Real estate investment opportunities of St. Petersburg

1. Investment opportunities of St. Petersburg
residential real estate market
September 2013
prepared
by
SIG
Russian Real Estate

2. 2
Russian residential real estate market
Structurally attractive
ü The Russian residential property market is still in its infancy and lags behind the
international market in size, scope and sophistication.
ü With per capita living space 40% below the global average and 20% of existing stock in
need of a major overhaul/full reconstruction, Russia’s residential property market remains
structurally undersupplied. Importantly, new stock is almost exclusively oriented towards
internal demand.
ü Despite double-digit growth in 2010-12, the mortgage market accounts for a negligible 2.6%
of Russia’s GDP. Given that 90% of Russians own their predominantly low-quality, small-
size flats and houses with no mortgage or rental payments attached, the Russian residential
market presents a significant trade-up opportunity for underleveraged consumers.
ü According to a report released in late February 2012 (based on IMF, OECD, Eurostat and
national statistic bureaus’ data), Russia — with the economy growing at 3.4 percent —
ranked first in the G8 and second among BRICS nations, in terms of economic growth rates
in 2012.
ü In 2012 transaction volumes in St. Petersburg’s primary market (by sq m sold) increased by
31% YoY. Sales volume reached 195 billion Rub.
ü Average selling prices in St. Petersburg’s primary market constantly growing since late
2010.
ü According to 2012 figures, 690,700 loans were issued for a total amount of RUB 1.29 trillion
(EUR 25.7 billion), which is 1.3 times higher in quantitative terms and 1.4 times higher in
money terms than in 2011. In terms of number of loans, this is 341.2 thousand loans
reached pre-crisis peak in 2008 (349.5 thousand loans).

3. Low residential construction levels
New residential construction peaked in the
late 1980s at around 70 mn sq m. per annum,
before falling to a low of around 30mn sq m.
in 2000 as the state’s involvement in
residential construction reduced significantly.
Thereafter construction volumes gradually
improved and peaked at 65.2 mn sq m. in
2012, albeit still below levels delivered in the
1980s.
Population
Russia is the ninth-most populous country in
the world, with a population estimated at
143.3 mn at January 2013.
The mortgage market
Russians carry minimal mortgage debt per
capita, estimated at just 2.6 % of GDP in
2012. This compares with 5% of GDP in
Turkey, 52% across the EU and 81% in the
US.
Housing stock per capita
The current housing stock is insufficient, with
an average housing stock of 22 m2 per
capita, far below other more developed
countries, while the demand for housing is
1,570 mn sq m., which corresponds to 31-32
m2 of per capita.
Quality of housing stock
Rapid government-funded housing
construction decreased dramatically after the
breakup of the Soviet Union in the early
1990s. As a result, the existing Russian
residential housing stock includes a
substantial amount of aging or obsolete stock.
Residential completions, (mn sq m)
65
50
43 42 41 39 38 38
35
31 30
25
22
Housing stock per capita (sq m)
average 38
Existing residential stock in Russia
60%
11%
9%
20%
Poorly maintained
Need urgent major
overhaul
Need full
reconstruction
Other
Mortgage lending as a proportion of GDP, 2010
Source:
European
Mortgage
Federa2on
Source:
Russian
Ministry
of
Industry
and
Trade
Source:
Rosstat
Source:
UNECE,
Rosstat
3
Russian residential real estate market
Snap shot
70,0
65,2
5,2%
5,4%
5,6%
5,8%
6,0%
6,2%
6,4%
6,6%
0
10
20
30
40
50
60
70
80
share of St. Petersburg and Leningrad region (right scale)
81%
52%
11%
5% 2,6%
USA EU-27 Ukraine Turkey Russia

4. ü Residential real estate market of St. Petersburg is characterized by the lack of supply
and high demand.
ü The housing market is fully recovered from the 2008 economic crisis. The volume of
supply and demand returned to pre-crisis levels.
ü A significant share of both supply and demand shifted to suburban areas. Suburban
areas account for almost a third of the total market.
ü Sales for the 1Q-3Q 2012 practically reached figures FY 2011, exceeding the pre-crisis
level.
ü The share of low-rise residential of the total market volume does not exceed 25% in
terms of supply and 5% in terms of market sales.
ü The main driver of growth of demand for residential real estate has been and remains
mortgage loans.
ü As a result of the research performed at the end of 2010, was identified that a backlog
demand for residential real estate in St. Petersburg existed in the amount of 18.1 million
sq. m., over half of which is economy class. Before 2016 demand for the residential real
estate in St. Petersburg won’t be satisfied, providing the existence of a stable demand
outside the forecast period.
ü The degree of consolidation in the industry enables investors to enter the primary
housing market and become a middle tier player the next 3-5 years.
ü It is economically feasible to enter the market with high-rise residential projects of 50
thousand sq m. or more.
Saint-Petersburg residential real estate market
Snap shot
4

5. 12%
25%
0%
5%
10%
15%
20%
25%
30%
35%
2,0
2,5
3,0
3,5
total supply low-rise residential supply (right scale)
72%69%72%69%67%67%71%71%73%73%69%66%72%66%63%
56%
28%31%28%31%33%33%29%29%27%27%31%34%28%34%37%
44%
city suburb
2,3 2,4
2,6
3,2
2,6 2,7 2,6 2,6
0,5
0,7
0,8 0,9 1,0 1,0 1,1 1,1
St. Petersburg Leningrad region
80%
70%
76%
81%
77%
60%
65%
70%
75%
80%
85%
2,0
2,5
3,0
3,5
4,0
4,5
5,0
total supply share of economy class (right scale)
Source:
Spb
realty,
analyst
research
es2mates
Source:
Rosstat
Source:
Spb
realty,
analyst
research
es2mates
Annual residential completion, mn sq m Supply, mn sq m
Territorial structure of supply, % Economy class supply, mn sq m
Source:
Spb
realty,
analyst
research
es2mates
crisis period
Q1 2008 – Q1 2010
+16%
crisis period
9 quarters
Saint-Petersburg primary residential real estate market
Supply
5

6. 0%
1%
2%
3%
4%
5%
6%
7%
8%
0
200
400
600
800
1 000
1 200
total sles low rise residential share (right scale)
Source:
Spb
realty,
analyst
research
es2mates
Source:
Spb
realty,
analyst
research
es2mates
Source:
Spb
realty,
analyst
research
es2mates
Economy class high-rise residential real estate
prices, thousand RUB per sq m
Residential real estate prices, thousand RUB per sq m
Primary residential real estate Sales, thousand sq m Territorial structure of sales high-rise residential real estate, %
Source:
Spb
realty,
analyst
research
es2mates
96%
93%
94%
92%
91%
90%
88%
85%
90%
91%
91%
89%
91%
89%
89%86%83%84%
77%78%78%79%
4% 7% 6% 8% 9%10%12%15%
10%9% 9%11%9%
11%
11%14%17%16%
23%22%22%21%
city suburban areas
Saint-Petersburg primary residential real estate market
Prices and sales
peak sales before crises
6
50
55 55
58
66
74
77
75
71
66 65 64 63 63 62 63
65 66
70
72
74 73 75
76
37
4545
47
51
58
65
62
57 55 54 53 51 53 52 54 55 57 57 57
60
62 63
65
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
city suburban
98
111
121 118 115
108 102 97 94 95 93 92
101 106 108 112 115 120 127 130
197
223 234 218 213
203
191 187 187
195 191
200 204 200 203
211 222 225 227 230
66
74 77 75 71 66 65 64 63 63 62 63 65 66 70 72 74 73 75 76
middle class elite economy class

7. Major players in terms of revenue in the residential market, 2011 Major players in terms of market size in the residential market,
2 Q 2012 *
*Market size - the total gross area, or the number of apartments in buildings under construction that are on sale, including sold apartments. In
the market does not include objects in which sales of apartments have been completed, suspended or have not yet started.
Source: analyst research estimates
Saint-Petersburg primary residential real estate market
Economy class prices and sales
7

8. Source:
analyst
research
es2mates
Source:
analyst
research
es2mates
Source:
analyst
research
es2mates
Supply forecast, mn sq mSegmentation of households by income per month,
thousand RUB
Number of households by income per month,
thousand RUB
Sales forecast, mn sq m
Source:
analyst
research
es2mates
Saint-Petersburg primary residential real estate market
Valuation of effective demand Supply and sales forecast
8
3,0 3,2
4,2
4,6 4,8 4,8
2,7
3,4
2011 2012 2013F 2014F 2015F 2016F
forecast fact
*the average value over the year
3,5
3,3
3,4
3,3 3,3 3,33,3
3,6
2011 2012 2013F 2014F 2015F 2016F
forecast fact*
<40
41-120
121-250
251-600
600-1000
1200
33% 29%
42% 50%
24% 20%
0,17% 0,03%
2008 2011
elite (>1200k RUB)
middle (121-1200k RUB)
economy class (40-120k RUB)
insolvent demand (up to 40k
RUB)

9. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1986
1990
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1986
1990
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
CR3
min
max
CR3 - three largest companies in the industry in terms of revenue
I. Beginning II. Growth IV. Balance
Consolidation of the industry before the crisis 2008
Consolidation of the industry after the crisis 2008CR3
min
max
2006
18,5%
22%
macro shock,
financial crisis 2008
20242002
23 years
20212002
22%
III. Specialization
40%
20 years
40%
25%
27%
rate of
consolidation
Russia's economy in general and the
construction industry in particular, have been
deregulated since the collapse of the Soviet
Union.
In this analysis was estimated residential real
estate industry consolidation. Shares of the
companies were distributed according to the
amount of revenue from the sale of residential
real estate. (revenues from other businesses
of the analyzed companies are not included).
Currently the industry is in the middle of the
second stage of consolidation. Growth leaders
are Glavstroy, LSR and SETL City. Combined
market share of these companies is 27.5% in
terms of revenue.
Since deregulation the construction industry
has experienced two macro shocks - one in
1998 and the second in 2008. The result of the
recent crisis has been an acceleration of
industry consolidation and a reduction in the
time intervals between the stages
consolidation.
At this stage, there is an opportunity to
become one of the leaders in the industry, but
this requires above-average growth or
absorption of second-tier players.
In the absence of macro shocks in the future,
the industry will come to the third stage of
consolidation in 2021, when the transformation
into an industry leader will be practically
impossible, if it has not happened in the
previous stage.
I. Beginning II. Growth IV. BalanceIII. Specialization
Saint-Petersburg primary residential real estate market
industry Consolidation
9

10. Arsen Kelemenyan
CEO at SIG
mob.: +7 911-916-18-42
e-mail: arsen.kelemenyan@sig-company.com
Thank you for your attention
Contact information
10