Government housing focus turns to longer term supply

The news that the government is prepared to back loans made to property group PIK is helping to underpin the shaky real estate market, with analysts saying the governments move is focused on longer term housing supply.

David Ferguson, Real Estate analyst at Renaissance Investment Management, believes the moves comes as focus turns to longer term supply demand fundamentals in the real estate sector.

“I don’t think it will have a dramatic impact, but it has been done because there’s a shortage of housing in Russia. And by the fact that such huge Russian developers, like PIK, are in financial trouble there is not much buildings activity at the moment, making the supply situation worse. So, by providing financial support , Russia’s Government wants to ensure a major developer can get to normal business as quickly as possible and prevent supply shortage situation from deteriorating more severely.”

Ferguson says that the support isn’t a case of boosting current supply, with current sales volumes well down, but he believes that reducing construction now could lead to supply issues in the medium to longer term.

“At the moment the demand is very low, with transaction volumes in the 2Q by a third lower than in the same period in 2008, and that’s despite the prices falling by over 30% in US Dollar terms. The reason the Government provides such support isn’t because PIK can’t meet demand now. It may recover next year or in 2011, and that’s when the supply imbalance would kick in.”

Rustam Botashev, Senior analyst at UniCredit Securities believes the move diminishes the scope for a sharp slump in prices, although given the drying up of mortgages he is expecting prices to ease further.

“Well, this just means, that there’s no question of PIK’s bankruptcy, thus there won’t be a sell off of real estate and the prices for housing won’t fall off the cliff. Actually, today there’s virtually no demand from end consumers, as mortgage has almost ceased to exist, high unemployment is there and those employed suffer lowering salaries. So, I think, the prices will keep on going down, though not that sharply.”

Renaissance’s Ferguson also sees some further downside in prices, but believes that a rebound is potentially not far away.

“Well, the prices for housing are probably close to the bottom. So, they’re continuing to fall each month and they’re not at the bottom yet, but the rate of decline has slowed a lot and is starting to level out. So, assuming the signs of recovery could become true, it would be reasonable to think of prices bottoming out over the next 6 to 12 months and not falling that much further than we are today.”

Also expecting to see the bottom within coming months is Aleksandr Pypin, Head of analysis centre, www.gdeetotdom.ru. Speaking with RT Business he said now was the time for buyers to come back to the market, with prices unlikely to drop much further.

"Waiting for a further lowering of prices, in my opinion , is unwise. Prices may go down 2-3%, and it’s not worth putting aside the full life of your family.It would make sense half a year, a year ago, when prices were going down 10 % each month, but now we don’t see that.”