The worsening economic conditions have now taken their toll on almost every commercial property market in the world, according to a global survey of real estate surveyors. The past few months has shown a sharp decline in the need and demand for real estate in areas that had previously appeared immune to the current economic crisis. In particular parts of Asia and Eastern Europe have been affected with realtors’ allegedly reporting record downfalls in the demand for commercial properties. The Indian commercial property market has been especially hard hit and one of the biggest slumps in real estate values has been seen in Eastern Europe a region that up until recently was experiencing a boom in their building and developer industry. Areas such as Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Turkey and the Ukraine have all reported a fall in land and real estate values, with Russia being the hardest hit country.
The credit crunch has literally burst the Bulgaria property bubble with financiers desperately trying to sell any investment property they have there. Bulgaria’s economy has been left in a serious state due to heavy investments into tourism and commercial property in preference to expenditure on manufacturing and exporting.
Russian commercial property investments are also being put on hold as the now global credit crunch sets in. Developers in Russian cities are postponing projects due to lack of capital, with shopping centres and malls being the most affected. Major cities such as St Petersburg and Moscow are feeling the financial pinch as well as regional cities whose plans for expansion have had to be put on hold.
However, some countries are showing more resilience than others to the economic downturn. RICS research has shown that China’s commercial property market has shown more resistance with some actual increases to be expected in the number of commercial property that is being leased and sold throughout China in the upcoming months.
Central London is another city that has been hit hard by the commercial property down turn with investment funds that specialise in retail developments and office blocks being especially knocked by the slump. Retailers are being encouraged to fight the downturn in sales this Christmas by ensuring they provide unrivalled brand value, competitive consumer focussed pricing and value added promotions that encourage repeat purchase activity as opposed to the usual seasonal glitzy TV campaigns.
In the end of 2005, the employees of Moscow’s real estate agency Penny Lane Realty encountered the unexpected problem. Daily people called company with the question : “I want to purchase an apartment and immediately rent it out to clients, who I can talk to?” The answer was not easy, because sales and rent in Penny Lane Realty are responsibilities of two different departments. As a result for people involved in this type of situation company gave out a special phone number, which did not stop ringing the entire following year. Penny Lane Realty employees they were very proud of the way they resolved this problem, but suddenly bells ceased.
Number of people who desired to become private investors in real estate nowadays are very limited, and many of those, who were involved in this business past years, are now parting with the last properties they own, because the apartments in Moscow for rent are no longer bringing huge and stunning income gains in tens of percent annually as it used to before. Last week for the first time investments into real estate yielded in the plan of profitableness to long-term deposits into the banks.
Real estate market huslers depart, prices of real estate in Moscow are reducing – even if it just a little, but for a few months in a row. It seemed this was the desired results for Russian government, that this was what most of the Russian middle class wanted, which in had no way to allow themselves to purchase new apartments, after the last year’s jump of prices. But real estate experts are calm – in their unanimous opinion, the only consequence of present “stagnation” will be the clearer price separation of the apartments in Moscow into the elite and of the economy-class. The latter will fall in price, but not too much. There was no bubble, therefore, it won’t burst. It turns out, “valid” price on the real estate, which is not influenced by the investors, who purchase entire houses, but only by demands of future tenants and the proposal of builders – is not too differed from “invalid”, black market price. As one of the salesmen of real estate cynically noted, “Moscow still lags on the average price of the apartments behind New York or London”. Principally situation will change only, if many new houses appear on the market – but there are no prerequisites for this.
For more info please visit my website at www.eng.realtor.ru
Investing in real estate in Moscow could be the best investment you can make, and not in the long term but short term double digit gains are easily achieved.
Moscow 2007.
It is one of the most unique and exciting cities in the world – 17,000,000 souls live in a sprawling metropolis, seeped in history, seat of power of the Russian Federation, and home to 0ver 90,000 US Dollar millionaires, most of them under 50 years of age.
The Two Markets
The two Moscow real estate markets (residential and commercial) are indeed separated, but the profits possible in either market approximate each other.
For residential the greater part is composed of large apartment buildings, some of them with thousands of apartments within.
There is a smaller single home dwelling (often referred to as cottages, or dachas) which nevertheless can be built relatively cheaply compared to the sales price.
For the commercial market, there are new office buildings being built literally everywhere in Moscow, as well as shopping centers and industrial buildings.
The Opportunity
A simple visit to Moscow could convince the great skeptic that the construction boom is not even partially saturated.
The rents for either market do not yet approach London, but are closing very quickly.
The market is liquid, and there appears to be equally eager buyers and sellers. One can buy either independently, within a group, or fund. The returns have been more than impressive, and continues at a rapid rate
Why Moscow?
Moscow is a city of the future. Future is all about Moscow.
The population is young, growing, and highly educated.
The demand for both high quality commercial and residential property is unequaled in any European city, or any city for that matter.
Moscow resembles Hong Kong in the 1970s, London in the 1980s, and Los Angeles in the 1990s.
The political climate is more than stable, the laws and taxes have been adjusted to insure ownership continuity. The banks are learning the value of mortgage finance, and interest rates are becoming competitive.
How to Invest
Like any prudent investor one should see the lay of the land.
A week’s trip to Moscow can reveal much.
The major real estate companies (all of them) are resident in Moscow and provide a comprehensive viewing of their properties.
They can also reveal the local laws and regulations by which any investor and investment are regulated. It’s worth a visit. Moscow is alive and well and literally never sleeps.
How Much to Invest
This is a very subjection question. A 100 square meter apartment in Moscow can cost from $200,000 to $300,000 if purchased correctly as construction is about to start.
The sale of the same apartment in one year can at the moment find exceed $600,000 and even approach $1M.
It will not be difficult to make such an investment. One needs a real estate broker, a lawyer, and perhaps some personal assistant to translate and help you with local transportation.
Such a person is not difficult to find.
For larger and more impressive investment, consultation with the larger and well established real estate agencies can save you time, money, and later headaches.
Their specialists are on hand to guide you through the purchase process. For the larger investments, the multi-national real estate agencies (and they are all in Moscow) are your best bet.
Moscow property prices are among the highest in the world, but the trick is that even after cashing out, buyers not always can move in. Bureaucracy and fraud can cause several years delays.
London and Monaco are Europeâs most expensive cities for residential property buyers. Prices in the Baltics have risen to the same level as capitals such as Copenhagen, Berlin, Munich, Stockholm, Vienna, and Frankfurt.
High rewards await property investors in some parts of Europe, according to the Global Property Guide, a residential real estate research organization (www.globalpropertyguide.com). Rental yields for apartments in several Eastern European capitals are above 10%.
Rental apartments in Moldovaâs capital city Chisinau can be expected to yield annual rental returns of around 14.13%; in Polandâs capital Warsaw, 13.28%; in Bulgariaâs capital Sofia, 10.56%; and in Slovakiaâs capital Bratislava, 10.06%. The higher risks of Eastern Europe may be a factor in these returns (corruption, political instability, etc).
But risks are not the only factor. The Global Property Guide believes that the relatively recent arrival of the market economy, high interest rates, and relatively undeveloped mortgage markets, largely explain the low prices in the east. To illustrate, it would surely be hard to label the historic city of Bratislava, Slovakia, as a high-risk location, yet the rental income returns are excellent.
Western Europe generally suffers from another, different disadvantage: High taxation. There are high rental income returns to be earned in Amsterdam and Paris (8.25% in both), in Munich (7.80%) and Brussels (7.53%). But all four cities are high tax environments (but so too is Poland).
Property in Prime Central London returns surprisingly high rental yields, at 7.13%. Note that this âPrimeâ category encompasses relatively a narrow group of super-luxury apartments in absolutely prime areas (Belgravia, Chelsea, and Knightsbridge). The high returns in these select super-central locations contrast with the significantly lower rental yields (5.79%) available in Central Londonâs other luxury areas (Kensington, Bayswater, Notting Hill Gate, St Johns Wood, Highgate, Islington, Highbury, and Primrose Hill).
Europeâs most expensive cities
The tiny principality of Monaco is the most expensive location to buy an apartment in Europe at around â¬24,900 per square metre (sq. m.).
Closely on its tail is Prime Central London, where 120 sq. m. super-luxury apartments can cost £1,170,000 (â¬1,742,656) or £9,750 (â¬14,522) per sq. m. Apartments of 120 sq. m. in other luxury areas of Central London are likely to cost £580,000 or £4,833 per sq. m. (â¬863,880 or â¬7,199). The large difference is explained by Londonâs highly segmented top-end market, with super-luxury apartments in absolutely prime areas commanding considerable premiums.
Paris and Amsterdam follow London. A 120 sq. m. apartment in either of these cities has an average purchase price of â¬800,000 (â¬6,667 per sq. m.).
Moscow is Europeâs sixth most expensive capital for buyers of residential property. And though apartments in Moscow can be rather rewarding for buyers in terms of rental income returns, investors should be aware of the high risks (purchases are cash-based, and the authorities can suddenly turn hostile).
Dublin makes an appearance among Europeâs most expensive cities in 10th place, with a high end 120 sq. m. apartment on average costing around â¬600,000.
The Baltics, till recently Europeâs hottest residential investment destination, are now expensive. A high-end apartment in Central Vilnius, Lithuania will cost on average around â¬3,792 per sq. m (â¬455,000 for 120 sq. m.).
Latvia follows closely with high-end apartments in Central Riga costing an average of â¬3,020 pr sq. m. Rental yields in the Baltics have also dropped to very low levels.
There are still some very inexpensive capitals in Europe. Berlin, in particular (â¬3,167 per sq. m.), is now experiencing inflows of foreign money in response to its relatively low prices.
Even less expensive are:
Slovakiaâs Bratislava (â¬1,292 per sq. m.)
Polandâs Warsaw (â¬1,175 per sq. m.)
Macedoniaâs Skopje (â¬1,125 per sq. m.)
Moldovaâs Chisinau (â¬917 per sq. m.)
Rental returns cannot fall forever
As 2007 dawns, rental returns are lower in most locations than they have been for 20 or more years.
Nowhere in Europe are rents keeping pace with the continued strong rise in property prices. Residential real estate prices are at historical peaks in almost all countries in Europe, except Germany and Switzerland.
This is cause for concern. At the Global Property Guide, we informally consider a danger signal to be rental returns of around 4% or below.
Several European capitals offer rental income yields around or below this 4% level. In example is Madrid, where rental returns are now at only 3.15%. Rental yields in Monaco are the lowest in Europe at around 2.43%.
Moscow’s been tipped to overtake London as the world’s most expensive place to rent an office, as a UK recession pushes prices down. Russian estate agents even see rates going up, as demand for quality Moscow property remains strong.
Effective immediately, the Global Property Guide (http://www.globalpropertyguide.com) is downgrading its Residential Investment Rating on Moscow residential real estate.
Residential Investment Rating DOWNGRADE
WHERE: Moscow, Russia
FROM: 2 stars (negative)
TO: 1 star (avoid strongly)
Rationale:
Moscow property prices are now among the highest in Europe, at from US$10,700 to US$20,500 per square metre in the key areas of central Moscow where the elite and foreigners live, such as Patriarch’s Ponds, Arbat, Tverskaya, Zamoskvorechye, Chistye Prudy, Ostozhenka, and Kropotkinskaya. Demand for residential property is still strong, being fuelled inter alia by the oil and gas boom.
Buying prices for large used apartments (250 sq. m.) in key central areas of Moscow average US$20,506 per square metre (sq. m), while the average for all sizes is US$16,446 per sq. m. High quality new apartments can, of course, fetch considerably more (see Global Property Guide Russia yields).
Rent rises have not kept pace with the rapid price appreciation during the past year. Moscow’s key central areas now have moderate gross rental returns (yields), with an average of 5.18%, down significantly from last returns in the same period last year, which ranged between 7% to 9.5%.
With prices rising and rental returns falling, the Global Property Guide considers that Moscow is now an unattractive investment destination for investors in residential property.
Prices seem obviously unsustainable, given construction costs, labour costs, and local purchasing power. There are many other negatives.
• Yields at around 5% – 6% are no longer exceptional
• The costs of buying and selling a property (round trip transaction costs) are no less than 25% – a very high level.
• Gross rental income is taxed in the hands of foreigners at 30%.
• There is a pro-tenant environment.
• There are serious security issues, and also property rights issues.
• The political environment is deteriorating.
In the last few years, there has been a rush of foreign investors to Moscow. Some have made very good money. But in our judgment the risks now outweigh the benefits, in view of the substantial taxes and costs incurred by foreign investors, the investment risks, and the deteriorating political environment.
In St. Petersburg the situation is very different. Apartment prices in St. Petersburg have also risen, and city-centre apartments in key areas now sell at an average of US$3,490 per sq. m. But St. Petersburg rentals have more than kept pace. Gross rental returns (yields) in St. Petersburg have therefore risen this year, in sharp contrast to Moscow, to an average of 9.6%, from an average of 7.1% last year.
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Requests for interviews or comments to publisher@globalpropertyguide.com or 63-917 321 7073. If sent before 3.00 p.m. Moscow time, a response will come the same day.
