The "bubble" in Moscow residential property is about to burst and sky-high prices in the centre of the city are likely to tumble, Russian billionaire banker Pyotr Aven said on Friday. Russian property prices have soared every year since 2000 after record oil prices and domestic demand fuelled the longest economic boom for a generation.
Prices in central Moscow are now on a par with Wall Street and the City of London. The global financial crisis, however, has closed international debt markets for domestic developers and hammered confidence in Russian assets, leaving many investors to forecast Russia's ten-year economic boom could be about to stall. "Forty to fifty percent of residential property in Moscow has been bought up for resale at a later date, not for living in," said Aven, who was ranked as Russia's 29th richest man in May by Forbes, with a fortune of $5.5 billion.
"Prices inside the Garden Ring (Moscow's central ring-road) could fall by several times," said Aven, the 53-year-old president of Alfa Bank, Russia's largest private bank. Construction, seen as a key component of Russian economic growth, is forecast by many banks to slow next year to the lowest level since 1998, when the economy contracted under the burden of a debt default and rouble devaluation.
In Russia, where equity and bond markets are still not fully developed, Moscow property was seen - until the crisis - as an ideal investment for some of the oil money that has made Russia's capital one of the most expensive on earth. Moscow was ranked as the world's most expensive city on earth for expatriates in July, in a survey of living costs in 143 cities.
The Moscow property market has attracted large numbers of investors who have ratcheted up prices to levels far above what most Russians earn in a lifetime. Flats in one newly finished but empty house in central Moscow were being sold for as much as $50,000 per a square metre ($4650 per square ft) on Friday, according to an estate agent contacted by Reuters. "The purchase of residential housing is a psychological thing," Aven said at a conference in Moscow.
"Since the times of Soviet shortages, people have bought flats because they thought it the best place to invest money." Aven, a former foreign trade minister, who made his fortune with banking and commodity deals in the 1990s, said the liquidity crisis in Russia could force many investors to unload their flats onto the market, sending prices tumbling.