Prices for new apartments in the resort towns of the Black Sea coast have been growing at an unprecedented pace in the past two years. The cost of an apartment in Sochi is very close to Moscow prices due to high demand and limited supply.
House prices in a resort area
The moratorium on construction of residential buildings, a shortage of land for housing development, and the overall situation in the economy are the main factors that contributed to the rise in apartment prices in Sochi over the past 18 months.
The cost of new apartments in Sochi rose by 76.5%, to more than 350,000 rubles ($4,553.15) per square meter since the beginning of 2021. The biggest leap in prices took place from January to June. The price per square meter has been above 350,000 rubles since mid-summer.
“While the moratorium is in place, the average cost of property in Sochi will grow by 20-25% per year in 2022-2023. The infrastructure is developing dynamically. Apartments in new residential areas are put up for sale, and the prices in the Adler area are expected to grow by 25-30% a year on average,” local real estate market experts said.
According to the analysts, the demand for new apartments in Sochi at the beginning of 2021 increased 2.5 times year-on-year. For example, there were 132,000 searches in January. The interest in Sochi real estate changed in November. It got back to the pre-pandemic indicators, 70,000-80,000 searches per month. Total demand increased by 24% over a year, up to 1.8 mln searchers.
The highest figure for the last five years was observed in April 2021 when 1,953 deals were recorded. The demand was stimulated by the news about the general plan and the introduction of the moratorium on the construction of multifamily houses. After May, the number of transactions returned to average values, 576 to 810 per month. The Adler district accounted for the largest number of transactions (32%) in 2021.
“Such dynamics was caused by the fall in the most available supply and the moratorium on new housing construction projects in Sochi,” said head of the analytical center CIAN Alexei Popov. He also explains the rush in demand by the fact that many people consider resort towns as a place for warm wintering when the borders are half-closed.
Price increases occur in absolutely all segments of the Sochi real estate market, say experts. At first, prices for new apartments surged. Then the prices in the secondary segment and the prices for houses, land plots, and commercial real estate went up.
“New apartments cannot be cheap a priori because of the high costs of registration, design, construction materials and the subsequent delay of shareholders’ money in escrow accounts until the commissioning of the complex,” say experts. “As for elite property, its prices increased, too, and1.5 million rubles ($19,513.5) per square meter is now commonplace.”
Realtors earlier said that the average price per square meter of residential property in Sochi will reach 500,000 rubles ($6,504.5) at the end of this year and the beginning of the next year. According to their data, investors have been able to earn several million rubles (per transaction) on reselling Sochi apartments over the last six to 12 months.
Main provisions of moratorium
Starting July 1, 2021, and until the experts draw up a new master plan for Sochi, the resort town has a moratorium on the construction of multistoried buildings. The ban will tentatively last for about 2 years.
“Now a new master plan of Sochi is being developed which will identify all the problems of the resort, ways to solve them and the general vector of the city’s development. Until the general layout is approved new construction permits for apartment houses will not be issued. Our common task is to make Sochi as comfortable as possible for the residents,” said Governor of Krasnodar territory Veniamin Kondratiev.
Chaotic infill development is the root of the problem.
“Sochi is extremely overpopulated,” Finam Group analyst Alexei Korenev said. “The resort uses every square meter of land to build houses, so it is already necessary to build to a height which spoils the appearance of the city. It is one thing to have elite hotels on the beach, but it's another thing to have unauthorized development, for example, in Bytkha.”
The restriction on construction applies to residential buildings and hotels. Thus, the area of individual residences cannot be more than 300 square meters, and the height is a maximum of 12 meters. Hotel complexes can be built only under the agreement on the complex development of the city. The total area of the territory must be more than 1 hectare. There must be star-rating and service by international operators.
“Over the past 10 years, 4.5 million square meters of housing has been built in Sochi. This also created a shortage of 9,000 kindergarten places, 25,000 school places, and medical facilities. It will take 25 years to meet the demand for places at kindergartens and schools at the current pace of construction,” said First Deputy Head of Sochi Administration Denis Yurkovsky.
Why do people move to big cities?
The number of city dwellers keeps growing mainly due to the exodus of people from the countryside. A lack of well-paid jobs makes people move to urban areas and get a foothold there.
For comparison, a security guard working 24 hours a day followed by three days off earns about as much as an agribusiness employee who works six days a week from morning to evening under the boiling sun and often has no work at all in winter. The only choice is to move to a town and get a mortgage to buy an apartment.
Human ant-hills under construction help resettle people now. Here are the stubborn and sad numbers. The availability of housing is about 50 square meters per person in Europe, 70 meters per person in the United States but only 23 meters per person in the Russian Federation. Moreover, about 40 percent of housing in Russia is not connected to a sewer system or one of the basic amenities of civilization, for example, gas or running water.
Of course, people seek a better life. Investors will not come to places where people are fleeing from, but everybody is happy in this situation. A citizen gets normal living conditions while the construction business get profits.
Is it possible to buy something cheaper in Sochi?
Buyers, who are looking for cheap housing in Sochi, should focus on apartment buildings built before 2000. Apartments in older buildings are up to 80% cheaper than the so-called “new secondary housing.”
According to information from brokers, there were 311 one-bedroom apartments on the secondary real estate market in Sochi in July 2021, built before 2000. For comparison, there were 1,900 houses built after 2000.
The cost of the “old secondary” apartments in Sochi is significantly lower than that of the “new secondary”, experts say. Thus, it is possible to buy a one-room apartment in the old building 65% cheaper than a similar one-room apartment in a house built after 2000. The difference in cost per square meter is 30%, while the difference in their areas may reach up to 27%.
“In general, the average cost of an apartment in houses built after 2000 is 79% higher – 10.3 million rubles ($133,992.7) against 18.5 million ($240,666.5). According to experts’ estimates, the difference in price per square meter is less significant but also in favor of “new secondary market,” by 24% higher.
The real estate market in Sochi will grow over the next few years. According to experts, the cost of housing in the resort town will rise shortly. The highest increase in apartment prices may amount to 20-40% of the current price. Hopefully, Sochi authorities will be able to minimize the negative consequences of the bans and solve social infrastructures problems, while the new master plan will improve living conditions.