Understanding Investment Property in Russia

When one reads that real estate experts Jones Land LaSalle recently placed Russia in their top three most profitable property investment markets in the world one sits up and takes notice.  CapitaLand Ltd, South East Asia’s largest property development company have certainly taken notice; in their bid to establish a strong and profitable base in emerging markets worldwide they are rumoured to have placed intense focus on Russia right now.  But for the rest of us just understanding investment property in Russia as a potentially profit making commodity is a massive undertaking let alone making direct and strong financial commitment to Russian real estate…

The trouble with Russia from a property investor’s perspective is that it is just so expensive.  Prices in Moscow and St. Petersburg where the demand for property is most intense have shot up so far and so fast that now the most desirable properties are for sale at prices that would make even the wealthiest buyers in London or New York faint.  This means that those who wish to enter the market and profit from it have a hard time finding an affordable way in. 

But Russia’s investment property market actually has many ways in for the individual or corporate investor – you just have to spend some time understanding investment property in Russia first before targeting and timing your entry…

First things first there is an absolute deficit of serviced apartments for rent to the increasing numbers of international employees and their families who are sent on assignment and secondment to Moscow or St. Petersburg. 

Knight Frank recently reported that Moscow has become an incredibly important strategic location for American, British and European companies and their demand for employee accommodation alone is starving the market of available properties.

In the most desirable areas of Moscow such as those close to the Anglo-American school there is up to a year’s wait for accommodation in secure communities favoured by expatriates – and it is precisely this demand for serviced, secure homes that CapitaLand are believed to be entering the market on. 

Chief Executive Officer Liew Mun Leong recently highlighted his company’s interest in Russia citing massive liquidity in the market and advising that his team of researchers had spent considerable time in the country and want to invest directly in serviced residences as a starting point.

The results of studies on the international allocation and relocation of staffing assets carried out in 2005 by both PriceWaterhouseCoopers and Pricoa Relocation support CapitaLand’s ideas for the market; both companies’ findings reveal that between 40 and 42% of companies surveyed had strong plans to place staff in Eastern European and Russian market places and each member of staff relocated or seconded would be in need of accommodation…

This particular market area is highly lucrative with the high value short term rental rates often met or contributed to by the company for whom the employee works, residents are professional workers and come without the stress often associated with letting to unknown tenants and an investor can buy into a complex of similar apartments either directly or through funds or shares in owning entities and avoid directly having to manage their assets in a hands on capacity as many of the buildings have management firms attached to them.

Another area of interest for an investor is the commercial property market in Russia…firstly the office sector could be worth targeting by those with the funds to make direct investment.  Demand for a broad range of office space with emphasis on Grade A is expected to double in the next four years based on projections of international company inward migration and expansion.  The other commercial area of strong interest is the retail sector.  Demand for quality retail and mall space is expected to triple in the next four years and Morgan Stanley has set the trend of large investors committing to this period of growth.  They bought into RosEuroDevelopment back in July to be right at the money making end of RosEuroDevelopment’s construction, development and management of retail, office, warehousing and even residential properties.

Basically the money is flowing into Russia but it is not flowing in a controlled or linear way which makes more conventional investors a little flustered!  Russia is not a market for the nervous or the risk averse as it could implode or even explode in your face – but for those with the energy, resources and (dare we say it?) balls – Russia is a fantastic and exciting place to be in property right now.

Special Reports: Property News for Russia

Russia Real Estate Investment Potential
Real estate investment in Russia is centered on western cities and profits can be made in residential and commercial sectors

Russia Real Estate Buying Process
Successfully navigating the property buying process in Russia requires the assistance of a decent lawyer and the application of caution

Russia: A Guide for Real Estate Investors
Russia has an exciting real estate market offering property investors massive growth, sustained income but not without risk.