The irony of the Russia financial crisis in 1998 was that from the
outside the country looked like a basket case, but from the inside all
the local businessmen could see was Russians with cash to spend. And
the first thing they bought was somewhere decent to live.
The rouble may have been cut to one-quarter of its value in dollar
terms, but that rouble was in Russian citizens’ pockets rather than on
company debt sheets. Devaluation re-monetarised the economy and by the
end of 1998 wage arrears had fallen to nothing. It was the start of an
extended shopping spree that still shows no signs of abating, and
fuelled a boom in the residential property market.
Stroy Metrosurs is a leading developer of affordable housing for the
emerging middle class. A pre-crisis supplier of construction materials,
the company refocused on developing residential apartments two years
ago and has been struggling to keep up with demand ever since.
“We have already sold 200,000 square metres in the Moscow region and
have another 1.3 million sqm in various stages of development. Between
one-third and half of these buildings are already sold,” says Andrei
Veselov, commercial director of Stroy Metrosurs.
Cash in hand
One of the quirks of the residential property market is that Russians
normally always buy their apartments outright and in cash (literally).
As everyone was given the apartment where they lived as part of the
mass privatisation of the early 1990s, the amount that a successfully
middle class family needs to raise to move to a better apartment is
within reach without having to borrow.
As mortgages make their first appearance, the circle of those who can
afford to move is widening quickly. Real estate experts are confidently
predicting a boom in the residential market over the next two years and
prices are rising by 30% a year and even faster in the most desirable
parts of the capital.
Mid market clients
While the real estate funds and private investors are targeting the
more lucrative office and elitni dom (high-class apartments for the new
rich), Stroy Metrosurs is selling apartments in the suburbs of Moscow
for between $500 and $600 a sqm, against the $2000 to $10,000 a sqm top
quality housing in the centre. Mr Veselov says that demand is so high
their only constriction is the ability to raise affordable money.
“We have invested $25m of our own equity, we issued Russia’s first
small rouble-denominated bond of $10m in 2002 and we have had total
bank credits of $100m, but all this money is short-term and relatively
expensive,” he says.
As all the apartments have already been sold by the time a building is
completed, the company can always finance more construction. But Stroy
Metrosurs has bigger ambitions and wants to begin projects in Russia’s
untouched European regions next spring.
Hoping to tap the international capital markets, the company is in the
process of preparing its books for a possible IPO by the end of the
year. If this goes well then it is looking further down the road to a
Eurobond issue in the next two years.
“The market has a tremendous demand for housing,” says Mr Veselov. “The
economy has stabilised and the first thing people want to improve is
the standard of their housing.
“Gosstroy [the state committee for construction] estimates there are
three million families who want to move to a new home in the next three
years. That’s $60bn worth of housing just there.”