КУРСОВАЯ РАБОТА

TERM PAPER

Title: The dependence of the price of a square meter of real estate on macroeconomic factors
in Moscow

Название: Зависимость цены квадратного метра жилья от макроэкономических факторов в

г.Москве

Студент/ Student:
Alexey Mitroshin

Научный руководитель/ Supervisor:

Vyacheslav Gorovoy__

Оценка/ Grade:

Пoдnиcь/ Signature:

Мocква
2015/2016
Contents

1 Motivation: Real Estate market in Moscow 2

2 The model 3

3 The data 3

4 Estimation and Results 3

A
Appendix 1: all results of regressions 4

B
Appendix 2: pictures of different prices 9

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 Abstract

The paper is based on the data on Real estate prices in Moscow from January
2000 till January 2016. The purpose of this work and the future research is analyze the
dependence of the price of square meter from different macroeconomic factors such as
oil price, exchange rate ruble/dollar, RTS index. As a first step, we consider that we
have only one category of real estate. It means that we can not differ the prices for the
different square’s apartments or we can not differ the prices of apartments with the
different types of buildings in which they are. As the set of parameters, which
potentially influence on the real estate price, I consider such factors as square of the flat
or quality of building, the number of floor, the type of building and the region of
Moscow city where the building is situated.
The model is constructed using the regular regression for monthly returns of these
factors. In the paper, I describe in detail this regression. As the second step, I try to
analyze the shift in months of the reaction in the changes of return of real estate prices
under the changes of returns in the macroeconomic factors. This research is the first
step towards answering various theoretical and practical questions regarding the real
estate market in Moscow and in general. The topic is compelling in both scientific and
business ways of research.

1 Motivation: Real estate market in M o s c o w

Real estate market in Moscow is significantly large: it is weekly up for sale
nearly 40.000 apartments, it is nearly 3,3 million square meters and it costs nearly
7,4*1011 rubles. This market grew up since 1991 as Russian government allowed
citizens to privatize their apartments and then sell them. However, current
macroeconomic situation creates considerable threats for the market in Moscow. Taking
in account the depreciation of the national currency, analysts expect the decrease by 10-
20% in 2016. The optimistic forecast is to expect growth of the market by 2020.

This market is the most important because it is both an investment instrument for
savings deposit and is a product necessary for life. This product is more understandable
to ordinary citizens compared to stocks, bonds or other derivatives. As the shares or
bonds this product gives dividends which are calculated as monthly fee for rent.
Therefore, we can compare the profitability of the product with a yield of well-known
indexes such as RTS. As we know, Russia is one of the leaders of the world's oil
exports. Therefore, I am interested in tracking changes in prices per square meter,
depending on the cost of a barrel of oil.
I understand that in addition to stocks and bonds ordinary citizens keep their
savings in foreign currencies such as the dollar or euro. So, I decided to find the
dependence of the cost per square meter, depending on the change in the ruble / dollar.

On the other hand, if we compare the value of the property to the value of the
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shares then we understand that the value of real estate can not quickly respond to
changes in macroeconomic factors. It means that we will see these changes only after
some period. That’s why if we get a reliable estimate for the cost of real estate in
dependence on macroeconomic factors, and if we can determine this time shift, then we
can well predict the future value of the property.

2 Model

In this paper, I use the next regression:

𝑟𝑟𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢
∆𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑒𝑒𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑖𝑖 = 𝑎𝑎 + 𝛽𝛽1 ∗ ∆𝑜𝑜𝑜𝑜𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑖𝑖 + 𝛽𝛽2 ∗ ∆𝑒𝑒𝑒𝑒𝑒𝑒ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑟𝑟𝑎𝑎𝑎𝑎𝑎𝑎 𝑖𝑖 + 𝛽𝛽3 ∗
𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑
∆𝑅𝑅𝑅𝑅𝑅𝑅 𝑖𝑖𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑖𝑖 + 𝑢𝑢𝑖𝑖 , where
∆𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑒𝑒𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑖𝑖 - is monthly return of real estate price,
∆𝑜𝑜𝑜𝑜𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑖𝑖 - is monthly return of oil price per 1 barrel of Brent mark,
∆𝑅𝑅𝑅𝑅𝑅𝑅 𝑖𝑖𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑖𝑖 - is monthly return of RTS index,
𝑟𝑟𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢
∆𝑒𝑒𝑒𝑒𝑒𝑒ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑟𝑟𝑎𝑎𝑎𝑎𝑎𝑎 𝑖𝑖 - is monthly return of exchange rate of ruble per 1 dollar US.
𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑

3 The data
The data describes average price per 1 square meter in Moscow during the period from January
2000 till January 2016. It contains 5 variables and 191 observations.
The table contains the following information:
• returnrealestate – as it was already mentioned in the paper.
• returnoil – return of oil price.
• returnrubdol – return of exchange rate ruble/dollar.
• returnrts – return of RTS index

4 Estimation and Results

This page contains the results of some regressions for different values of the
shift in the months from 0 to 11. I consider that the return of real estate price must
react on the changes in the returns of macroeconomic factors. It means that the
shift is the best if some coefficients are significant.
All results and pictures of all variables are attached in Appendix A and B.
My result for the dependence of the return of real estate price is:
Return of exch. rate r/$ - 3 months(shift) coefficient= -0,21 on 1% level
Return of oil price - 8 months(shift) coefficient=0,022 on 1% level
Return of RTS index - 7 months(shift) coefficient= 0,057 on 1% level

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 It means that return of real estate price is positive correlated with return of oil
price and return of RTS index and is negative correlated with return of exchange
rate of ruble/dollar.
I can explain this result by the next economic reason: if the price on oil and
RTS index grow up then Russian economy also grow up. People start to get more
profit and that’s why they start to consume more. And, as a result the price of real
estate start to grow up. On the other hand, if the exchange rate of ruble/dollar US
grow up then Russian currency depreciates and Russian economy fell down. So,
people get less profit and start to buy less real estate and that’s why the price for
the rea1 estate start to decrease.

Appendix A
1 case: 0 month shift
We can see significant coefficient 0.166833 for 5% level for return of
ruble/dollar exchange rate and no others.

2 case: 1 month shift

We can see no significant coefficients

3 case: 2 months shift

 We can see significant coefficient -0.2230213 for 5% level for return of
ruble/dollar exchange rate and no others.

4 case: 3 months shift

We can see significant coefficient -0.2148753 for 1% level for return of

ruble/dollar exchange rate and no others.

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 5 case: 4 months shift

We can see significant coefficient -0.1303277 for 5% level for return of

ruble/dollar exchange rate and no others.

6 case: 5 months shift

We can see no significant coefficients

7 case: 6 months shift

6
We can see significant coefficient 0.0571012 for 5% level for return of oil price
and no others.
 8 case: 7 months shift

We can see significant coefficient 0.0577218 for 1% level for return of RTS
index and no others.

9 case: 8 months shift

We can see significant coefficient 0.0220085 for 1% level for return of oil price
and no others.

10 case: 9 months shift

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We can see no significant coefficients

11 case: 10 months shift

We can see significant coefficient 0.0385023 for 5% level for return of RTS
index and no others.

12 case: 11 months shift

We can see no significant coefficients

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 Appendix B

Pictures for the different returns.

1. Real estate price

2. Exchange rate of ruble/dollar US

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3. Oil price

4. RTS index

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5. All prices on one picture

6. All returns on one picture

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References
• Markus K. Brunnermeier, Stefan Nagel, Lasse H. Pedersen. CARRY TRADES AND
CURRENCY CRASHES. November 2008

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