Experts are sounding the alarm: nearly half of country houses in the luxury segment obsolete, causing sellers are forced to implement such housing with substantial discounts. What is “outdated” house? And what the discount is possible to get when buying? These issues will be devoted to review of market of elite suburban real estate.
The market of elite country real estate shows are not the best indicators. Overall, demand is still declining. The supply in the primary segment is severely limited, and continues declining. This situation induces the buyer to transition to the secondary market, where a large percentage of outdated houses.
If in 2013 the share of sales on the secondary market amounted to 41% by 2017, it is already 82%, says the Director of the residential real estate Department at Penny Lane Realty Sergey Kolosnitsyn.
The fact that in 2014 in connection with the fall of the ruble to the dollar cost of the construction of the cottage ceased to pay, and bid prices of finished houses was below the cost of their construction. Because the construction of luxury homes inevitably forced to buy materials abroad. Thus, in recent years, the profitability of the development projects is declining across all segments. Says senior Manager at XL Partners, and group head of real estate valuation Alexei Lopatin, this happens even on the most liquid market for multifamily housing. What can we say about the market of cottage building, which is always the most risky.
Currency fluctuations affected demand, which in the last 5-7 years have fallen by the object class de luxe and premium. “Peak fall demand came in 2015, when the sellers remain in the “dollar” prices and were unwilling to adjust prices in fact 2-fold depreciation of the ruble against the U.S. dollar, adds Alexey Lopatin. In 2016-2017, the bid prices become more market that led to a slight recovery in the market”.
According to the Director of Department of elite real estate “Metrium Groups” and member of the affiliate network of CBRE Ilya Melgunova, outdated homes in the luxury market are projects built 15-20 years ago, who today are no longer satisfied with today’s buyers in most of the parameters. Among the main criteria an ill-conceived plan, legacy communications, overly pretentious facades, the presence of “extra” rooms, such as billiard rooms, home theaters, pools and other. “I’m sure in a few years, such objects will be sold at the price of the land minus the cost of demolition. Today in fashion European practicality. Buying a home has ceased to be for customers with proof of their status and wealth. Even wealthy people save on the number of square meters, maintenance and taxes,” the company explained.
The fact that in the 2000-ies, when he formed an elite market, the tastes, needs and mentality of society were different, says Sergey Kolosnitsyn. First, the prestige at that time was associated with a huge square footage and very large areas. However, having lived in houses with an area of 2000 or 1000 sq. m. on sites of 50 acres people are just tired. They realized that using only 40-50% of these areas, but pay the whole space. And now buyers want more to use it rationally. Squares and areas, customers choose less than it was then. Changed attitude to the layouts and their functionality. Earlier fashion was saunas, gyms, pool and other options. Now, buyers prefer to visit a trendy fitness centers, sometimes outside of towns, not to invite guests and spend time at parties and in restaurants. In the house they first need a large number of bedrooms and rooms where it would be possible to settle the nannies. “The fact that the trend of large families, where four children is the norm. Of course, now the design in the sought-after homes became another. People often traveled to Europe, they have developed a taste. Instead of gold, stucco, ostentatious luxury, people prefer sleek European integrity, functionality. The pomposity and pretentiousness attracts very few people, but these objects are on the market”, told in Penny Lane Realty.
To obsolete projects are most of the villages come from the 1990s and beginning of 2000-ies, said the commercial Director of Villagio Estate Alex Short. Is primarily, architecture, design, planning. The red-brick castles, ostentatious luxury, solid fences, and so on. It is easy to understand the difference, just comparing the modern mansion and cottage 15 years ago.
According to Alexei Lopatin, first and foremost, to the “obsolete” are houses made of foam blocks and/or area over 1000 sq. m. On the fate of such buildings, the expert expressed very radical. As a rule, such objects on the market are sold at a large discount, and, in fact, are bought for the land. “Older buildings are being demolished,” they concluded in XL Partners.
Individual attention, discounts on the sale of real estate. The owners of obsolete buildings not willing to put up with lower prices that was the market for this problem, says Ilya Mogunov. Therefore, despite the lack of demand for such facilities, discount from the initial value does not exceed 30%. Although to sell outdated luxury home, you need to reduce the price by half. “In my practice there was a case when the elite building was sold about ten years. In the end, it was bought with 80% discount,” says the representative of “Metrium Groups”.
However, not all so bleak for owners of old houses. Pricing depends not only on the parameters of the house, but from locations. Even old-fashioned cottage in a good location cheap to buy still fail. If the object is worth more than 50 million, to reduce the price can be up to 30%, says Ilya Mogunov.
Marketing Director of Moscow representative office of the company “ROSS RAKENNE SPb” (HONKA) Anastasia Fetisova confirms that discounts for luxury properties depend on specific locations, as well as the quality of construction and finish. If the location of the plot is successful, then the discount can be at the level of the cost of building a new home, or at least serious repair.
According to Sergei Kolosnitsyna, in 2015-2016 was adjusted almost all prices, except for the high segment, where the budget starts from 4 thousand dollars per square meter. Prices were translated into rubles, and, according to the dollar rate fell almost by half. And if still there are still some overpriced homes where the price has not changed in response to the crisis, the discount really can reach 50%. But globally this process has been completed. The average discount on quality country house is now 12%, and to sell the moral and obsolete house, the owner will have to decline further.
According to XL Partners, the average discount on the market liquid luxury homes is 10-20% at the time of implementation 1-2 years. If necessary, a “quick” sale, the discount can reach 30% -40%. But outdated houses sell for long and hard. Even if the build area is 1000-1500 sq. m. the buyers are willing to pay for it not more than the area of the “gold standard”, that is 500-700 sq. m. Thus, only the discount area can be about 50% agrees Alexey Lopatin.
“If the house you want to implement quickly, the discounts can reach up to 40% and even higher. But here the question is whether the buyer to acquire the object, which still require additional investments”, says Alex Short.
Developers only adjust to the situation, says Ilya Mogunov. On the suburban real estate market mostly out of cheaper formats of villages, a new elite practically do not appear.
In the “Metrium Groups” believe that a difference will the new mortgage terms. The fact that now to get a loan for a luxury country house almost impossible. After the 2008 crisis, many banks have moved large objects. Financial institutions did not know how to evaluate them and to implement, and eventually are unable to recover even lent out money. Until now, banks are afraid to issue mortgages on rural property. On paper they have the appropriate program, but in fact customers get either a failure, or only 20-30% of the amount claimed. The solution of the issue of mortgage lending in the country market will definitely increase the level of consumer activity. “According to our estimates, about every fifth client in this market is potentially ready to take the credit for purchase of housing”, consider in the company.
“Developers need to reduce construction costs, to come up with new “chips” for buyers. For example, to introduce a system of intellectualization of entire villages. A serious impact on the cost of construction projects has a price of entry to the project (price of land). In the most prestigious areas of the bid prices of the land are unreasonably high, transactions are not carried out. The land market should respond to the decline in prices”, are convinced of XL Partners.
If to speak about secondary segment in addition to the creation of the discount, the owner may invest in the facility to improve its liquidity, says Alex Short. We can talk about the house renovation or internal renovation, additional buildings on the site, the landscape.
Whatever it was, the reality, apparently, would be disappointing. In the “Metrium Groups” believe that in 2018 the situation with a deficit of liquidity of housing on the elite suburban real estate will only grow worse. Developers today are still not in a hurry to bring to market new projects. If the current pace of implementation by the end of 2018, the market faces a liquidity crisis. Therefore, in the coming months, the competition for interesting projects will only intensify. Moreover, in the absence of the proposals the customers will be to actively consider a house with obsolete repair for successful planning. Now these objects are considered to be illiquid.
While Ilya Mogunov believes that the average cost of supply in 2018 will decrease by 3-5% due to the revision of pricing policies to owners of illiquid homes, not sold for years: “a Separate household with attractive characteristics, I suppose I could even go up a little in price due to stable demand for such facilities. However, in General the secondary market the price is still likely to decrease marginally”.
Slightly more optimistic in XL Partners. According to Alexei Lopatin, the situation where the last 2-3 years on the market almost none of the new towns has generated pent-up demand for quality homes. So the main task of the developers is to provide the market towns with houses from the “gold standard” at prices up to 50-60 million rubles per household.
“For a start it would be nice to start building. Under construction projects in the market is extremely small” reminiscent of Penny Lane Realty.
In turn, Anastasia Fetisov believes that
in this situation the response of the developers was to improve the quality of the proposals, and willingness to implement the majority of the households at the final stage when all the communication and infrastructure delivered and carried out major improvement works.
Thus, the changing tastes of the population began to dictate to the market of elite country real estate conditions. However, developers are in no hurry to bring new projects to meet modern requirements because of the increased cost of production associated with the strong depreciation of the ruble in 2014. Reason to hope for drastic improvement this year, experts do not see. In such circumstances, the buyer has two choices. The first is the purchase of land without a contract and building a house on an individual project. Another option is to still buy a legacy home with a significant discount.