Design of investment criteria system in residential and commercial real estate providing maximal rate of return for investor in short term

Table 1

	One-roomed flat	Two-roomed flat	Three-roomed flat
District	rubles	rubles per square meter	rubles	rubles per square meter	rubles	rubles per square meter
Petrogradsky district	8 278 275	193 665	12 913 860	190 231	19 560 580	189 562
Central district	7 691 500	176 900	12 048 540	175 809	18 042 980	174 922
Admiralteysky district	5 787 300	136 780	9 595 320	134 922	14 432 000	134 800
Primorsky district	4 537 050	119 630	7 249 920	120 832	11 220 720	117 008
Moskovsky district	4 355 470	114 442	7 109 520	118 492	10 821 820	115 798
Krasnoselsky district	4 339 720	113 992	6 585 240	109 754	9 704 970	107 833
Frunzensky district	4 301 955	112 913	6 685 320	111 422	10 082 340	112 026
Kalininsky district	4 227 965	110 799	6 834 120	113 902	9 884 970	109 833
Vasileostrovsky District	4 209 065	110 259	6 919 800	115 330	10 749 150	119 435
Kirovsky district	4 168 850	109 110	6 000 000	100 000	8 780 400	97 560
Vyborgskiy district	4 119 115	117 689	6 488 240	114 804	10 443 060	116 034
Nevsky district	3 748 570	106 102	5 808 920	103 482	8 248 240	101 536
Krasnogvardeysky district	3 668 525	94 815	5 550 140	99 169	8 834 400	98 160

Average prices of property of primary market*

*Source: research conducted by The Center for Research and Analytics «Bulletin of Real Estate», Primary real estate market, May 2019.

Secondary property market

As it could be learnt from Figure 1, average prices for secondary real property market have increased by 13.5 percent in two years and they are expected to proceed the following tendency with application of project funding which is planned to be implemented on July 2019. Current average price for real property of secondary market reaches 119 thousand rubles while primary market shows 112 thousand rubles. In addition, weakness of local currency facilitates to prices growth and population in order to save money are willing to purchase already commissioned flats. Concerning distribution of prices among districts of Saint Petersburg, we may observe the following scenario in Table 2. As it was mentioned before top three districts of primary market in terms of prices included Petrogradsky, Central, Admiralteysky, while secondary property market top differs slightly regarding Vasileostrovsky instead of Admiralteysky. Kirovsky district, Nevsky district, Krasnogvardeysky district were distinguished as the most affordable districts in terms of average prices.

Table 2

Average prices of property of secondary market*

	One-room flat	Two-room flat	Three-room flat
District	rubles	rubles per square meter	rubles	rubles per square meter	rubles	rubles per square meter
Petrogradsky district	8 978 650	165 955	14 174 560	169 576	20 021 000	166 900
Central district	8 066 300	152 210	13 258 120	154 302	18 843 980	153 822
Vasileostrovsky District	7 277 670	142 589	11 261 980	146 033	18 400 990	150 011
Moskovsky district	7 142 430	138 081	11 464 440	141 074	17 345 180	140 502
Admiralteysky district	6 995 460	133 182	11 364 740	131 079	16 701 890	130 021
Primorsky district	6 884 340	129 478	11 155 400	127 590	16 418 990	130 211
Krasnoselsky district	6 582 270	119 409	9 368 620	114 477	15 123 080	115 812
Frunzensky district	6 428 340	114 278	9 183 160	111 386	14 440 340	108 226
Kalininsky district	6 407 400	113 580	9 311 620	113 527	13 414 080	115 712
Vyborgskiy district	5 984 980	116 166	9 114 580	110 243	12 063 440	111 816
Kirovsky district	5 829 220	110 974	9 391 840	114 864	13 846 690	112 741
Nevsky district	5 328 950	110 965	8 324 520	108 742	11 023 000	104 700
Krasnogvardeysky district	5 299 160	109 972	8 779 700	112 995	11 504 950	110 055

*Source: research conducted by The Center for Research and Analytics «Bulletin of Real Estate», Secondary real estate market, May 2019.

Commercial property

Office property

Segment of real estate such as office property is defined as aggregate with building, business premises, premises located on the first and ground floors, premises of free appointment and premises of former and valid enterprises. Current market situation illustrates stagnation due to revision of rent payment. The initiator was tenants due to unpromising economic situation and are intended to reduce the number of rented squares. At that point, business centers and owners of office properties meet tenants' demands as in terms of current economy to find new ones will be much harder, while building companies are revising their projects squares in order to suit the favors' of potential clients.

At current moment tenants decision making system is strictly tied up with economic situation or financing sources and to make a proper decision market players are supposed to decline the number of square meters to provide expenditures optimization. Amateur businesses in front of larger companies optimize their costs by staff review and sift unnecessary links and changing «A» classes offices to lower ones.

Due to current economy and dramatic ruble devaluation, the model of demand and supply will be forming otherwise. Basing on the fact that mostly the bidders or tenants are companies of middle and larger segments, these two segments are willing to optimize cost structure through changing business centers or paying attention of building projects in order to enter the market of rent with lower price, while developers of already commissioned objects will face sales decline.

Picture 5 reflects the total supply of trading property and amount of new

projects in thousand square meters.

Figure 5. Total supply of office property in thousands of square meters*

*Source: research conducted by The Center for Research and Analytics «Bulletin of Real Estate», Commercial property market, office property Q4 2018.

From 2010 till 2018 the total supply has dramatically grown. However, recent two years there are no sharp fluctuation and only stagnation is observed. Besides that, number of new object does not extend as well. This phenomena could be explained by oversaturation of market supply, thus, developers are not planned to construct extra square meters of commercial properties due to already substantial supply, while demand on rent is prone to decrease due to economic situation as well and tenants refrain from entering this niche. Moreover, construction density is projected to remain on the same level at least two years with 3 500 square meters of area.

The market of office property is now exposed by the most harmful damage of downfall for recent 6 years and the period of recovery is still far from being observed. Moreover, market risks are extremely high in current economic situation and it is expected to project objects of commercial properties for specific corporate clients or investors in terms of preliminary agreement.

Trading property

Trading property according to Tax code of Russian Federation item of 346.27 includes stores, consumer services centers, multifunctional complexes, paid parking, public catering and retail.

Figure 6. Total supply of trading properties in thousands of square meters*

*Source: research conducted by The Center for Research and Analytics «Bulletin of Real Estate», Commercial property market, trading property Q4 2018.

The trading property market is resembling with office property market and general stagnation is observed as well. 2018 year is marked as the year with only one huge deal - purchase of the «Nevsky Center», a shopping store with 94 thousand square meters area, which was sold for 166 million euro. No more new projects were not announced. Besides that, the number of reconstruction is exceeding the number of future projects due to lifestyle of properties in the center of the city and other districts. Deficit of square meters is not expected soon. However, number of vacant commercial objects is rising due to huge and medium market players leave.

Despite actual situation of local economy and sharp devaluation of currency, a temperate activity is sustained. Developers are approving commissioning terms and are oriented on long-term perspective, while tenants usually apply so-called fixing arrangement concerning rent payment and freezing exchange rate s of foreign currencies to hedge political and economic risks with 12 months expiration period.

Warehouse property segment

As it could be learned given segment as previous ones is also exposed by economic situation and crisis appearance. The level of supply is growing, while number of new project fluctuates and does not exceed the highest mark of 324 thousand square meters in 2014. The growing supply might be conditioned by huge and medium market players leave the market.

Concluding the chapter, we may observe stagnation in almost every segment of commercial property due to exceeding supply and descending demand due to problems with running business caused by political and economic instabilities. To predict the following changes of bearish markets tends to be difficult as external factors influencing general situation of country originated approximately 5 years ago and echoes of these events still exist and impact on Russian real properties markets. Despite oversaturation of supply and decreasing number of new projects, prices are not recorder to have downward tendency, otherwise bearish market might be suitable for purchasing objects with perspective to resell it for higher price. However, residential property also shows bullish attitude due to application of project funding in July 2019 and already mentioned economic downturn. But the main point for paying attention of residential property niche is a comparatively stable demand on housing buildings and sustained population growth of Saint Petersburg. Next chapter concerns analysis of investment project of residential complex with confirmation of expediency of investment attractiveness and also financial indicators of commercial object investments.

Figure 7. Total supply of warehouse properties in thousands of square meters*

*Source: research conducted by The Center for Research and Analytics «Bulletin of Real Estate», Commercial property market, warehouse property Q4 2018.



Description of results

Analysis of investment project - residential complex «New Time» from developer «RosStroyInvest»

The following chapter involves financial grounding of investment attractiveness of residential complex «New Time». Table 4 concerns 3 possible outcomes of real estate market development. In any way, prices are projects to show upward trend. «RosStroyInvest» belongs to group of developers from the first echelon. In addition, with regard to oncoming project funding application rises prices on 1.5-2% minimum.

Table 4

Feasible scenarios

Periods (months)	pessimistic outcome	realistic outcome	optimistic outcome
0	2 237 353	2 237 353	2 237 353
1	2 259 727	2 282 100	2 293 287
6	2 374 995	2 398 510	2 594 644
12	2 521 105	2 546 067	3 008 991
18	2 546 316	2 702 701	3 084 216
24	2 840 845	2 868 972	4 046 758
30	3 015 614	3 045 471	4 692 999
48	3 607 119	3 642 833	5 866 249

The pessimistic outcome provides forecast with constant prices' growth of 1 percent. In terms of realistic one prices are expected to show 2 percent growth monthly and the last but not the least optimistic outcome will appear if economic and market situation will be facing recession with prices increase on 2.5 percent. Furthermore, as investor is intended to use debt, then to be aware of mortgage programs, investor should explore official website of developer and choose those banks who possess accreditation. As terms of realization are determined by the owner it is recommended to obtain mortgage with the highest expiration rate and for the lowest interest rate. Moreover, the maximum ownership of accommodation refers to 4 years or 48 months. Then to receive the accommodation or rights to demand on future accommodation from developer in terms of primary property market, bank is prone to be sure in your seriousness of intent to purchase this object and your solvency. Thus, it demands on initial fee, which reaches 15-20 per cent on average. The credit was provided by «Absolut Bank» with interest rate of 9.9 percent for 30 years. Minimum allowable initial fee was defined as 20 percent or 447 470 rubles, consequently, the entire value of the flat is 2 237 353 rubles.

Table 3 provides calculation of possible profit in terms of realistic outcome.

Table 3

Investment analysis of project in terms of realistic outcome*

	Periods (months)
	6	12	18	24	30	48
Property price	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
Credit provided by bank	1 789 883	1 789 883	1 789 883	1 789 883	1 789 883	1 789 883
Equity	447 470	447 470	447 470	447 470	447 470	447 470
loan rate (%)	0.099	0.099	0.099	0.099	0.099	0.099
Loan interest for several period	88 599	177 198	265 798	354 397	442 996	708 794
Total amount of investment	536 069	624 668	713 268	801 867	890 466	1 156 264
The price of realization at the end of period	2 398 510	2 546 067	2 702 701	2 868 972	3 045 471	3 642 833
Profit before taxes	72 558	131 515	199 551	277 222	365 122	696 686
Amount of tax payment	9 433	17 097	25 942	36 039	47 466	90 569
Net profit	63 125	114 418	173 609	241 183	317 656	606 117
ROI	14%	26%	39%	54%	71%	135%

*Estimated value

Property purchase price remains unchangeable so as credit provide by bank, equity and interest rate do. Annuity payment was determined as 15 708 rubles and loan interest amount are presented in accordance to specific periods. Total amount of investment was calculated as sum of equity and loan interest for several period as in terms of deal expiration loans are obligated to be paid. Measurements of realization price were taken from scenario analysis. Amount of tax was measured as 13 percent of delta indicator, which presents difference between realization and purchase prices. Return of investment or ROI is the simplest financial indicator and it concerns turnover of investment. As it could be learned from the Table 3 ROI indicator is rising proportionally to expiration terms and realization price. Due to constant price growth from developer in terms of project realization in 6 months ROI reaches 14 percent. Thus, the most perspective variant of investment might be holding the asset until the end of operational period or 48 months.

Now we are moving to income of realistic outcome in case of using only equity. Table 4 provides essential calculations.

Table 4

Investment analysis of project in terms of realistic outcome with only equity use*

	Periods (months)
	6	12	18	24	30	48
Property price	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
Credit provided by bank	0	0	0	0	0	0
Own funds	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
loan rate (%)	0	0	0	0	0	0
Loan interest for several period	0	0	0	0	0	0
Total amount of investment	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
The price of realization at the end of period	2 398 510	2 546 067	2 702 701	2 868 972	3 045 471	3 642 833
Profit before taxes	161 157	308 714	465 348	631 619	808 118	1 405 480
Amount of tax payment	20 950	40 133	60 495	82 110	105 055	182 712
Net profit	140 207	268 581	404 853	549 508	703 063	1 222 768
ROI	6%	12%	18%	25%	31%	55%

*Estimated value

The main point is significant difference in ROI indicator almost in 2 times if investor decides to use his own funds. Moreover, the costs in form of tax payment also increased in 2 times, which reflects so-called tax shield. Tax shield is widely spread among corporations and companies of small business to decrease the tax base due to increase of debt.

Table 5

Economic indicators of project in terms of realistic outcome

WACC	3.24%
FCF	1 144 156
NPV	696 587
PI	1.56

NPV>0=> the project is advisable to conduct.

PI=1.56=>thus, the project's susceptibility to interest rates in low.

Developing criteria of selection proper object of residential property

There is no doubt making speculations is fraught with high level of risk especially in Russian Federation developing niche endowed by low level of legislation and high level of frauds with prevailing corruption. In order not only to benefit from share building investment but also to save the capital preventing losses, share-building investor should follow a certain algorithm. At that case, shareholders are better prioritizing hedging the risks rather than chasing high profit. Among risks the author distinguishes frauds and bankruptcy of developer, significant postpone of commissioning terms and risks, which can not be predicted and are far from being appeared such as war appearance, climatic catastrophes and building destructions caused by one of shareholders' exploitation fault. To level at least risks concerned with bankruptcy and frauds a shareholder is able to proceed by proper developer selection.

Firstly, to become a share-building investor before purchasing any object it is essential to choose suitable developer. Initially it would be beneficial to pay attention on developers with huge experience on building housing niche. Portfolio of building company may reflect general view on company. In case of developer's portfolio consistence of more than 20-30 already commissioned and inhabited objects, preliminary decision of making investment regarding given developer is turning out to be positive. «RosStroyInvest» belongs to group of prosperous developers. Founded in 2002 as a contractor accomplishing almost all building and construction cycles. Currently the organization perform the role of developer, designer, investor and general contractor of building projects works, thus, solving all cycles of building process. In addition to communicating with the direct sales office, shareholders must verify the developer's reputation in the market, its financial position, contract form, and also check contractors for work experience in the construction industry. In addition to reputation, it is imperative to become familiar with the portfolio of the developer and the number of objects being built.

Second aspect, which has to be taken into consideration, is legislation, regulating relationships between share-building investor and building company. Legislation is interpreted as agreement form including rights and obligations of both sides. Taking share building for instance, at the current moment only two forms of contracts are existing: share-building contract and so-called building-housing contract. However, the last form was prohibited in 2018 and current legislation does not envisage legal shift to share building contract, which enables plenty of developers to proceed building their projects with illegal funding rising. Frequent cases of developers' bankruptcy caused by unauthorized use of equity holders and illegal personnel enrichment were the main reason of prohibition this form. Share building contract provides enhanced level of investors' security and clearly designates commissioning terms and terms of keys distribution, which enables shareholders to formalize demanding rights in property. Moreover, in case of commissioning terms delay developers is violating conditions of contract and is obligated to pay so-called penalty to real estate investors. Besides, the apartment price noted in share building contractor remains unchangeable aside from building-housing contract with floating price. This aspect is topical especially for speculators those performances are measured by investment indicators and ROI, showing fundamental aspect in decision making system, may change despite it has to be stable during preliminary analysis. Nevertheless, in case of termination of contractual relationships between developer and investor, the second party possesses the right to receive invested funds back, while investor signed a building-housing contract is deprived with this right and risks to lose funds. It is also worth being mentioned that huge developers such as «CDS» with the same experience on building market are accomplishing construction residential complexes through application of building-housing contact as the funds rising tool. «CDS» company operates on Russian building market since 2001.

Next step is to choose a specific district in accordance with target audience. As it was investigated above, the leading position of demand belongs to residential complexes of comfort class. Moreover, building density is highest in Vyborgskiy, Primorskiy and Moskovsky. Primorskiy is turning out to be the leader, therefore, decisive factor of choosing was considered in favor of given district. Competitiveness of other two district is leveled by increased prevalence of business and comfort residential complexes with higher market price in Moskovsky, while Vyborgskiy is observed as administrative unit with status of region and pension indexation depends on place of registration, which is much lower than in city registration. Moreover, Kapopoulos and Siokis (2010) are strictly convinced the main factor, which is able to effect property price, is location and transport accessibility and according to confirmed concept of metro development, «Shyvalovky prospect» station will be established in next 4 years and this factor will facilitate to transport accessibility and also to price growth. Eventually the last but not the least includes phenomena of expectancy justification. Project declaration of given residential complex claims about comfort class, however, after conversation with direct sales office and investigation of shareholders' reviews it is possible to distinguish some features of business class such as ceiling height in 3 meters, nontrivial apartment layouts, presented in appendix, and building architecture. Situations in which comfort class possesses features of business one are frequent and the main reason for developer acting this way is attract shareholders and make them buy comfort class which is positioned as business one. As for business class, the price is determined as understated while it suits comfort class, it pushes customers to purchase business class due to lower price for this type regarding low stage of completeness.

Investment analysis of mansion on the territory of Vasilivky ostrov district as the concept of business class hostel

As plenty of travelers are familiar with Saint Petersburg and its values of historical architecture, therefore, constant flow of vacationers and travelers provides stable demand for high-quality hostel and hotel services. As for services, these two niches do not differ significantly but in terms of funds needed to conduct, the project hostel niche is more appropriate. The main aspect, which has to be taken into consideration, is alike as for residential property and it is location. As all central property possesses the status of historical monuments, to demolish the building and construct the new plan appears to be impracticable. To solve this issue investors are prone to appeal to building modernization increasing their expenditure structure and deterioration degree of construction. Thus, the investment was made in favor of hostel niche. Basically, the place where factors such as presence of the most popular sights and high level of transport availability may correlate is obviously the center of Saint Petersburg especially «Gostiniy dvor» metro station. But it was planned not to exceed 150 million rubles while prices of already established projects start off from 300 and more, besides, we were intended to respect above mentioned factors for maximum payback from investments. Thus, to move the location it was decided to invest funds in Vasilievsky ostrov district. Vasilievsky ostrov district is observed as one of prestigious district of Saint Petersburg, which confirms stable price growth of residential and commercial properties. As for commercial properties, some aspects underpinning investment decision were explored above. Firstly, at the current moment sector of commercial property experiences one of the severe decline due to decreased demand and leave of market players from property market. Thus, investors are able to turn this issue to opportunity to purchase assets for lower price with expectation of further market turn. Secondly, market of hostel and hotel services are extremely exposed by seasonality and as the target audience is presented by foreign travelers, owners may adjust to these conditions to maximize their profit. Moreover, demand on touristic interest from citizens of European Union will never vanish due to sustained attractiveness of local architecture. In addition, globally import events such as World Football Cup of 2018, held during summer of last year and Ice Hockey World Championship, planned on 2023, occur to be direct catalysts of increase travelers' inflow leading to sales growth. And the last but not the least is compliance to above mentioned features such as transport availability and favorable location.

Now general information of feasible investment project is regarded in Table 5. The object is located in Galernaya Street 61. The Vasileostrovskaya metro station appeals to be in 5 minutes walk on foot, which is considered as pedestrian approachability, leveling the effect of rush hours.

Table 6

Owner	OOO «StroyTeh»
Number of floors	3
Location address	Admiralteysky district, Galernaya street 61
Total area	848 square meters
Number of rooms	30
Purchase price in rubles	115 000 000
Price for square meter in rubles	135 613
Type of property	Hostel
Distance to Vasilyevsky ostrov	1.3 km
Architectural monument	Yes
Reconstruction and repair	Yes
Ceiling height of 1-2 floor	3.16 meters
Ceiling height of 3 floor	2.7 meters
Entrance	front and back
Broker	Real estate agency Itaka



General information of object

As it was stated at the beginning of the chapter, admissible investment funds should not exceed 150 and this option is observed - the price of purchase is 115 million rubles with square meter price of 135 thousand rubles. The total area of hostel complex is 848 square meters. Besides, it is worth being noticed that the entire building presents a historical monument with already accomplished internal modernization. Aside from purchase price to start running the project the investor should spend a certain capital on renovation of apartments interior. Further, the outlay plan for finishing work is provided in Table 7. The overall sum of expenditure items accounts for 8.59 million rubles. The item of finishing works reaches 3.3 million rubles and composes over 37 percent. Items of administrative and other costs could be united and they account for 3 million rubles or 35 percent. Leftover sum presents costs destined to purchase of equipment and reaches 2.26 million rubles or 26 percent.

Table 7

Type of work needed to establish project properly	Total price in rubles
Dismantling of old lag and parquet with garbage collection	117 000
Floor screed with reinforcement	1 068 000
Plaster walls under the rule layer thickness	600 000
Plumbing fixtures for the kitchen and shower cabins with the installation of plumbing equipment	150 000
Distribution and connection of additional electricians	195 000
Laying floor porcelain tile	127 500
Laying wall tiles mosaic	337 500
Gluing non-woven and vinyl wallpaper	292 500
Installation of stretch ceiling with the installation of lighting system including lamps and chandeliers	442 500
Interior items	360 000
Pieces of furniture	1 200 000
Purchase of equipment	700 000
Other expenditures	1 800 000
Administrative expenditures	1 200 000
Overall	8 590 000

Procedures essential for project modernization*

*Source: calculated with regard to market prices

As the object is considered as commissioned with substantial external modernization, internal interior of premises including lobby and halls was conducted as well. The main cost field is accounting for finishing works in main rooms, sitting room and canteen regarding purchase of equipment necessary for residents, interior items and pieces of furniture. The major item of additional costs reveals promotion and marketing due to moderate level of competitiveness, which impends the hostel business and may become crucial in case of appearance other market players.

Then it is worth calculating financial indicator with application of income method of real estate estimation. Table 8 provides results of financial analysis.

Table 8

Financial calculations of investment attractiveness

Gross income	16 273 560
Net income	9 773 560
Purchase price	115 000 000
Modernization costs	8 590 000
Capitalization Rate	0.085
DCF	13 230 537
TV	155 676 305

Indicator of gross income is usually used by landlords who receive profit through tenants payment. The gross income of property was determined as 16.27 million rubles. Then net income reaches 9.7 million rubles.

Operational costs were defined for 7 million rubles, including management of object, insurance and taxes. Eventually we obtained two required components to calculate Capitalization rate.

Investors are mostly interested in ration of invested funds and payback. At that point, capitalization rate enables not only to measure returns, but also makes process of estimation different type of properties more convenient for investors. Our case shows capitalization rate of 8.5 per cent. Furthermore, it is worth finding out terminal value. Terminal value reveals current asset value in future in case of respecting constant development.

As it could be learned, terminal value equals 155.67 million rubles with market price of 115 million rubles. Thus, with investment in 115 million rubles and 8.59 million rubles extra costs in case of constant development net income will reach 9.77 million rubles with future terminal value of 155.67 million rubles. Eventually the financial result is the following:

Thus, according to financial result it is possible to claim that project is worth being funded. In case of sustained development and functionality given business may generate over 16 million of gross income, however, this indicator is closely related to seasonality regarding foreign travelers as the target audience. Moreover, foresight application of upcoming globally important events such as World Football Cup, conducted last year.



Conclusion

Basing on conducted comprehensive analysis property market of Saint Petersburg was explored in stagnation stage. Higher level of stagnation is observed among segments of commercial real estate such as office, trading and warehouse properties with huge market players leaving Russian market. However, possibilities for performing deals with speculative feature are available with regard to short-term turnover. Above conducted analysis proves that investing funds in hostel development may contribute to capital expand through terminal value. Purchase during stagnation period provides financial benefits, enabling to obtain asset for lower price regarding perspective of further price growth and aspects of seasonality allows to smooth out drawdown in sales by foreign travelers inflow. Thereby, invested 115 million rubles despite extra costs directed on hostel development contributes to income enhancement and terminal value of 155 million rubles. The place of project realization was determined by favorable location and high level of transport availability, ensuring investment attractiveness. Moment of project realization is determined by the owner personally but with concern to short-term turnover and high level of economic and political instabilities it might be recommended to sell the hostel in 1 year after exploitation to level external risks.

Aside from commercial property, residential one also shows unpromising tendencies for purchase of individuals who are seeking for accommodation. Housing problem in Russian market becomes more complicated to be solved. Increasing from 2014 mortgage rates and impact of external factors including sanctions against Russian Federation, causing economy deterioration and legal aspect in the form of project funding application by July 2019 push real properties' prices upwards. Despite inconsistency of prices growth and descending purchasing power of population since 2013, stable demand on housing in Saint Petersburg is supported by increasing rates of population with migrants of Russian regions who are chasing improved standard of living in comparison with regions. Therefore, amendments of Federal Law №214 in synergy with economic downward contributes to bullish market. Nonetheless, crisis is the most appropriate time for expanding funds. Residential real estate market of Russia is fraught with speculations as elementary procedure of property purchase already ensures income due to constant prices growth and its scale depends on expiration deal terms and market situation. Investors of primary property market may find out strategies providing stable returns.

Practical chapter narrates about risks of primary real property market and describes necessary criteria for leveling these risks to ensure not only high income but also the warranty to obtain housing property. For criteria description a certain residential complex was determined to become the object of investment. In our case, it was residential complex named «New Time» from «RosStroyInvest» developer. Crucial factor in selecting investment object were quality of building company regarding its integrity in legal field functioning and construction experience on building sphere for more than 15 years. Than location, determined as the most influential factor for prices growth, was selected regarding future perspectives, specifically confirmed metro development concept according to which new metro station enhancing transport availability would be constructed in 4 years. Infrastructure development especially transport availability tends to be crucial for all potential customers and its development has to be monitored to invest in enter real estate market in appropriate time period. To understand turnover of investments in residential property three various scenarios were considered with increased attention to pessimistic and realistic outcomes. Analysis of realistic outcome illustrates increased turnover of investment in 4 years demonstrating ROI in 135 percent and net profit in 600 thousand rubles. Besides that, it was decided to reveal impact of equity and debt ratio and according to the second analysis conducted in the same conditions but with own equity application shows lower turnover indicator. Thus, the effect of so-called taxation shield appears in using credit funds, which enables to increase the turnover and net profit as well. Indicators of ROI and NPV prove expediency of investment in present project, while criteria of conducting purchase are being respected.

In conclusion, this work is worth noting that real estate industry is the driving mechanism of any economy - real estate cycles are comparable to the cycles of world crises, and events taking place on real estate market may signalize about reversal of the bullish or bearish markets. In addition, the housing issue remains topical for everyone, and in order to secure funds investors and especially individuals solving housing problem have to take into account all factors influencing real property market. Careful approach to real estate purchase is essential due to high number of bankrupt developers, fraudulent actions in the purchase of secondary housing, as well as the legal side of the contract. Ultimately, buying a property is, first of all, an investment, and everyone is interested in the asset price growth and above established system contains criteria assisting in investment decision making.



References

Adair, A. and Hutchison, N. (2005), “The reporting of risk in real estate appraisal property risks coring”, Journal of Property Investment & Finance, Vol. 23 No. 3, pp. 254-68.

Agarwal, S., Ben-David, I., Yao, V., 2015. Collateral valuation and borrower financial constraints: evidence from the residential real estate market. Management Science 61, 2220-2240.

Akintoye, A. and Fitzgerald, E. (2004), “A survey of current cost estimating practices in the UK”, Construction Management & Economics, Vol. 18 No. 2, pp. 161-172.

Andersson, D.E., 2010. Hotel attributes and hedonic prices: an analysis of internet-based transactions in Singapore's market for hotel rooms. Ann. Reg. Sci. 44 (2), 229-240.

Bagnoli, C. and Smith, H.C. (1998), The theory of fuzzy logic and its application to real estate valuation, Journal of Real Estate Research, Vol. 16 No. 2, pp. 169-200.

Bardhan, A. and Kroll, C.A. (2008), “Globalization and the real estate industry: issues, implications, opportunities”, paper prepared for the Sloan Industry Studies Annual Conference, Cambridge, April.

Baum, A., & Farrelly, K. (2009). Sources of alpha and beta in property funds: A case study. Journal of European Real Estate Research, 3, 218-234.

Brounen, D., Prado, M. P., & Verbeek, M. (2010). Real estate in an ALM framework: The case of fair value accounting. Real Estate Economics, 38, 775-804.

C.C. Lin, S.B. Mohan. (2011), Effectiveness comparison of the residential property mass appraisal methodologies in the USA, Int. J. Hous. Markets Analytics. 4(3) 224-243.

Cajiaas, M., Geiger, P. and Bienert, S. (2011), “Green agenda and green performance: empirical evidence for real estate companies”, Journal of European Real Estate Research, Vol. 5 No. 2, pp. 135-155.

Campbell, S. D., M. A. Davis, J. Gallin, and R. F. Martin (2009). What moves housing markets: A variance decomposition of the rent-price ratio. Journal of Urban Economics 66(2), 90-102.

Campbell, S.D., Davis, M.A., Gallin, J. and Martin, R.F. (2009), “What moves housing markets: a variance decomposition of the rent-price ratio”, Journal of Urban Economics, Vol. 66 No. 2, pp. 90-102.

Chun, G., Sa-Aadu, J., & Shilling, J. (2004). The role of real estate in an institutional investor's portfolio revisited. Journal of Real Estate Finance and Economics, 29(3), 295-320.

Evstafev A.I., Peretrukhin A.O., Strategies for investing in real estate in the domestic and foreign markets. News Saratov un-that. New sir Ser. Economy. Control. Right. 2013. V. 13, no. 3 (2) pp. 415-416.

Torgashina I.G. Real estate market: state and growth factors // Bulletin of the Irkutsk State Technical University. 2015. No. 2. P. 280-286.

Schegolev I.P. The real estate market in a recession / Tradition and innovation in construction and architecture. Socio-humanitarian and economic sciences: collection. articles. by ed. M.I. Balzannikova, K.S. Galitskova, A.A. Shestakova. Samara: SGASU, 2015. p. 234-240.

Jiang, Q.o., Deng, X., Zhan, J., He, S., 2011. Estimation of land production and its response to cultivated land conversion in North China Plain. Chin. Geogr. Sci. 21,685-694.

Kallberg, J. G., Liu, C. H., & Greig, W. D. (1996). The role of real estate in the portfolio allocation process. Real Estate Economics, 24(3), 359-377.

Kapopoulos, P. and F. Siokis. (2010). Stock and Real Estate Prices in Greece: Wealth versus Credit-Price Effect. Applied Economics Letter, pp. 125-128.

Liow, K.H. and Nappi-Choulet, I. (2008), “A combined perspective of corporate real estate”, Journal of Corporate Real Estate, Vol. 10 No. 1, pp. 54-67.

Lorenz, D., Truck, S. and Lutzkendorf, T. (2007), “Exploring the relationship between the sustainability of construction and market value; theoretical basics and initial empirical results from the residential property sector”, Property Management, Vol. 25 No. 5, pp. 119-49.

MacKinnon, G. H., & Zaman, A. A. (2009). Real estate for the long term: The effect of return predictability on long-horizon allocations. Real Estate Economics, 37, 117-153.

Pagourtzi, E., Assimakopoulos, V., Hatzichristos, T. and French, N. (2005), “Real estate appraisal: a review of valuation methods”, Journal of Property Investment & Finance, Vol. 21 No. 4, pp. 383-401.

Papastamos, D., Matysiak, G. and Stevenson, S. (2015), “Assessing the accuracy and dispersion of real estate investment forecasts”, International Review of Financial Analysis, Vol. 42, pp. 141-15

Pedersen, N., Page, S., & Fei, H. (2014). Asset allocation: Risk models for alternative investments. Financial Analysts Journal, 70, 34-45.

Pelzeter, A. (2009), “Building optimization with life cycle costs - the influence of calculation methods”, Journal of Facilities Management, Vol. 5 No. 2, pp. 115-128.

Piazzesi, Monika, Schneider, Martin, 2009. Momentum traders in the housing market: survey evidence and a search model. Am. Econ. Rev. 99 (2), 406-411.

R. W. Shephard (1967): The Notion of a Production Function, Unternehmensforschung 4, pp. 209-232.

Seck, D. (1996), The Substitutability of Real Estate Assets, Journal of the American Real Estate and Urban Economics Association, 24: 75-96.

Tax Code of the Russian Federation, Item, 346.27 concerning status of trading property.

Thomas, M. (1995), The Performance of the German Property Market Between 1989 and 1994, Journal of Property Valuation and Investment, 13, 5: 67-84.

Wheaton, W.C. (1999), “Real estate `cycles': some fundamentals”, Real Estate Economics, Vol. 27 No. 2, pp. 209-230.

Zadeh, L. A. (1965). Fuzzy sets. Information and Control, 8, 338-353.

Zhu, H. (2003), “The importance of property markets for monetary policy and financial stability”, BIS Papers No. 21, Basel.

Appendix 1

Investment analysis of project in terms of optimistic outcome *

	Periods (months)
	6	12	18	24	30	48
Property price	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
Credit provided by bank	1 789 883	1 789 883	1 789 883	1 789 883	1 789 883	1 789 883
Own funds	447 470	447 470	447 470	447 470	447 470	447 470
loan rate (%)	10%	10%	10%	10%	10%	10%
Loan interest for several period	88 599	177 198	265 798	354 397	442 996	708 794
Total amount of investment	536 069	624 668	713 268	801 867	890 466	1 156 264
The price of realization at the end of period	2 594 644	3 008 991	3 084 216	4 046 758	4 692 999	5 866 249
Profit before taxes	268 691	594 440	581 065	1 455 009	2 012 650	2 920 102
Amount of tax payment	34 930	77 277	75 538	189 151	261 645	379 613
Net profit	233 761	517 162	505 527	1 265 857	1 751 006	2 540 489
ROI	52%	116%	113%	283%	391%	568%



Appendix 2

Investment analysis of project in terms of pessimistic outcome *

	Periods (months)
	6	12	18	24	30	48
Property price	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353	2 237 353
Credit provided by bank	1 789 883	1 789 883

Подобные документы

• Analysis project

  Searching for investor and interaction with him. Various problems in the project organization and their solutions: design, page-proof, programming, the choice of the performers. Features of the project and the results of its creation, monetization.
  
  реферат [22,0 K], добавлен 14.02.2016
  

• Evaluating the effectiveness of the transport system in Indonesia

  Evaluation of urban public transport system in Indonesia, the possibility of its effective development. Analysis of influence factors by using the Ishikawa Cause and Effect diagram and also the use of Pareto analysis. Using business process reengineering.
  
  контрольная работа [398,2 K], добавлен 21.04.2014
  

• The manager as a teacher: selected aspects of stimulation of scientsfsc thinking

  Selected aspects of stimulation of scientific thinking. Meta-skills. Methods of critical and creative thinking. Analysis of the decision-making methods without use of numerical values of probability (exemplificative of the investment projects).
  
  аттестационная работа [196,7 K], добавлен 15.10.2008
  

• Approaches to modeling project management system for small businesses

  Company’s representative of small business. Development a project management system in the small business, considering its specifics and promoting its development. Specifics of project management. Problems and structure of the enterprises of business.
  
  реферат [120,6 K], добавлен 14.02.2016
  

• Business process modeling

  Investigation of the subjective approach in optimization of real business process. Software development of subject-oriented business process management systems, their modeling and perfection. Implementing subject approach, analysis of practical results.
  
  контрольная работа [18,6 K], добавлен 14.02.2016
  

• Recruitment and selection

  Theoretical basis recruitment and selection methods: internal or external recruitment, job resume, job interview. Recruitment process design and development. Evaluation of methods of recruitment and selection on example of "Procter and Gamble".
  
  курсовая работа [73,2 K], добавлен 03.05.2012
  

• China Airlines as a complex system

  Description of the structure of the airline and the structure of its subsystems. Analysis of the main activities of the airline, other goals. Building the “objective tree” of the airline. Description of the environmental features of the transport company.
  
  курсовая работа [1,2 M], добавлен 03.03.2013
  

• Critical analysis of market entry strategy of Bershka BSK Espana S.A.

  Critical literature review. Apparel industry overview: Porter’s Five Forces framework, PESTLE, competitors analysis, key success factors of the industry. Bershka’s business model. Integration-responsiveness framework. Critical evaluation of chosen issue.
  
  контрольная работа [29,1 K], добавлен 04.10.2014
  

• Intercultural business communication case analysis

  Formation of intercultural business communication, behavior management and communication style in multicultural companies in the internationalization and globalization of business. The study of the branch of the Swedish-Chinese company, based in Shanghai.
  
  статья [16,2 K], добавлен 20.03.2013
  

• Model of management of company

  Analysis of the peculiarities of the mobile applications market. The specifics of the process of mobile application development. Systematization of the main project management methodologies. Decision of the problems of use of the classical methodologies.
  
  контрольная работа [1,4 M], добавлен 14.02.2016
  

• Business the plan as strategic object of the company

  The essence, structure, оbjectives and functions of business plan. The process’s essence of the bank’s business plan realization. Sequential decision and early implementation stages of projects. Widely spread mistakes and ways for their improvement.
  
  курсовая работа [67,0 K], добавлен 18.12.2011
  

• Corporate Social Responsibility: Milton Friedman vs. Archie Carroll

  The main idea of Corporate Social Responsibility (CSR). History of CSR. Types of CSR. Profitability of CSR. Friedman’s Approach. Carroll’s Approach to CSR. Measuring of CRS. Determining factors for CSR. Increase of investment appeal of the companies.
  
  реферат [98,0 K], добавлен 11.11.2014
  

• Logistics

  Logistics as a part of the supply chain process and storage of goods, services. Logistics software from enterprise resource planning. Physical distribution of transportation management systems. Real-time system with leading-edge proprietary technology.
  
  контрольная работа [15,1 K], добавлен 18.07.2009
  

• The decision-making process of individuals in a competitive environment under risk and uncertainty

  Value and probability weighting function. Tournament games as special settings for a competition between individuals. Model: competitive environment, application of prospect theory. Experiment: design, conducting. Analysis of experiment results.
  
  курсовая работа [1,9 M], добавлен 20.03.2016
  

• Outsourcing: an instrument for project management efficiency raise

  Types of the software for project management. The reasonability for usage of outsourcing in the implementation of information systems. The efficiency of outsourcing during the process of creating basic project plan of information system implementation.
  
  реферат [566,4 K], добавлен 14.02.2016
  

• Служба "Investor Relations" в России

  Сущность термина "связи с инвесторами" (investor relations – IR), роль IR-службы на предприятии. Этапы работы службы инвестиционного менеджмента. Черты российской специфики подхода к IR, его становление в РФ, коммуникации с отечественными инвесторами.
  
  реферат [34,5 K], добавлен 12.02.2012
  

• Developing Service Personnel

  Considerable role of the employees of the service providing company. Human resource policies. Three strategies that can hire the right employees. Main steps in measure internal service quality. Example of the service profit chain into the enterprise.
  
  презентация [338,7 K], добавлен 18.01.2015
  

• Basic principles of business ettequet

  Six principles of business etiquette survival or success in the business world. Punctuality, privacy, courtesy, friendliness and affability, attention to people, appearance, literacy speaking and writing as the major commandments of business man.
  
  презентация [287,1 K], добавлен 21.10.2013
  

• Логистическая концепция just-in-time

  Изучение сущности логистики - стратегического управления (менеджмента) материальными потоками в процессе закупки, снабжения, перевозки и хранения материалов, деталей и готовой продукции. Суть, преимущества, проблемы и недостатки концепции just-in-time.
  
  реферат [30,3 K], добавлен 09.04.2011
  

• Роль и место службы IR (Investor Relations) и службы PR (Public Relations) в раскрытии информации

  Управление общественным мнением, выстраивание системы коммуникаций, движения информационных потоков. Формирование имиджа и конкурентного образа объекта. Задачи и принципы Media, Government, Scientific, Investor Relations, Publicity и корпоративного PR.
  
  презентация [1,8 M], добавлен 31.10.2016
  

• главная
• рубрики
• по алфавиту
• вернуться в начало страницы
• вернуться к началу текста
• вернуться к подобным работам