Few Choices on Pricey Expat Rental Market

MTBlackwood's web site had just three large apartments at $2,500 per month.
Laying the groundwork for the move to Moscow, Angela Baxter had two hours to look at three apartments, and then she had to fly back home.

"All of the landlords said their wives had decorated the places, and I wondered if they had all married the same woman," Baxter said during a seminar hosted by the Russo-British Chamber of Commerce called "Survival Guide for Expats in Russia 2008."

After hurriedly looking at the places, she chose the first one and returned to talk to the owner. "I didn't have much time, so I went in, told him how much wiggle room I had to work with and left," said Baxter, the director of business development at Berlitz.

The realtor later told her that the apartment she thought she had secured had been let out to someone else.

"They offered you wine and candy, and you just negotiated and walked away -- they didn't think you were serious," the real estate agent later told her.

From rental prices jacked up midcontract to landlords refusing to help with burst pipes, horror stories abound of expatriate apartment rentals gone wrong.

But before you can even consider the particular joys of living in a Russian apartment, you'll have to find a place to call home, or at least someone to find it for you. The city's booming population and ever spiraling prices, however, are a problem real estate companies can help navigate, but not mitigate.

"The basic trend is that buying prices increased between 40 and 60 percent already this year," said Yekaterina Thain, director of residential property at Knight Frank. "This is the result of a very small supply," she said.

With 22 square meters of housing per person, Russia is lagging behind not only Western Europe -- which has 37 square meters per person -- but also the average for Eastern Europe of 30, said Brady Martin, a real estate analyst at Alfa Bank.

Supply is especially tight in the $3,001 to $6,000 price range, since corporate renters -- a key segment of the expat market -- tend to look in this range.

Landlords prefer corporate renters since the wear and tear on the apartment is less, firms reliably pay rent on time and they occupy the apartments for long periods, Andrei Sado, the director of the elite-apartment rental division at Penny Lane Realty, said at the RBCC seminar.

Finding rental properties for $6,000 per month or more is also difficult, Sado said, since "people who have these types of properties typically don't need the money, and it's harder to negotiate with them. They keep the apartments for friends or loved ones."


Data from Penny Lane Realty
The $1,001 to $3,000 range might be the only part of the city's real estate rental market where supply and demand are matched -- in fact, supply slightly outstrips demand.

According to research by Penny Lane Realty, 56.63 percent of its clients want apartments in the $1,001 to $3,000 price range, while 54.07 percent of landlords are offering such apartments.

The rest of the expat rental market, however, is not so harmonious.


Data from Penny Lane Realty
In the $751 to $1,000 range, 32.81 percent of landlords offer apartments while only 6.99 percent of renters want such apartments.

The difference is even more glaring in the $3,001 to $6,000 range, where only 2.63 percent of landlords offer apartments while 22.11 percent of clients are interested in them. Likewise, in the $6,000 and above range, with 13.5 percent of clients seeking them and less than 1 percent of landlords offering such pricey accommodations.

Sado cautioned that while the numbers below $1,000 would vary from firm to firm because Penny Lane focuses on higher-end real estate, the figures above $1,000 were representative of the market as a whole.

Expats hoping to get a sense for what their money can buy have dozens of web sites to turn to, but not all of them provide much guidance for the uninitiated.

Residential real estate is divided into two general classes: primary, or new constructions, and secondary, or older buildings. Apartments are further divided into elite, business and economy categories according to their price per square meter.

For those hoping to rent a remodeled, large apartment at the level of $2,500 per month, the choices seem scarce.

A search last week on Blackwood realty's site only turned up three apartments. While all three had been remodeled to one degree or another in a European style, two were at the very end of their respective metro lines. All were within the secondary, economy class.

A search of the Knight Frank site turned up 35 apartments in the $2,500 per month range, all similar to the Blackwood apartments.

Neither of the sites turned up apartments for $1,000 per month or less, though Knight Frank listed three secondary economy-class apartments for $1,500 a month.

Cheap choices are more abundant, however, on the classified sections of web sites such as Expat.ru and Slando.ru. With less-expensive options it pays to move fast, visit a lot of properties and have first and last months' rent on hand in cash.

Some of the apartments on these sites are also rented through real estate agencies, which require a commission, usually equal to a month's rent, and the first and last months' rent -- a costly proposition for noncorporate expats.

With studies by Penny Lane showing that rental rates from December increased by around 18 percent by mid-March -- another, though less likely option for expats, is buying.

While prices have increased in the high-end range, in the lower-quality, secondary market, prices have declined year on year -- especially when looking at figures in rubles, Alfa's Martin said. Prices could be said to have risen in dollar figures, he added.

The elite group includes houses and apartments and "can cost as much as you want to spend" said Martin. "They can go for $20,000 a square meter and up."

The business, or professional, class can cost from $7,000 to $10,000 per square meter to buy, Martin said. "This is definitely the sector expats are renting in. It's not cheap, but the companies are paying for it. There are some crazy apartments."

In the economy class, the prices are around 2,500 per square meter to buy, with companies like PIK leading the way.

In the center of Moscow, prices per square meter were the highest in the Yakimanka district, just south of the Kremlin. Prices here were $12,000 per square meter at minimum and $41,000 per square meter at maximum, according to Blackwood's November 2007 Real Estate Market Monitoring report.

And although both the renting and buying markets seem to move in mysterious ways, knowing the city's seasonal trends can help make the process of finding a place to live easier and less expensive.

Sado said the initial cause of rental rate increases in 2008 was the traditional New Year's panic that came about as a response to government price hikes just after Jan. 1 in the Soviet era.

He predicted that prices would level off in April and May but would see an increase in July and August as expatriate families began moving to Moscow to settle in before the school year starts -- a long standing trend.

"As long as demand stays, prices will increase," Sado said.