Only territorial development can drive down housing prices in Kazan

09:00, 06.05.2021

Market players think so: new sites for construction will fill the deficit of supply and stabilise new builds’ price hike

The average market housing price in Kazan grew by a fantastic 40% in a year, Sberbank’s data reads. Standard flats even on the periphery are sold for 122,000 rubles per square metre. The president also drew attention to the problem of a sudden price hike on housing in Russia and tasked the Federal Anti-Monopoly Service to figure out the reasons. While Russian Vice Premier Marat Khusnullin is creating a taskforce to examine the situation. However, experts think not the preferential mortgage, construction materials that went up in price or an outflow of workforce but a lack of housing and low competition in the sector are the main reason. A deficit of supply is stirring up prices, while there is no place to build in. It is necessary to develop territories to meet the needs of the housing market. Though urban functionaries’ “haphazard decisions” in this work raise questions among some players. Read more in Realnoe Vremya’s report what the Federal Anti-Monopoly Service’s inspection will show and how the problem can be solved.

“It is such significant growth!”

The average price of a square metre in Kazan new builds broke all records again by reaching astronomical 122,000 rubles. Realnoe Vremya stays tuned for the problem the president of the country paid special attention to:

“It is not only growth in prices, it is such significant growth! The average price in Russia rose by 12%. It is clear when prices rose in the Far East, it is not me who should explain this to you, you know it for yourself, but the growth in the European part is 30-20%. Of course, Mr Khusnullin is right, it is necessary to create additional supply, first of all, in the housing construction market. But it is necessary to look at this problem from a perspective of the Federal Anti-Monopoly Service, to see what’s going on there,” Vladimir Putin set a task.

But if the head of the country tasked the Anti-Monopoly Service with figuring out the reason why housing became 12% more expensive in Russia in general, the rise in Kazan reached nearly 40% over the year.

Outstripping dynamics of Kazan

The average market value of a square metre in Kazan reached new summits, seemingly despite the coronavirus as early as last spring. Moreover, the Tatarstan capital went ahead of other Volga cities, according to Sberbank’s DomClick service reflecting the big picture of supply in all Russian regions. From April 2020 to April 2021, the price of Kazan new builds rose from 88,000 rubles to 122,000 rubles per square metre — by 39%. Nizhny Novgorod that has similar house prices sells new builds for 94,000 rubles per square metre on average. And here it is important to understand that the average size of a flat that’s under construction in Russia is about 50 square metres. After doing simple calculations, we will see that Kazan citizens overpay about 1,5 million rubles for housing compared to Nizhny Novgorod residents. If we compare it with other cities in the rating, the difference will be bigger.

“It goes without saying that a rise in the price of materials, workforce influenced the hike. At the same time, the absolute increase in Kazan is 34,000 rubles per square metre, while in neighbouring regions, it is 10,000 in Kirov, 12,000 in Ufa, 3,000 rubles in Samara. The average price for construction of a square metre in Tatarstan is 40,100 rubles, according to Dom.RF. Of course, real wages are a bit higher. But if we compare the numbers, the amount of supply is the key issue,” ASG’s Territorial Development Director Rinat Aisov is convinced.

Global trend for comprehensive development and “local overkill”

“Indeed, the problem is becoming more topical day after day, we foresaw it when the preferential mortgage was just gaining momentum and offered the administration of the republic and the city to implement a territorial development concept of the Kazan urban agglomeration. This would allow creating additional supply of more than a million square metres in the next four years and another 4 million until 2030,” Rinat Aisov told Realnoe Vremya.

It won’t be possible to quickly increase the amount of construction many times, he noted. The problem cannot be solved with infill development, it is necessary to prepare large areas for comprehensive development: “It is always issues of infrastructure, while the task requires coordination of all sides’ effort — owners of parcels, public agencies, banks, developers”. Now huge attention is paid to this matter both by the administration of the region and the federal centre. Big work is done to create conditions to develop infrastructure, implement comprehensive territorial development projects.

“Thanks to the administration’s systemic policy, the city develops actively, people are ready to come here, invest their money, stay here to work, study. It is a natural process when demand for housing grows in a region with a higher quality of life than in neighbouring regions. However, today, when there is still a way to go to the start of large-scale comprehensive development that will meet this need. The situation when existing free sites in the city aren’t involved in housing development despite developers’ great interest in projects is especially illustrative.

Some facts of incoherence and murkiness of decisions of Kazan’s Architecture Office raise serious concerns when it is ruled out that housing development in the city is prohibited despite documents of territorial planning and proceedings envisaged by law. Or, for instance, the opinion of the chief architect that only one of two neighbouring parcels that belong to different owners can be residential and the other cannot, and the parcel is removed from the area of housing development, though the layout factors in such a possibility. I consider such approaches of the Office contradict the policy of the management of the republic and the city that puts a lot of effort to make Kazan one of the best cities in Kazan and attract new investors, including to housing development,” ASG’s director of territorial development stressed.

Realnoe Vremya asked Director of PAI JSC’s Centre for Legal Support for Land and Property Ruslan Gataullin put specific examples when the Kazan Architecture Office’s “incoherence of decisions” raised the most concerns:

“Today we live in the reality when housing prices soared too much. All market players perfectly understand that to stabilise the situation it is necessary to actively engage new areas to housing development. Unfortunately, the reverse tendency is observed in Kazan. Instead of providing help to explore and develop undeveloped territories, there is artificial creation of unreasonable administrative barriers that impede the private initiative from developing in this sphere in the interests of the citizens.”

Apparently, President Vladimir Putin did not accidentally indicate the necessity of the Federal Anti-Monopoly Service’s inspection of the current rise in housing prices, the newspaper’s interlocutors say. Realnoe Vremya also sent a request to the Tatarstan office of Russia’s Federal Anti-Monopoly Service and asked it to comment on the higher price for Kazan new builds. The office received the editorial’s request and added the following:

“In accordance with Russian President Vladimir Putin’s instruction given to Russia’s Federal Anti-Monopoly Service, its territorial offices commenced inspections of the reasonability of the growth of prices for housing on the territory of the country. The Tatarstan office of Russia’s Federal Anti-Monopoly Service sent requests to executive committees of municipal districts and urban district and asked them to provide data on construction and delivery of blocks of flats on the territory of municipal districts and urban districts of Tatarstan in March. The executive committees were also requested information about the price of a square metre. Nowadays the information received from the municipalities is analysed. Moreover, the Tatarstan office of Russia’s Federal Anti-Monopoly Service is preparing to send requests to developers working in the regions to figure out the reasonability of the price growth for real estate in the republic.”

Also, Realnoe Vremya submitted a request to the Kazan Executive Committee to comment on the prices in the market and the exclusion of ASG’s parcels from the area of housing development.

“Developers simply cannot meet the increased demand”

The shortage of supply is considered the main reason why housing became expensive in Kazan, other representatives of the sector think too. So expert in real estate Antonina Darchinova indicated that the price of new builds in capitals notably increased as early as late 2020. A lot of factors played a role, and it is not only the preferential mortgage, she thinks:

“The price growth began last March when the dollar went up significantly, people started to invest in real estate. There was a break for self-isolation since then, demand increased, the growth of price consequently was spurred by the preferential mortgage All this led to the situation in which developers sold a lot of flats than they had planned, supply decreased. Now there are still few good offers, especially in the city. But land development is a long story: it used to take a developer 2-3 years to create and approve a project, this is why developers simply cannot meet the increased demand. Again, this brings to a rise in prices, though not as intense as it was in late 2020. But the price for new builds in Kazan anyway keeps growing.”

New builds in the city are now sold for over 100,000 rubles per square metre, Darchinova stressed. Though this was the price for a square metre of business class housing in early 2020.

“It will be hard to develop parcels without the authorities’ green light and assistance”

Head of Happy House realty agency in Kazan Anastasia Gizatova pays attention to the demand pattern: mainly small flats were purchased at the beginning of the price rise in Kazan: “Like before in panic on the eve of New Year or rumours about a monetary reform. This is why if there were a lot of offers, they all would have been purchased. If the subsidised rate were removed, demand would have shifted to second-hand flats.”

A fall in the ruble became another factor. Amid the Ministry of Construction’s statements about a rise in the price for a square metre of housing and the launch of the preferential mortgage, demand for new builds began to increase. It was only the investment demand, Gizatova added: “Flats were like buckwheat. It seems to be necessary, but since it will become more expensive, we will buy it.”

“But the prices won’t fall now, now there is a deficit of supply from developers, and expenses (construction materials and workforce) have become more expensive. There isn’t enough ready-to-use land for construction. I agree that it will be hard to develop parcels without the authorities’ green light and assistance. It will take around two years to prepare the land for construction. We will see that only large developers can do it,” the interlocutor of the newspaper noted.

It turns out that the deficit of supply will stay in the next 2-3 years, which means that the price for a square metre won’t decrease. “The price won’t collapse because costs have increased. And if new construction projects start, their lowest price tag is 100,000 rubles,” Anastasia Gizatova warned. At the same time, she says that the construction in one location could lead to a reduction in price because of the big supply.

However, other interlocutors of the newspaper see new opportunities to solve the problem thanks to changes in legislation that came into force.

“On the one hand, the law on comprehensive land development should become a reply to the deficit of land for the construction of residential complexes Tatarstan developers face. It is defined both in our city and other big cities with a population of over a million people we are actively studying now. This law is interesting in Kazan, first of all, from a perspective of re-development of industrial zones,” thinks Aydar Miftakhov, finance director of ZHIK GC.

Comprehensive territorial development is not only removal and renovation

Huge areas of land designed for large-scale housing development projects within the president’s Affordable and Comfortable Housing for Russia’s Citizens national project joined the urban area of Kazan more than 10 years ago. The adoption of a new layout of Kazan through 2040 became an important achievement and some merit of the urban authorities.

However, the inclusion of new territories in Kazan changed the life of the capital and its citizens little, experts think. The land has not been developed over these years. Though active attempts to use it for comprehensive development are taken. For instance, ASG company recently presented the Concept of Kazan Agglomeration Development envisaging comprehensive development of these territories through public and private partnership. Some smaller landowners also plan to use their parcels.

“By adopting the law on comprehensive territorial development last December, the federal centre, in fact, made the first steps to ‘untie the hands’ of regions in this area,” noted Vice Director of Territorial Development at ASG Rustem Shakirzyanov noted.

Corresponding changes to republican legislation on comprehensive territorial development were signed this April in the republic to develop the federal law.