In the survey KPMG analyzed the activities and plans of construction firms and property developers operating in Saint Petersburg and Leningrad Oblast. The respondents included senior management of leading companies in the sector, representatives of the residential, industrial and commercial construction segments, and also property developers and general contractors.
Our analysis shows that assertions about the protracted economic downturn are being replaced by expectations of a recovery in the sector in the near future: almost half the respondents (41%) have noticed an improvement in the economic environment, while 61 percent expect to set their businesses straight in 2010.
In all thirty-eight percent of respondents forecast slight price growth in the market for economy class residential real estate, while approximately a quarter of the surveyed respondents (27%) expect prices to stabilize in this segment. Most respondents (67%) do not foresee significant changes in rental rates for class A and B business centers, whereas 72% of respondents anticipate stabilization and even price growth for class C business centers.
The sector is also witnessing gradual consolidation, as small uncompetitive companies leave the market and major players strengthen their key positions on the market. Consolidation may also be boosted by the development of self-regulating organizations (SRO).
At the same time, despite the optimistic forecasts, cost reduction still remains a priority for most Russian companies. Retention of market share in the current environment has forced players to take new measures to increase competitiveness in their specific area of operations. Accordingly, 67% of respondents have already restructured their businesses, 22% have increased their specialization, while 38% have accessed new markets. On average companies have managed to cut costs by 20%, while 77% of respondents intend to focus on cost control and cost reductions in future.
IIn turn foreign investors have been vigilant in respect of the Russian real estate market and are in no rush to invest money in projects that had previously appeared to hold so much promise. Alisa Melkonian, Partner and head of the Tax Department of KPMG's North-West Regional Center, notes: “The recovery of the Russian real estate market may be assisted by the revival of interest from foreign investors, which reduced materially their investments after the 2008 crisis. In addition, in view of the new realities in offshore regulation, we may see demand for new investment structures that mitigate investor risks.”
To read the full text of the survey, just click here.