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Well positioned to continue creating shareholder value in a more complicated macro environment

Etalon Group’s performance exceeded expectations in 2015, despite the challenging macroeconomic situation that affected many sectors of the Russian economy. The Company’s management and Board of Directors responded to these challenges by adjusting tactics in the short term, while sticking to the longterm strategy aimed at growing Etalon Group’s residential real estate development and construction business in the Moscow and St. Petersburg metropolitan areas. The Company maintains a positive long-term outlook, and also believes that comfort-class real estate in MMA and SPMA is subject to more sustainable demand than many other segments of the market.

Market overview–demand 

According to Russia’s Federal State Statistics Service, Rosstat, the increase in the volume of housing stock between 2010 and 2014 (1) in Etalon Group’s target markets outpaced population growth only in Russia’s capital, Moscow.

Even in Moscow, however, the potential demand for new housing remains substantial when viewed in the context of housing stock per capita compared to other European markets. Despite the growth over the last five years, Moscow and St. Petersburg currently have some of the lowest levels of housing stock per capita, combined with some of the slowest annual average growth of housing stock per capita.

The Moscow and St. Petersburg markets are also two of Russia’s most affluent, and viewed in terms of monthly disposable income, there is a significant gap between supply and potential demand compared to many other markets.

 Housing Stock Per Capita Vs Growth 2014

Income Vs Housing Stock 2014


(1) Rosstat has been using a different methodology since 2013, and it now relies on data from local authorities instead of reviewing housing owbers directly.
(2) 2011 data applied for the United Kingdom; 2012 data for Latvia; 2013 data for France and the Czech Republic; 2014 data for Denmark, Germany, Hungary, Poland, Bulgaria, Russia, Belarus, Slovakia and Ukraine.
(3) Based on 2003-2014  data for Russia, Moscow and St. Petersburg, and average growth rates for  available periods for other countries.
(4) 2011 data applied for the United Kingdom, Latvia and China; 2013 data for France and the Czech Republic; 2014 data for Denmark, Sweden, Germany, Austria, Finland, Hungary, Poland, Bulgaria, Slovakia and Russia. 


While the macroeconomic situation in Russia in 2014 and 2015 affected consumer behaviour, causing a cool-down in activity in the first half of 2015, the fundamental demand for new housing remains intact. The Company believes that macroeconomic shocks like those that have occurred in the past two years in Russia often lead consumers to delay major purchases like improving their housing conditions, but that most consumers then proceed with planned purchases once they feel that the situation has stabilised (even if it has not improved). Etalon Group’s operating performance in the second half of 2015, which saw double-digit year-on-year growth and beat the Company’s own forecasts, appears to demonstrate just such behaviour.

The rebound in consumer demand in 2H 2015 was helped by the Russian Government’s introduction of subsidised mortgage rates in the second quarter of the year. While this helped return mortgage lending to close to previous levels, Russia continues to have very low mortgage lending penetration as a share of GDP compared to many developed and developing markets in Europe. While potential demand for new housing remains significant in Russia, the potential for increased mortgage lending represents a further opportunity to improve consumers’ ability to finance such purchases. 

Market overview–supply 

Russia’s residential real estate development market remains highly fragmented, which means that large, established players with a successful track record of deliveries, like Etalon Group, have a good opportunity to act as consolidators.

Etalon Group’s total deliveries in Moscow, the Moscow region, St. Petersburg and the Leningrad region since 2010 have grown significantly, increasing by 140% to 502 ths sqm by 2015.

While the Russian Federation Service for State Registration, Cadastre and Cartography (Rosreestr) reported a decline in the number of agreements on share participation in housing construction by 18.4% in Moscow and by 17.3% in St.Petersburg in 2015, Etalon Group’s new contracts decreased by just 13% year-on-year in the same period. Further diversification of the Company’s portfolio, with Galactica in St. Petersburg and two new projects currently at the design stage in Moscow, Etalon Group is likely to increase its market share in the coming years.

Moscow and St. Petersburg – Russia’s most stable regions

Moscow and the Moscow region, together with St. Petersburg and the Leningrad region, are among the most affluent in Russia, and are growing population centres. Together, they account for 18% of Russia’s population of 146.5 million people, according to Russia’s Federal State Statistics Service.

As economic and administrative centres, these two cities and their larger metropolitan areas have stronger economies than other regions of Russia. Gross disposable income in Moscow is more than double the Russian average, and St. Petersburg is also above the national average.

Demand for housing in these two cities has historically come from residents who want to improve their living conditions, people moving from regional centres following a career move or otherwise relocating to Russia’s two capitals. Population growth in the Moscow and St. Petersburg metropolitan areas has also continued to put pressure on housing availability: while Russia’s population has grown by just 2.3% over the last decade, Moscow and St. Petersburg have both seen double-digit growth rates (according to the Federal State Statistics Service).

The comfort class segment

Etalon Group focuses on building housing for Russia’s growing middle class, using higher-quality construction techniques such as poured concrete with ventilated facades, while maintaining affordable pricing levels that attract buyers looking for high-quality, long-term housing for their families.

The Company’s developments are often located outside of city centres, but with good transport access for commuters. Projects are frequently situated near hypermarkets or shopping malls, with built-in commercial premises for the convenience of local residents.

Etalon Group’s larger developments include social infrastructure such as kindergartens, schools, parks, playgrounds, sports fields and medical clinics.

These characteristics make the housing affordable to middle-class buyers from across Russia, with clear advantages over lower-priced economy developments. At the same time, Etalon Group has little exposure to the higher-priced and more volatile business-class or luxury segments, which target a much narrower section of Russia’s population.