

Elite class

Premium class (unique

properties)

- 7 -

Chart 2.4

Page 9: Expat Housing Market 2014

International compounds

The prices of houses in main international compounds which remained stable in 2012, have grown by 5% on average by the end of 2013/beginning of 2014. Prices for most popular types of houses (which have the waiting list of poten-tial tenants) have increased by 8-10%.

The availability of houses in the compounds is still very seasonal – the largest supply of houses in compounds is in summer during the school break – when families with children leave Moscow and terminate their leases in com-pounds.

3 2.5 160 13 000

3 2.5 209 16 000

3 2.5 200 14 000

3 2.5 212 18 500

4 2.5 215 19 000

4 2.5 220 20 500

5 3.5 340 24 200

2 2 130 8 000

3 2.5 151 10 000

4 2.5 222 13 000

4 2.5 240 14 000

4 2.5 240 13 500

5 4.5 266 14 500

5 4.5 302 16 000

5 4.5 292 15 500

5 4.5 326 16 500

7 4.5 400 18 000

5 5 345 20 000

4 2.5 178

4 3.5 182

4-5 5 280

+8%

+10%

+4%+5%

+3%

+8%

+7%

0%

0%

0%

0%

0%

0%

+1%

-

+3%

-11%

-

13600

14200

17000

+5%

+9%

+1%

alone house 1901

Tver-1

Tver-3

Suzdal-1

Suzdal-2.3

Novgorod-1

Novgorod-2.3

Yaroslavl-2.3Rosinka

Business

Executive

Family

Family Deluxe

Family +

Country

Country Deluxe

Presidential

PresidentialPresidential Deluxe

Deluxe (Mitishi)

Ambassador Stand

Serebryany Bor

Pokrovsky Hills

Rent vs. 2011

Rent 2012 ($)

Size, sq. m# of Bath-room

# of Bed-room

House TypeCompound

- 8 -

Chart 2.5

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-House

Town-HouseTown-House

Town-House

House

House

House

House

Page 10: Expat Housing Market 2014

The market will be greatly influenced by the current devaluation of Russian local currency (ruble).

- Landlords are likely to start calculating rent in euros or dollars. In theory this should lead to decrease of dollar

prices. In reality in most cases when re-calculating the ruble amount in dollars/euros landlords wlll base their

calculations on the most favourable exchange rate for them.

- If company allowances are set in rubles this may have to be significantly reviewed so they could correlate to

their value in 2013.

The change of tenant profile in 2013 – prevailing families vs. singles – has affected the availability of larger

properties. 2014 will witness price increase for this type of housing and shortage of availability. Typical example:

housing compounds that increased their prices and have waiting lists even before the school year start.

FORECAST FOR 2014 AND RECOMMENDATIONSFORECAST FOR 2014 AND RECOMMENDATIONS

2013 – MAIN TENDENCIES AND RESULTS2013 – MAIN TENDENCIES AND RESULTS

Demand for high-end rental properties has remained at the same level as in 2012.

After several years of decrease supply has demonstrated 27 % growth.

Average asking prices have increased by 8 %.

Important changes in tenant profile – more international assignees and more families.

Changes in tenant profile lead to more demand for larger properties.

Average housing budgets increased by 19 %.

Same Top 3 most popular areas:

Arbat (downtown)

Leningradsky prospect (area of international schools)

Tverskaya (downtown)

- 9 -

1.

2.

3.

Page 11: Expat Housing Market 2014

The Kremlin

Airports

International Schools

Main Compaunds

Moscow has very clear distinction of which areas are considered to be “prestigious” – they are well developed in terms of infrastructure, supply of good quality housing compounds, they are also considered to be more ecologically clean. Thus, business centres (with a few exceptions of business parks outside of Moscow) and international schools / pres-tigious Russian schools would be located in these areas.

Naturally, international assignees and high-profile Russian customers only rent properties in these areas with practi-cally no exceptions.

Apart from the historical city centre (inside the Garden ring, Kransnopresneskaya, Frunzenskaya) such areas are located from the South to the North. South-East and North-East – practically half of Moscow in terms of territory – are not considered by international assignees and high-profile Russian customers, consequently in the current report we do not include properties in the East of Moscow into the analysis.

This is another reason why supply in the “prestigious” centre, South, West and North-West is quite low. Also this explains why the data in this report maybe significantly different from the reports of most Moscow real companies.

ATTACHMENT - MOSCOW HOUSING MARKETATTACHMENT - MOSCOW HOUSING MARKET

MKAD – Moscow CircularAutomobile Highway

Sadovoe Koltso(Garden Ring)

Leningradskoeshosse

Kutuzovskyprospect

Leninskyprospect

Rublevskoeshosse

- 10-

Page 12: Expat Housing Market 2014

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Imm

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OUR SERVICES

Marina SemenovaClient Services Director, Shareholder

Relocation & Immigration [email protected]

[email protected]

Irina YakimenkoDirector, ShareholderRelocation & Immigration Services

7/1 Kropotkinsky LaneMoscow, Russia, 119034

+7 495 502 95 53www.intermarkrelocation.ru

© Intermark Group, Inc. 2014

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