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Analysis & Opinion
02.02.10 The Russians Are Buying
By Svetlana Kononova

Since the early 1990s, buying property abroad has been a popular way for wealthy Russians to invest money and build bridges to a safe and comfortable life in Western countries. This trend has long been associated with members of high-society such as oligarchs, high-ranking officials and celebrities. However, since the real-estate prices have fallen during the economic crisis, a new segment of middle-class customers has emerged.

“When the crisis had just begun, many Russians were scared by the unpredictable course of events, and they delayed their purchases. But things have changed since January of 2009. Demand for property abroad has risen since then,” said Marina Alekseeva, the general director at the Just Real Consult agency. “This trend is especially distinctive for West European countries with steady economies, which were least affected by the crisis, such as Germany, France and Italy,” she added.

George Shishkovsky, the managing director at the estate agency, which specializes in UK real estate, agreed: “I would say customers from Russia and the former Soviet republics started buying more that they used to before the crunch - not only prime-class properties, but average two-bedroom flats, which cost about ₤1 million in London. It shows that the middle-classes are trying to invest their money in the traditional property market,” he said.

Shishkovsky claims that Russians are interested in the best areas of London. They prefer to invest money in the more modern, spacious buildings in the city center, preferably with car parking and security. Since the number of such properties is limited, they will also consider more traditional residential properties, such as townhouses and flats in Victorian houses. A novel trend is a growing number of buyers who wish to renovate flats or houses to their own taste. While Russian customers used to choose key-ready real property in the UK, nowadays more and more of them are prepared to rebuild and redecorate their new homes using the services of local design bureaus.

It is difficult to say how much exactly Russians spend on buying real estate abroad. Buyers try to keep their purchases confidential; some of them carry out transactions through corporate bodies they own, rather than in person, and others use complicated payment schemes involving foreign banks. However, a figure of around $10 billion spent on overseas properties in 2009 seems realistic, according to experts. Agencies say that Russians account for up to 30 percent of elite overseas properties. In the middle-priced and low-priced segments of the West European real estate market, buyers from Russia and the former Soviet republics are less notable, in comparison to those from the United States, India and the Middle East.

The choice of countries and properties available for sale ranges from cheap German flats (?25,000 to ?70,000) to luxurious Mediterranean villas and European castles worth many millions. “We have noticed that the market has polarized during the crunch,” Alekseeva said. “For example, there are two kinds of properties in Germany that are most in demand: the cheap flats in Berlin, Stuttgart and other big cities, where property prices tend to grow, and the elite villas in Bavaria and the Baden Baden area surrounded by the beautiful countryside, lakes and mountains, which cost from ?1 million to ?2.5 million.”

Julia Titova, the head of the international department at the Moscow-based Best Nedvizhimost estate agency, marks the same trend. “There are two basic groups of customers,” she said. “The first group is interested in apartments costing ?50,000 to ?200,000 or in houses with prices from ?150,000. But the second group has totally different preferences. These rich people are looking for unique properties with a long history, impressive architecture and the perfect location. They do not care how many millions these building might cost.”

Interestingly, most buyers do not buy overseas properties with the intention of living abroad permanently. According to Titova, many people are simply looking for a second home. They may send their families off to a sea-side house somewhere in Italy or Spain, or buy flats for grown-up children studying in West European universities, but the buyers themselves tend to live and work in Russia and only visit their second homes from time to time.

Then there are those looking for retirement homes. It may be difficult to believe given the poverty that afflicts most of Russia’s pensioners, but there are some people in the country who are wealthy enough to buy a second home abroad and enjoy their old age.

Moreover, some clients of real estate agencies consider big West European cities as places to run their own property business. “The crisis forced many businessmen to reconsider their assets,” Alekseeva pointed out, “some of them who never invested money in property abroad started doing that for economic reasons.” Statistics from Just Real Consult show increasing demand on commercial and investment property, such as hotels, boardinghouses and flats for rent. For example, in Rome and Milan buying to let can earn an annual profit up to seven percent; in big German cities – up to nine percent.

Apart from the profit margins, investing money in foreign real estate is attractive to many Russians because it can make it easier to obtain permanent residence in Western European countries. Although foreigners who own real estate do not receive permanent residence automatically, investors are welcome everywhere.

However, while interest in buying property abroad is on the up, some segments of the market show the opposite trend. The new, fast developing markets such the United Arab Emirates, Turkey, Bulgaria and Egypt have been the worst hit by the economic crisis, with a huge decline in the number of sales made to Russians. That might be explained by a shift in attitude: now is a time for sensible investments and minimal financial risks.
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