Moscow’s decadelong building boom is falling victim to the global credit crunch as record high interest rates squeeze developers in the world’s third-most expensive property market.
“Loan rates have climbed to ridiculous heights, and the terms are very short,” said Dmitry Lutsenko, a board member at Mirax Group, the Moscow-based company that’s building the city’s Federation Tower, which will be Europe’s tallest tower when completed in 2010.
Mirax canceled plans to develop 108 million square feet of commercial and residential space after interest rates on some loans rose to as high as 25 percent, Sergei Polonsky, Mirax’s billionaire owner, said in an e-mail Monday.
The company’s Web site shows it has projects in countries including Russia, Ukraine, France, Turkey, Cambodia, Vietnam and Montenegro.
Moscow is now the world’s third-most expensive location for residential property, after Monaco and London, according to Global Property Guide.
Higher borrowing costs already are crimping demand for apartments, said Oleg Repchenko, head of Real Estate Market Indicators.
In 2009, prices may fall for the first time in 11 years, according to the Moscow-based research group. For some types of apartments, they may be down by as much as 30 percent by the end of the year, Mr. Repchenko said.
“Liquidity risks associated with Russian property developers have never been higher,” Julian Crush, an analyst at Fitch Ratings, said in a report Tuesday.
The collapse of the U.S. subprime-mortgage market and subsequent global credit crunch has forced smaller Russian developers onto the sidelines, said Avni Akvardar, vice president of St. Petersburg-based Renaissance Development, whose projects include a 6 billion ruble ($239 million) shopping mall in Novosibirsk, Siberia’s biggest city.
“Banks have certainly curtailed lending in Russia,” said David Geovanis, managing director at London & Regional Properties in Russia, which has invested more than $702 million here since 2005.
London & Regional won’t halt any projects in Russia because it already has financing from banks including state-run OAO Sberbank, Russia’s biggest, Mr. Geovanis said. The company’s projects include shopping malls in Penza and Kaluga in central Russia and hotels in Novosibirsk, Omsk and Rostov, he said.
“It will be tougher for new entrants and smaller developers,” Mr. Geovanis said. “But banks will continue to back large companies with good credit histories.”
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