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Simeon Mitropolitski is a Canadian analyst, of Bulgarian origin, and a former syndicated columnist with the Bulgarian News Agency (BTA). He is the author of several hundred articles dealing with hot political and economic topics, both national and international.

He was part of the first group of Bulgarian intellectuals and students that began the opposition movement that finally put an end to the communist regime in this country in 1989, and in 1996-1997 participated in international observation teams during the elections in several Balkan countries - Romania, Albania and Bulgaria.

In 2002 Simeon and his family moved from Bulgaria to Canada where they live now in Montreal, province of Quebec. Simeon is a Master of Political Science from McGill University and a B.A. of Political Science and History.

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What direction will take the residential market in Moscow, the capital of Russia, and its biggest market, is a question that has several dimensions. Can it keep going up where only few markets, such as London, Paris, New York, and Tokyo, were able to stay for a long time? Or will it crash under the pressure of low demand? Forecasts differ substantially, including even among leading Russian analysts. Is it possible that the current relative stability becomes key feature of the market in 2007?

Moscow residential real estate market is a class of its own. To illustrate how far it has gone we will provide some data from other Russia markets. In Ekaterinburg and Kazan, a square meter (or approximately 10 sq. feet) is sold for $1,400; in Saint Petersburg and Novosibirsk, for $1,500; in Samara, for $1,600. In Moscow the same space can be bought for $4,200, i.e. almost 3 times more expensive. In the late 1990s, after the financial crisis, the prices went down below the $1,000 per sq. meter mark. About 10% of this spectacular price increase can be attributed to stronger Russian Ruble since the late 1990s. The other 90% are due to increased demand fueled by stronger oil markets. High real estate prices to a degree cooled down demand. Right now no more than 12% of the Russians living in the largest cities plan to buy new residence; in Moscow this percentage falls to 7%. For some months the residential market in Moscow is stable. Forecasts differ whether the next move will be up, or down, or whether this relative stability will keep going for most of 2007?

If the international oil prices are the only factor that matters, then we may expect further upward market development. International oil prices above $25-30 per barrel bring extra money into Russia, both as extra state revenues and as extra disposable incomes, and one possible way to spend this money is through buying real estate. With oil prices fluctuating around and above $60 per barrel the calculation becomes very simple. There are extra disposable incomes, so the residential real estate should go up.

Any market, including the real estate market, has two sides, supply and demand. The low demand given the current price levels may indicate at two things. First, there is still substantial demand for new real estate, but not at the current price levels; second, there is alternative way to invest these extra disposable incomes outside the real estate, which makes the real estate less attractive. In the first case, people keep the money in the banks or elsewhere waiting for the market to crash; in the second case, people already invest in alternative directions, e.g. stock exchange, or in real estate in less expensive cities, or abroad.

The data we have shows that Russian stock exchange is hardly an alternative given its relatively lower returns. Other major Russian cities also don't feel that new extra money is coming from Moscow. It's more difficult to assess whether Russians export their extra incomes abroad in larger quantities, but tougher bank regulations make this 'exodus' harder and harder. What is left as a possible explanation for the current market stability in Moscow is that either the Russians have found new alternative way of investing within Russia, e.g. financial schemes, or that they really keep their savings waiting for the residential prices to fall.

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