Moscow Is Europe's Hottest Property
- By Max Delany
- Mar. 12 2008 00:00
If you want more bang for your buck then the Moscow real estate market is the place to be, according to a Europe-wide survey of market players released Tuesday that put the city on top of the table for investment prospects.
But in the rollercoaster world of Russia's property boom not everything looks so rosy, as those polled also ranked Moscow the riskiest city to do business in.
Moscow's meteoric rise, up from 18th last year, is due in large part to investors turning away from Europe's traditional markets to tap into new opportunities, the annual report from PricewaterhouseCoopers and the Urban Land Institute said.
"Fundamentally, the improvement is based around investors becoming more comfortable with risk factors," said John Forbes, the London-based head of real estate at PwC.
"Investors seem to be placing more emphasis on the return rather than the risk," Forbes said. Investors still remain broadly wary of the Moscow market, because of its lack of transparency and the underdeveloped legal system, he said.
After a choppy year for "Old Europe" in the wake of the subprime mortgage crisis, investors are betting on hopes that Russia's rocketing economic growth will continue on the back of oil prices of $100 per barrel and push through into higher rental rates and greater property demand.
The poll of about 500 investors and developers from around Europe saw last year's top city, Paris, drop to 5th and London, 2nd last year, slump to 15th out of the 27 cities on the list. It is also the first year that London has dropped out of the top 10.
Snapping at Moscow's heels was second-placed Istanbul in Turkey, another up-and-coming real estate market.
Across the board in both the commercial and residential sectors, investment recommendations for Moscow are red hot as the European real estate sector looks to find new sources of profit.
"Moscow is currently offering the highest yields across all sectors," said Vladimir Pinayev, managing director for owner and occupier services at Jones Lang LaSalle.
"If you look at where the market is right now and how demand stands then we are in no way near saturation point," Pinayev said.
Buy recommendations for the retail sector from those surveyed topped 80 percent, followed by office space and hotels at about 75 percent and the industrial sector at almost 65 percent.
In terms of investment optimism, the residential sector lags slightly behind the pack, with only 54 percent of those surveyed giving it a buy rating, while 16 percent advised owners of Moscow apartments to sell.
The survey comes as the capital's average residential retail prices this week broke through the $5,000-per-square-meter landmark for the first time, according to data from Irn.ru, a web site that monitors the country's real estate market.
"Since the start of the year, [Moscow] prices have risen by 15 percent," said Oleg Repchenko, chief analyst at Irn.ru.
Psychological factors such as fear over rumors about a possible ruble redenomination, rising inflation and turmoil on global stock markets have pushed prospective buyers into making purchases earlier, Repchenko said.
"We thought that this growth would happen over the whole year, but now we expect that the increases will stop and prices will stabilize," Repchenko said.
Beyond soaring residential rents, the lure of huge returns in the city is having a detrimental effect on its construction market, the report said.
There is a serious lack of high-quality contractors and labor in the market, with those contractors that have established themselves able to cherry-pick projects and bump up prices, the report said.
Asked if an overheated market could cause a bubble to form, with more European investors looking to make money here, PwC's Forbes said a lot depended on how quickly money spills over into the regions.
"A lot of it is going to come down to the extent that investors concentrate on Moscow," Forbes said.
"Russia is such a huge place and the ability to absorb capital is so great that if they look to invest in the whole country there should not be a problem," he said.