OREANDA-NEWS. February 9, 2009. Several development companies, in particular, DSK-1, M-Industria, Snegiri and PIK announced that they would start using conditional units on February 1 in settlements with their customers. Don-Stroy is going to keep the same prices in roubles until February 15. The companies MIRAX GROUP and AFI Development have always utilized conditional units, defining their own exchange rate for settlements. Realty market experts forecast that under rouble devaluation conditions, other companies will also follow the example of these developers.

The developers’ drive to play safe and level their own risks may lead to reduced demand in the residential realty market. As for commercial realty transactions, many developers make use of conditional units in this case. Natalia Ivanova, Director of the PR Department for AFI Development told BFM.ru that a company always had its corporate conditional unit rate which is used in settlements. 'The value of our conditional unit is determined by an internal order and is not directly pegged either to euros or dollars. This is convenient both for the company and its customers.'

Another developer – DSK-1 – will calculate the value of its conditional unit depending on the dual currency basket. As a company representative explained to BFM.ru, apartment prices would be quoted in conditional units calculated by the ‘corporate rate.’ DSK-1 does not report any details of the coming price re-calculations so far.

Alexey Topolnitsky, one of M-Industria managers confirmed to BFM.ru that from February 1 the company was calculating the cost of square meter, based on conditional units: ‘A few years ago we practiced that. Now we will also re-calculate prices in order to secure our risks from rouble devaluation. If we leave the price in roubles and sell apartments, we may go below the prime cost level and will trade at a loss.’

Alexey Topolnitsky also told that completed apartments would be sold at revised prices, as well as those finished by 90%. It is important for the company to retain economic efficiency of buildings. If the price is still given in roubles, the dollar value of apartments goes down. 'Those houses were built when the cost of building materials was maximal. Besides, the price for plots of land has increased, as well as hookup of buildings to monopoly services, in particular, to electric power and gas,’ said an M-Industria officer. Alexey Topolnitsky refused to give the corporate conditional unit rate, but he said that its value would depend on the bi-currency basket rate: ‘It is only known that after February 1 the price for square meters in roubles will be higher than at present,’ he noted.

Denis Kolokolnikov, Director General of RRG believes that nothing new is happening, indeed: ‘Companies have come back to the time when dollar was constantly gaining value. The same situation can be observed now, and in order to level their risks in exchange rate differences, developers decided to associate prices with the corporate conditional unit or to the Central Bank quotes. Rouble is continually devaluating, therefore it is more profitable for the companies to designate a stable price in foreign currency instead of constantly changing the apartment price in roubles.’

There is no accord in the developers' actions: Some of them peg prices to dollars, others - to the bi-currency basket, yet the rest leave roubles in their price lists. Denis Kolokolnikov believes that every developer act as it is more beneficial for it: ‘Indeed, some rely on stability of the dual currency band. However, generally, developers try to peg their prices to the currency of their loan or to the currency they use for purchasing building materials. And since the dollar is more stable, one can suppose that still most of the market participants will peg the cost of square meters to this currency.’ The expert sees a publicity move for attracting customers in the fact that some companies retain rouble prices.

‘Due to the dramatic decline of the rouble rate apartment prices in dollars have considerably reduced in the past month. Rouble prices have remained virtually on the same level. However, the conversion of the cost of square meter into conditional units is not quite explicit. One should understand by what rate developers will convert rouble prices into dollars. As you know, both in November, December, and now rouble prices have hardly changed, but the currency rate has increased rapidly. That means the companies can re-calculate foreign currency prices, based on the last year dollar or euro rate, and then the rouble cost of apartments will literally bounce and will later grow along with the foreign currency rate,’ thinks Denis Kolokolnikov.

According to the expert, conversion of apartment prices to dollars may impact the declining demand. ‘We should also take into account the aspect that many banks have stopped crediting in foreign currency, thus, it would be very hard today to purchase new developments on credit. It turns out that a person takes on credit in roubles, while purchasing the apartment by foreign currency rates, which may change during formalization. This factor is capable of reducing demand on the psychological level of perception.’

Besides, developers may secure themselves from a slump of the national currency rate. For instance, when a contract is first made and money is paid a bit later. Snegiri Co. explains their transfer to conditional units by the intensified rouble devaluation. Prices for all residential complexes built by the company will be calculated in conditional units equal to US dollar by the current rate of the Central Bank of the Russian Federation.

‘Introduction of this measure was determined by rapid fluctuations of foreign currency rates in the domestic market,' the company's official document explains. ‘Under conditions when a lot of projects in the initial and mid-stages of construction have been mothballed, in the outlook of one to three years, a dramatic decline of commissioned accommodation volumes is expected. In this environment completed new developments in prospect will be in increased demand, and their cost will inevitably go up sharply,’ as forecast by Snegiri.

Realtors respond calmly to the situation and are already prepared to sell apartments whose cost is pegged to foreign currency rates. Moreover, it is realty agencies that have never refused setting the contract amount in foreign currency. Alexey Shlenov, Director General of MIEL-Brokerage highlights that it is sometimes beneficial for customers themselves: 'Pegging to dollars or euros is relevant for those who purchase property abroad. The following trend is more and more frequent: for example, apartments are sold in Moscow and bought in resort towns abroad, and increasingly, such resettlement is made by retired people. For them, it is more profitable to peg prices in dollars or euros.'