The Russians are coming

The global housing market suffered its worst performance for more than two years in the third quarter of 2011, according to property consultancy Knight Frank. The Eurozone crisis has sent many property buyers and sellers into free-fall, and the media has been full of doom and gloom articles.

Impending changes to the French capital gains tax system will also damage their international property market, while some developers are expressing worries about China's imploding home price crisis, and the worsening outlook for the nation's property market. Even the United States must assess its distressed property if it wants to recover as cut price sales continue to drag down prices according to information provider CoreLogic.
 
But Russians are bucking these trends.
 
Russia recently announced its lowest consumer price inflation of 6.1 percent, according to the Federal State Statistics Service. The Russian government has been struggling for years to achieve low-digit inflation in order to create a favourable investment climate and lure foreign investment.
 
Another reason for this Russian optimism is that only 24 percent of Russians take out loans, and only 18 percent have deposits with banks. Most Europeans use between two and four financial products, and some as many as six, according to Ivan Svitek, Chairman of the Board of Home Credit Bank.

Domestically, Russian property is quite buoyant. For example, for many months rumours were swirling that a Morgan Stanley real estate fund was interested in Galeria, a swishy five-story shopping mall in the centre of St Petersburg. Now the fund and the seller - Meridian Capital CIS Fund of Kazakhstan - have agreed on a price. People close to the deal tell it went for a staggering US$1.1 billion (S$1.37 billion). This seven-figure number will make the Galeria sale Russia's largest commercial property deal ever - and coincides with other possible good signs for the Russian property market.

According to data from Jones Lang LaSalle, 2011 was a bumper real estate year for Russia with $8.2 billion (S$10.26 billion) in commercial property deals. This figure obviously includes yet-to-be-signed deals such as the Galeria.

According to Svetlana Andyryukina, Editor of International Residence, Russia's leading overseas property magazine, “... almost all Russian's have low outgoings and reasonably low income tax of just 13 percent on their declared earnings. Their reluctance to also rely on their own banking system has fuelled a huge appetite for overseas investments - with an estimated US$12 billion (S$15.01 billion) earmarked for the real estate markets abroad.”

She added that whether buying personally or through an offshore account, Russians are taking advantage of buying up distressed real estate in Spain plus countries including Bulgaria, Turkey or Italy. Asia is expected to become their next target.

Russian Overseas Property Exhibitions are packed with middle class Russians hungry to own their own bricks and mortar abroad. According to Kim Waddoup, CEO of the aiGroup, a leading organiser of Overseas Real Estate exhibitions, business is booming. Waddoup said, “As soon as we closed the doors on our 2011 series of eight property exhibitions, 90 percent of the exhibitors rebooked. I only wish we could find more exhibition space to cope with the large number of overseas companies wishing to join and exhibit in 2012.”

Russians are also taking to the Internet in a big way. Internet penetration in Russia continues to grow fast. At the end of 2010, there were 59,700,000 users, 42.8 percent of the population. The increase from 2009-2010 was in excess of 31 percent. Russia also has the second highest penetration of Internet users in Europe, only beaten by Germany with 65 million users.

Yandex, Russia's leading search engine, recorded a 37 percent increase in searches for Bulgarian property in just four months up to August 2011. Spain came second with a 23 percent increase at 70,337 searches. www.1-property.ru,  a popular real estate portal, is regularly getting more than 5,000 visits a day from Russian property investors.

Another statistic published by market research consultants C9 Hotelworks revealed that Thailand's island of Phuket saw a staggering 109 percent increase in the number of Russian holidaymakers during the first half of 2011 – due in no small part to the direct flights now available. There will almost certainly be an impact on property investment activity on the island.

According to pundits, Russians are likely to pour more than US$12 billion (S$15.01 billion) into overseas investments and the international property industry is starting to take Russian investors seriously. After all, they cannot afford to miss out.