The Regional Development Ministry has cut the average price at which it will buy apartments in the third quarter by about 10 percent, and following criticism from the Cabinet it also retroactively reduced the figure for the previous quarter.
An order signed last month by Regional Development Minister Viktor Basargin lowered the base rate for a square meter of living space back to the first-quarter level of 26,500 rubles ($840). The document said the reductions in each region would be calculated from the base rate.
The average market price for a square meter in Moscow was 73,800 rubles, or 11.9 percent lower than in the second quarter, the document said. In St. Petersburg it was 44,300 rubles (down 15.7 percent), in the Moscow region 42,950 rubles (down 10.8 percent) and in the Krasnodar region 30,450 rubles (down 15.6 percent). The state will use these prices to determine how much to pay builders for apartments bought under its various housing programs.
But Basargin’s order doesn’t stop at cutting the average price for housing in the third quarter; it also retroactively reduced the prices for the last quarter. On May 25, the minister approved a 10 percent increase to the average price per square meter compared with the first quarter.
But the Regional Development Ministry had to change the prices because the government took issue with them, a ministry source said. He said Cabinet members thought that the May figures were inflated.
The Regional Development Ministry declined to comment. In early June, Basargin told the State Duma that prices then were “entirely fair,” although he agreed that apartment prices around the country were falling.
The cuts came as a disappointment to large developers, who have come to depend on the government as the biggest buyer of their apartments.
Vitaly Korolyov, a spokesman for Glavstroi, said the ministry’s figures did not reflect market rates and that the new prices were barely above production costs, meaning builders would be unlikely to recoup their expenses.
St. Petersburg City Hall has already incorporated the lower prices into their plans to buy apartments. The city was planning to announce a new round of bidding to supply apartments for veterans, with a base price of 52,500 rubles per square meter.
City Hall is now willing to buy 1,587 one-room apartments for 2.8 billion rubles ($89 million), a figure based on a price of 47,250 rubles per square meter, the press office for the city’s property department said.
“We were planning to take part in the tender, but since they’ve reduced the prices we’re thinking of scrapping that,” a source at one major builder said.
According to the Agency for Real Estate Research and Investment, the average price per square meter in St. Petersburg during the second quarter was 72,961 rubles, with economy class apartments selling for an average of 62,249 rubles per square meter.
Mikhail Urinson, managing director of investment and development company Alur, said he thought that the ministry’s prices were objective.
“Its prices in the majority of regions reflect what the people are able to afford and the potential demand,” he said.
The problem, Urinson said, was that many projects already had unjustifiably high expenses, meaning that developers will have to take a loss when selling apartments to the Regional Development Ministry.
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