Moscow-based company Glorax Development, established last year by former Tekta Group co-owner Andrew Birzhin, has plans to increase the portfolio of real estate in St. Petersburg by 500 thousand square meters. A long-term goal, set for five years, aims to bring their presence within the city closer to one million square meters.
Initial interest in the plan began when Alexei Balykin, CEO of Glorax Development, noticed that yearly prices of some areas in St. Petersburg had fallen by 20-50%. Other market participants noted a decrease in developer demand for land by 20%.
By the end of the year, the price of land in urban areas is estimated to fall another 10-15%, and by 20% outside the ring road.
The Plan for One Million Square Meters
Last year, Glorax Development entered the St. Petersburg market and bought Baltprodkom, securing the rights to construct a residential complex area of 220 thousand square meters along the Peterhof highway.
“The project, garnished with an investment of 6 billion rubles, started in May and will be completed by 2020,” said Alexei Balykin.
The CEO explained that the former owner of the land received not only financial assets, but also a share of apartments in the new complex.
“An affiliate plan is optimal for risk-free development and beneficial to all parties. For other projects in St. Petersburg, we will also employ the principles of partnership,” said Balykin.
“By the end of year, we’ll hopefully have boosted the real-estate profile in St. Petersburg by 500 thousand square meters. In the summer we will close two transactions for 300 thousand. And of course the five-year plan – one million square meters.”
Balykin emphasized that Glorax considers projects solely within the Ring Road, due to the inherent risk of carpeted development on agricultural lands outside the ring.
The budget for completing such land assets in St. Petersburg, however, was not disclosed. According to experts JLL, the implementation of the announced plans will require 5 to 10 hectares of high-rise construction. According to Catherine Zaporozhchenko, head of sales at Docklands, purchases this year will cost Glorax 3 to 3.5 billion, and implementation of projects in these areas will require 10 to 12 billion.
Land in Focus
Today, the average price of land in St. Petersburg varies from 6 thousand rubles per square meter of selling area on the suburbs to as high as 50 thousand rubles in the city center.
“For comparison, in Moscow the price of 50 thousand rubles per square meter of usable area is just the beginning. And the threshold of entering the market of the Moscow region – that’s anywhere from 7 to 10 thousand per square meter,” said Alexei Balykin.
He stressed that the discount given to some St. Petersburg property owners has reached 50% of last year’s level.
“More and more landlords are becoming partners in development projects. This approach is more constructive than the ownership of assets which tend to generate losses,” Balykin said.
Other market participants noted a decrease in land demand by real estate developers. According to the CEO of Ecumene, Roman Miroshnikov, demand fell by 20% since last year.
“Because of the recession in housing sales, real-estate developers now have less money than what can be reasonably invested in development,” said Roman Miroshnikov.
Sergey Terentyev, the head of the real-estate department for GC CDS, also shared some insight about the price drops.
“Since the beginning of the year, prices on sites have been falling by an average of 5-10%. And by the end, the spots in the city will drop by 10-15%. And by 20% outside the ring road,” Terentyev said.
The General Director of Petropolis, Mark Lerner, commented on how builders are now purchasing land.
“The land market froze. The amount of sellers increased. But those who are willing to purchase land with ‘live’ money – they’re waiting for a serious discount,” Lerner said.
“Basically, the builders are willing to pay for the land in square meters.”