Market in search of balance

The primary market of land plots for development in St Petersburg disappeared in 2012. Developers, who failed to form a land bank with an ample reserve, are already experiencing a deficit of sites. The offers of private owners rarely satisfy their demands.

The earnest fight that broke out at the last auction of the Property Fund between the companies Normann and RosStroiInvest for the land plot with an area of 2.14 hectares on Marshala Blyukhera pr., reveals the high demand for sites for apartment residential development. At the same time according to the data from the Russian State Register Administration in St Petersburg, in 2012 the activity on the land market slightly decreased: the total number of deals with land plots fell almost by 10% compared to 2011.

Quality deficit
There are several reasons for this. The first one, in the opinion of experts, is that the major players stocked up on sites for 5-10 years, and so far are not experiencing any difficulties.

For example, the land bank of Glavstroj-SPb Company amounts to about 700 hectares (for 6 million sq.m.of development). Baltros GC owns approximately 650 hectares on the territory of the city and the Oblast. The portfolio of land plots of YIT St Petersburg allows for 1 million sq.m. of real estate property to be built. According to data from the Building Committee, the total volume of housing which can be built on the allotments that belong to the developers as a property or on a leasehold basis amounts to 40-45 million sq.m.

The second reason is that the supply does not satisfy the needs of the potential buyers. “On the secondary market developers resell land plots to other builders privately. The Auction House of the Russian Federation also helps realize private owners’ allotments and property pledged to the banks,” says Ekaterina Markovets, investment and consulting manager of the London Real Invest Company. “But deals are few and the information on them is closed to the public. In the greatest demand for residential development are small spots within the city – provided with access to utilities and a permit for project development. This kind of offer is limited. Lately a lot of deals have been closed for resale and sub-lease of land plots on the outskirts of the city and border areas of the Leningrad Oblast – within the framework of the current projects of the integrated development of the territories. The focus of attention is on the Krasnoselsky District, Kudrovo, Novoe Devyatkino ”.

 “Our company is looking for new spots for development,” says Nikolai Grazhdankin, head of the sales department of the construction and investment company Otdelstroy. “We consider various offers but we are very cautious. Mostly it is very difficult to see if it is possible to realize a particular project on the land plot, let alone to figure out the economical side of it”.

The developers’ concern is quite understandable if one considers that 54 IUD projects have been approved in St Petersburg. The financing commitments of the city for the infrastructure of these construction sites already exceed 1 billion rubles. For other territories the administration is shift the expenses on to the investors. 

 “We are certainly interested in enlarging our land bank,” comments Ekaterina Gurtovaya, marketing director of the “YIT St Petersburg” Company, comments. “We have no reason to believe that the demand for housing in the city will drop, and we are ready to buy land plots for comfort- and business-class projects. But we are primarily interested in objects for which documentation is ready. We should be talking not just about the deficit of available allotments. There are few marketable plots with good location provided with the necessary infrastructure and so on”.   

Never the less in 2012 land plots were bought most actively for residential development projects. According to the experts of the Auction House of the Russian Federation, they amounted to 80 % of the total volume of the transactions.

The biggest transaction was the acquisition by the GC Etalon of 38 hectares at the corner of Moskovsky prospect and Obvodny Canal Embankment – for the construction of a residential comfort-class complex with an area of 680 000 sq.m. According to the data from the market participants, the deal had both monetary and non-monetary component (payment by areas in the future project).

Extreme polarization
In 2013 there still was an imbalance of demand and offer on the land market. As usual in this situation the prices for land plots vary very considerably.  According to the data from the managing company Magistr, the cost of spots for multi-story residential development in central districts goes up to 230 000 rubles for a square meter, and on the outskirts – 60 000 rubles.

In the suburbs a square meter can be purchased for up to 25 000 rubles. And the peak values do not fall inside even the widest ranges. Thus, in 2012, according to the estimate by the GC Magistr, the lowest price was registered in Devyatkino – about 4 000 rubles/sq.m. of land, and the record was set on Petrogradskaya – 485 000 rubles. 

In the opinion of the AHR experts, the price of the plots put up for sale for the first time may be overpriced by minimum 20-30%. As a rule, the owners price their property following their desire to earn a certain profit, and not from the real market situation. If the allotment stays in the listings for a long time than the sellers usually agree to lower the price by 5-15%. The least popular merchandise is the plots for agriculture in the Leningrad Oblast. The offer is quite considerable so the land plots are gradually going down in price.

When choosing an allotment, investors first of all assess the cost of the land from the point of view of a square meter of improvements.  The analysis of the information available on the deals of 2012 conducted by the AHR specialists showed that in the economy class the acceptable figure for 1 sq.m. does not exceed 6 000 rubles, while for business class projects outside the center it is 10 000 rubles. 

In the central districts the figures can be higher.

“At the moment the cost of the land lot is influenced primarily by the presence of the urban planning documentation. These kinds of allotments are extremely valuable,” Ekaterina Markovets says. “If the developer doesn’t possess a powerful administrative resource than they will hardly bother considering a spot without the necessary documentation even for a moment. The second point is the availability of utilities. And the location influences the price too, of course. For example, the center of the city has become much less sought after lately, because it is very difficult to build something here. For developers land plots in good dormitory districts are much more attractive”.

“The secondary market is unlikely to make up for the deficit on the primary market fully,” says Andrey Boikov, director of the investment sales department of NAI Becar in St Petersburg. “Isolated objects cannot satisfy the current demand”.

Unobvious reserves
For business-class projects the territories in the historical center and in the “grey” belt so far occupied by industrial facilities seem the most promising. About 200 plants occupy in total 5800 hectares including the areas of the embankments. Residential complexes in this kind of places would undoubtedly be highly marketable.

466 hectares of raised territories on Vasilievsky Island and the future 470 hectares of raised territories in the vicinity of Sestroretsk (if it they actually build them, of course) will find a very limited market due to their high prime cost.

For economy-class housing on the secondary market in the nearest future they will offer territories that make part of IUD projects, former industrial sites in the Kalininsky, Frunzensky and Nevsky district, and also farmlands within the city limits. For example, in the Primorsky district the owners are selling the lands of the former state farm “Prigorodny” to the developers.  

The first investment project on its territory has already been realized by Special Building and Installation Department LenSpecSmu– it is the residential complex “Yubileiny Kvartal”. The ZAO SK RosStroy Company started to develop the northern part of Kamenka. In 2012 the RBI holding company bought a land plot with an area of 15 hectares here.

However, problems might arise with transferring the lands into a different category: on the 27th of November 2012 a program was adopted for the development of agriculture and the regulation of the farm produce market, agricultural stock and food stuffs in Petersburg for the period of 2013-2020.

Quiet commerce
There is hardly any information on prices and transactions for the land for cultural and business development on the secondary market. In the second half of 2012 it became known that the former co-owners of Lenta bought four land plots (from 5 to 15 hectares) for grocery hypermarkets on Pulkovskoe Shosse, Tallinskoe Shosse, Shafirovsky and Piskarevsky prospekts. The probable price of the allotments, according to experts’ estimates, amounted to 2200-2500 rubles for 1 sq.m.  

 “Operations with the land plots for cultural and business development are not very active because of the lack of offers with ready urban planning documentation,” Lilia Soboleva, head of the department for industrial real estate and land plots of the “Peterburgskaya Nedvizhimost” Company, explains. “Transactions take place but it usually happens on suspensive condition. The buyer pays the greater part of the sum or even the whole of it only after all the necessary documents have been approved”.

According to the data from the Auction House of the Russian Federation the land is offered for no less than 2000 rubles per sq.m,. and in some cases the price goes up to 150 000 rubles for a square meter. The city center is obviously the most expensive. However, unoccupied ground in this part of the city is put up for open sale extremely rarely. Up to 60% of the offers fall within the price category of up to 8000 rubles per sq.m. In the first quarter of 2013 the prices changed only inconsiderably.

Analysts at the Magistr managing company mark the following range: 1500-113 000 rubles for a sq.m. The cost of land plots for agriculture with the possibility of transferring them into another category starts from 350 rubles for a sq.m.

The greatest demand, according to AHR experts, is for the land plots with an area of up to 2.5 hectares with the full land use development and agreed urban development documentation.

Small allotments for retail facilities next to metro stations, shopping passages and existing public areas are also in demand. Blocks of integrated residential development in the Primorsky, Krasnoselsky and Nevsky districts, and also plots in the areas of exits from the Ring Motorway are promising for the development of retail.

The demand for land for office buildings and hotels construction remains low. Investors prefer to buy either completed objects or objects with the degree of readiness of  80-90%. NAI Becar notes the return of the interest to storage real estate.

 “OT” Dossier
According to the data from the Russian State Register Administration for St Petersburg, the territory of the city amounted to 140 300 hectares by the beginning of 2012. Out of which 6860 hectares (4.9%) are in the ownership of the citizens, legal persons own 18 700 hectares (13.3%). 70% of the land belonging to natural persons are land plots meant for individual residential construction. Approximately 85% of lands owned by companies are for agriculture, and another 8 % are the territories of industrial plants.

Weekly newspaper "Nedvizhimost I Stroitelstvo Peterburga", № 14(751) 2013-04-08, s.22