Expat housing market 2013

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MOSCOW RENTAL HOUSING MARKET 2012

Expat Housing Review: 2012: Review & Conclusions 2013: Tendencies & Forecast

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MOSCOW RENTAL HOUSING MARKET 2012

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SUPPLY In 2012 supply on the rental market has demonstrated further decrease and reached the lowest level recorded since 2008.

Main reasons – significant growth of demand for rent and increased activity on the sales market.

Dynamics of supply in the residental rental market of Moscow (high-budget segment) (January 2009 - 100%), January 2009 - December 2012 120%

• Demand for high-end rental properties has increased by 16% compared to 2011.

110% 100% 90%

• Supply has demonstrated sta ble decrease throughout the year and lowered as much as 34% compared to 2012

80% 70% 60% 50% 40% 30%

2012 – MAIN TENDENCIES AND RESULTS

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2012

• Average asking prices have grown by 8% since the beginning of 2012 and practically reached pre-crisis • Despite growth in prices the majority of companies have been hesitant to increase housing budgets average budget has remained at the same level as last year

Structure of supply – areas Territorial structure of supply in the residential rental market of Moscow (high-budget segment), December 2012 Arbat-Kropotkinskaya Lubyanka-Kitay-Gorod Zamoskvorechye Tverskaya-Kremlin Leningradsky Prospect Leninsky Prospect Kuntsevo Krasnopresnenskaya Patriarshie Prudy Kutuzovsky Prospect Others Tsvetnoy Boulevard Prospect Mira

AnalysisTaganskaya of supply – number of bedrooms Frunzenskaya

Supply analysis of0.0% the high-budget of the residential 5.0% segment 10.0% 15.0% rental market 20.0% in Moscow in terms of number of rooms, December 2012

7.1% 13.5%

25.0%

1.8%

СONTENTS 03 SUPPLY

19.0%

18.0% 39.0%

studio 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms > 4 bedrooms

05 DEMAND 06 RENTAL RATES AND BUDGETS 07 FORECASTS

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MOSCOW RENTAL HOUSING MARKET 2012

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Reasons for low supply of large apartments in Moscow • 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 bedrooms.

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.

Analysis of supply – rental budget

Supply analysis of the high-budget segment of the residential rental market in Moscow in terms of rental budget, December 2012 6.8% 14.4%

28.2%

<$ 4000 $ 4001... $ 6000 $ 6001... $ 8000 $ 8001... $ 10000 $ 10001... $ 15000 >$ 15000

11.9% 17.3%

21.4%

DEMAND Due to stable economic growth of Russia and a number of large international and joint venture projects launched in 2012 demand for high-end rental properties has increased by 16 % compared to 2011 and reached the highest level since 2008.

Structure of Demand – Tenant Profile

Reasons:

International Assignee

Russian/ СIS citizen

65%

35% 2011

International Assignee

Russian/ СIS citizen

60%

40% 2012

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•

International and Russian companies relocating top executives from Russian regions/CIS to Moscow more often

•

Increased sales prices drive wealthy Russians to rent

•

Russians more actively rent houses and apartments in expatriate international compounds due to growing popularity of international education

MOSCOW RENTAL MARKET 20122012 | MOSCOW RENTALHOUSING HOUSING MARKET

Single/Families relocating without children

60%

Single/Families relocating without children

Families relocating with children

70%

2011

2012

||

Families relocating with children

40%

30%

2011

2012 Reasons:

• Due to higher cost of relocating families with children (school cost, larger and more expensive accommodation required) when possible companies give preference to candidates who plan to relocate without children

Furnished

Unfurnished

80%

20%

• Despite decrease of number of families relocating with children, availability of places in international schools low ered, and some candidates refuse to relocate as they do not have confirmation of schooling

Furnished

Unfurnished

89%

2011

11% 2012

Reason: High cost of import duties (introduced in 2011) forces more companies to stop supporting cost of furniture transportation

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 2012 10

3 17

16

26

27

studio 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms 4+ bedrooms

Supply-Demand Correlation => Availability Analysis

Number of Bedrooms

Supply %

Demand %

Studio

<2

3

low

1 Bedroom

19

17

good

2 Bedrooms

39

27

very good

3 Bedrooms

18

26

low

4 Bedrooms

13

16

very low

4+ Bedrooms

7

10

very low

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Availability

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MOSCOW RENTAL HOUSING MARKET 2012

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Structure of demand – areas Supply analysis of the high-budget segment of the residential rental mar ket in Moscow in terms of number of rooms, December 2012

Lubyanka-Kitay-Gorod Zamoskvorechye Tverskaya-Kremlin Krasnopresnenskaya Tsvetnoy Boulevard Prospect Mira Taganskaya 0.0%

5.0%

10.0%

15.0%

• Most tenants prefer renting apartments in the districts of Arbat/Kropotkinskaya, Tverskaya/Kremlin, Leningrasky prospect area, Lubyanka/Kitay-Gorod area, Zamoskvorechie – they account for more than 50 % of demand.

• Districts of Arbat-Kroporkinskaya and Tverskaya-Kremlin are in demand to their location in the historical city centre, good supply of quality residential buildings and good infrastructure • Lubyanka/Kitay-Gorod and Zamoskvorechie area are also located in historical centre, moreover French school (Secondary and Primary) drive French expatriates to these areas • Leningrasky prospect area, which is the only area outside of city centre where demand is higher than supply attracts tenants as the majority of international schools are located there Supply-Demand Correlation (Most Popular Areas) => Availability Analysis

Supply %

Demand %

Arbat/Kropotkinskaya

Area

23

15

Availability good

Lubyanka/Kitay-Gorod

9

13

low

Zamoskvorechie

9

11

average

Tverskaya/Kremlin

9

11

average

Leningradsky prospect

8

11

average/low

Leninsky Prospect

7

6

good

Kuntsevo

5

2

good

Krasnopresnenskaya

5

7

average

Patriarshy Ponds

5

7

average

Kutuzovsky Prospect

4

6

good

Frunzenskaya

2

4

low

Structure of demand – rental budget Supply-Demand Correlation

Price USD

Supply %

Demand %

< 4000

28

53

4000–6000

21

18

6001–8000

17

11

8001–10000

12

7

10001–15000

14

6

> 15000

7

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Demand analysis of the high-budget segment of the residential rental mar ket in Moscow in terms of rental budget, January-December 2012 6.4%

4.0%

7.5% 10.8% 18.2%

53.1%

<$ 4000 $ 4001... $ 6000 $ 6001... $ 8000 $ 8001... $ 10000 $ 10001... $ 15000 >$ 15000

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MOSCOW RENTAL HOUSING MARKET 2012

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Rental Rates and Budgets Despite growth in prices the majority of companies have been hesitant to increase housing budgets – average budget has remained at last year’s level and amounted to 5440 USD per month.

However this mismatch does not induce owners to make considerable concessions in terms of price formation and the inclusion of additional services in the rental amount – as the increased demand allows them to rent their properties fast and at the asking price. This results in situations when tenants have to compromise on their requirements, also there are more cases when contracts on chosen properties are not signed as landlords receive offers at higher price, more flexible lease and payment terms.

Number of bedrooms/ Sq.m.

Average price

1 / 45–70

3000–4000

2 / 70–140

5000–7000

3 / 130–200

9000–12000

4+ / 200–300

15000–20000

Average asking prices have grown by 8 % since the beginning of 2012 and practically reached pre-crisis level with an average monthly rental rate of 7780 USD or 670 USD per square meter.

Analysis of Average asking prices / Number of Bedroom / Class

Area

Arbat/Kropotkinskaya, Patriarshy Ponds, Tvers kaya, Lubyanka/Kitay-Gorod, Zamoskvorechie

Close to International schools (Leningrasky prospect, Kuntsevo)

Description

business class

elite class

premium class (unique properties)

business class

elite class

premium class (unique properties)

1 bedroom (45–70 sq. m)

2000–3000

3000–4000

5000–7000

2000–2500

2500–3000

3000–4000

2 bedrooms (≈70–130 sq. m)

4000–5000

5000–8000

9000–12000

3000–4000

4000–5000

6000–10000

3 bedrooms (≈150–220 sq. m)

7000–10000

10000–15000

15000–23000

5000–7000

7000–12000

12000–20000

4 bedrooms+ (≈180–350 sq. m)

–

12000–17000

17000–30000

–

12000–20000

17000–30000

business class Apartments in pre-revolutionary, stalin or ministerial buildings. Clean secure entrance with concierge or quality intercome arrangement. Quality renovation with the use of standard renovation materials (not designer renovation), in many cases furnished in IKEA style/quality elite class Apartments in pre-revolutinary 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. Apartment with high quality designer renovation, furniture and appliances premium class (unique properties) 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.

International Compounds – Asking prices Despite decrease in number of international families moving to Moscow with children, prices for three main international compounds either stayed on the same level as one year ago or even slightly increased. The availability also did not improve much and is still very seasonal – the largest supply of houses in international compounds is in summer, during the school break – this is when families with children leave Moscow and terminate their leases in compounds. International compounds as well as international schools are and more popular with wealthy Russians. Also in the absence waiting list (it should be noted that waiting list still builds up in summer and for most popular types of houses, usually medium in size and price) assignees without children, but with pets prefer to living in the house.

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MOSCOW RENTAL HOUSING MARKET 2012

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North and North Moscow (where all 3 main compounds are located) is where several large business centres/business parks were built in the last 2-3 years, and this is another reason for families with children to choose a house in the compound versus an apartment.

House Type

# of Bed rooms

# of Bath rooms

Size, sq. m

rent 2012 ($)

Tver-1

Town-House

3

2,5

160

12 000

Tver-3

Town-House

3

2,5

209

14 500

Suzdal-1

Town-House

3

2,5

200

13 500

Suzdal-2, 3

Town-House

3

2,5

212

Compound

rent vs 2011

avail ability

+4% 0%

yes no

17 500

+4% +3%

yes

Pokrovsky Hills no no

Novgorod-1

Town-House

4

2,5

215

18 500

+3%

Novgorod-2, 3

Town-House

4

2,5

220

19 000

0%

no

Yaroslavl-2,3

Town-House

5

3,5

340

24 000

-2%

no

Town-House

2

2

130

7 500

0%

no yes yes

Rosinka Business Executive

Town-House

3

2,5

151

10 000

0%

Family

Town-House

4

2,5

222

13 000

0%

Family Deluxe

Town-House

4

2,5

240

14 000

0%

no

Family +

Town-House

4

2,5

240

13 500

-

no

Country

Town-House

5

4,5

266

14 500

0%

yes

Country Deluxe

Town-House

5

4,5

302

15 500

-3%

no

Presidential

Town-House

5

4,5

292

15 500

0%

yes

Presidential Deluxe

Town-House

5

4,5

326

16 500

0%

yes

Presidential Deluxe (Mitishi)

Town-House

7

4,5

400

18 000

-11%

no

Ambassador Stand alone house 1901

House

5

5

345

20 000

-

no

House

4

2,5

178

13600

+5%

yes yes yes

Serebryany Bor House

4

3,5

182

14200

+9%

House

4-5

5

280

17000

+1%

Dynamics of asking prices, January 2008 - December 2012 $ 8.500 $ 8.000 $ 7.500 $ 7.000 $ 6.500 $ 6.000 $ 5.500 $ 5.000 $ 4.500 $ 4.000

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MOSCOW RENTAL HOUSING MARKET 2012

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FORECAST FOR 2013 AND RECOMMENDATIONS The demand for high-end rental properties will demonstrate further growth, leading to further decrease of supply and growth in prices at the same level as in 2012 – circa 10% on average.

Despite global economic recession and to a certain extent due to it, the inflow of expatriate population into Moscow is continuously increasing. Average rental rates for expatriate housing keep rising, and by the end of 2012 have reached pre-crisis level. In light of this we recommend the following: •

Think twice in case considering cutting expatriate housing budgets. This will significantly affect the quality and number of options available for expat vs. his predecessors.

•

Expatriate families with children: housing budget for this population will require careful revision , and most probably increase. Housing in expatriate compounds and around international schools has dropped in supply; which affects the pricing immediately.

Flexibility! Flexibility! Flexibility! Demand significantly exceeds supply of good expat housing, thus the market is landlord oriented, and extremely competitive for tenant. Though there will always be certain strict corporate policies, but flexibility in lease terms will help avoid losing properties.

Speed up your decision making process: all properties with good balance of value for money get leased overnight.

Tenants capable of making fast decisions are more successful in securing the desired property. We understand and are mindful of the fact that it is not always possible for big corporate: do contact Intermark for creative solutions .

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© Intermark Group, Inc., 2013 All materials branded by service mark and (or) trademark № 254895 in printed matters distributed by Intermark Group, Inc’s representatives and all materials presented on the web site http://www.intermarkrelocation.ru/ along with materials spread by e-mail or distributed any other way are the intellectual property of Intermark Group, Inc. Such materials are intended only for private or office usage. Intellectual property of Intermark Group is protected by the 4 Part of the Civil Code of the Russian Federation and by the standards of international law. Reproduction or distribution of this materials is possible only on the assumption of the approval by the representative of Intermark Group, Inc.

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MOSCOW RENTAL HOUSING MARKET 2012

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ATTACHMENT MKAD – Moscow Circular Automobile Highway Sadovoe Koltso (Garden Ring)

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/ prestigious Russian schools would be located in these areas.

Leningradskoe shosse Kutuzovsky prospect Rublevskoe shosse Leninsky prospect

Naturally, international assignees and high-profile Russian customers only rent properties in these areas with practically 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 Norht-East – practically half of Moscow in terms of territory – are not considered by international assignees and highprofile 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.

Irina Yakimenko Director, Shareholder Immigration & Relocation Services i.yakimenko@intermarkrelocation.ru

The Kremlin Airports International Schools Main Compaunds

Marina Semenova Client Services Director, Shareholder m.semenova@intermarkrelocation.ru

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OUR SERVICES Look-see orientation tour Home-finding package Settling in & Departure assistance Household good moving & Furniture rental Help-desk & Tenancy support Schooling assistance Spousal support & Coaching Short-term apartments Car leasing & Insurance

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