Wednesday 1 October 2008

Russia's Credit Crunch


"Moscow's decade-long 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

Investors should ``steer clear'' of Russian real-estate stocks including PIK Group and Sistema-Hals because the industry will be the country's ``hardest hit'' in the event of a global recession, JPMorgan Chase & Co. said in a note to investors Sept. 29.

Higher borrowing costs already are crimping demand for apartments, said Oleg Repchenko, head of Real Estate Market Indicators. Prices may fall in the fourth quarter and in 2009 post the first decline in 11 years, according to the Moscow-based research group. The decline may reach as much as 30 percent for some types of apartments by the end of 2009, Repchenko said.

PIK, the Russian developer with the biggest market value, has lost 79 percent of its market value since an initial public offering in June 2007. OAO Open Investment, the country's second- largest publicly traded property company, has declined by 52 percent this year. LSR Group, the Russian developer and building- materials maker controlled by billionaire Andrei Molchanov, has fallen 64 percent."


Housing is cyclical. The cause that makes the cycle to reverse is always different.

Who would have thought that the U.S. would be the weakest link at the end of this decade? I guess nobody, that's the reason why credit risks were misplaced. So banks are falling like dominos while many are getting nationalized. This will continue for the time being...

Here is a view of the Russian Central Bank:

"Global financial crisis will last another 15 months and external debt financing in that period will be difficult, "if not impossible," the first deputy head of the Russian central bank said on Wednesday."

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