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Property prices on the turn in one of the world's emerging market giants makes investors sit up and pay attention.
Research why Russia property is now such a worthwhile opportunity as a lucrative worldwide property investment market.
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Find out the reasons why Russia is such a promising investment option and what to expect in terms of investment returns.
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Russia is the largest country in the world, bigger than the USA and the rest of Europe put together, and with a population of 142 million people it is also the 9th most populous country in the world. It also has the world's largest natural gas reserves, the 2nd largest coal reserves and the world’s 8th largest oil reserves, making it the world's leading natural gas exporter and the second leading oil exporter.
Russia also has huge amounts of mineral reserves including platinum, nickel, aluminium, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget. This makes Russia constantly attractive to investors, and with property prices falling by around 20% during the crash property investors are keen to get in on the action.
Russia Property Market Overview
As we all know, Russia is one of the BRIC economies, which groups Brazil, Russia, India and China together, but as we also know foreigners cannot buy property in all of them freely. In fact only Brazil and Russia allow foreigners to buy property relatively free of restrictions, within that Russia has the added benefit of a much more developed mortgage market – although lending remains constrained in the country at present it is possible for foreigners to secure mortgages in the country, provided they meet the criteria.
Unlike most property markets, where the division between primary and secondary markets is something that is intimated or discussed by commentators, in Russia the residential property market is actually divided into the primary and secondary markets, with prices being much higher in the former than the latter. It is important to pay careful attention to this division when looking into buying Russia property, because it provides another way of splitting metrics to help investors choose the right property at the right time to maximise gains.
That is not the only split in the Russia property market, which has more than most. Russian property buyers are better known for buying in other countries than they are in their own, while foreign buyers are recognised as driving a lot of the price growth in the Russian market over recent years. Then you have the split between Moscow and the rest of the country. This was epitomised in the latest data when prices of resale apartments in Moscow increased by 4.02% year on year in Q1, while prices of resale apartments in St Petersburg (the second biggest city in Russia after Moscow) fell 0.74% (-4.43% inflation-adjusted) during the same period.
Russia Property Investment
Russia property got flattened last year, and now investors are snapping up bargains in the recovering economy. As we have seen in several Eastern European economies, hard-hit property markets combined with a swift and strong economic recovery presents investors with a good opportunity. Latvia saw property prices fall 50% between 2008 and 2010, but as its economy proved more resilient to the crisis it went from being one of the worst performing property markets to one of the fastest growing in 2010 as investors feasted at bottom.
The Russian economy suffered a very short recession in 2009 and has grown strongly ever since, with IMF data showing growth of 4.3% in 2010 and 2011. According to official data from the Federal State Statistics Agency (Rosstat) the Russian economy grew by a healthy 4% in the second quarter of this year, down from a growth of 4.9% year on year in Q1. The IMF is predicting 4% growth for the year ahead although the EBRD predicts growth of just 3.1% for this year.
While the economy has been pretty resilient to the downturn the property market was hit pretty hard. According to Rosstat the average price of all apartments across Russia was 52504 rubles (£1,059) per sqm in2008, in 2011 this price had fallen to 43686 rubles (£881) per sqm. Luxury apartment have fallen even more sharply from 69,612 rubles (£1,404.11) per sqm in 2008 to 49,042 rubles (£989.201) per sqm last year.
In Latvia the combination of low prices and a resurgent economy took it from the bottom of the Global Property Guide table with prices down 59.70% year on year in Q3 2009 and ending 2009 down 52.81%, to topping the table with prices up almost 20% in Q3 2010 (in Q1 prices were down 31.72% year on year, showing the rapid turnaround in the market).
Such a turnaround may already be underway in Russia, in other words you may have missed the bottom if not the boat. According to the latest data from Rosstat, the price index for all resale apartments in Russia rose by 7.88% (3.86% inflation-adjusted) during the year ending Q1 2012, the fastest annual growth since Q1 2009.
Reasons Why Russia Property is a Good Investment
Homebuyers in Russia
Foreign homebuyers in Russia are typically of the business persuasion, either they are entrepreneurs looking to move their business into Russia because of its geographically central location or some other reason possibly related to the long list above. Apart from businessmen it is usually the wealthy jet-set who buy in Russia, with both businessmen and the latter favouring Moscow.