Investing in Real Estate in Russia: A Popular Roller Coaster
- By Mikhail Alexandrov
- Mar. 02 2010 00:00
Russian Consulting Club
Russia does not have the subprime category, but even without this significant investment product the Russian real estate market followed the world economical crisis and dropped severely from its peak in July 2008. This was indeed a mess for those who invested in, for example, mutual investment and private equity funds. However, as always, this crisis presented a great opportunity for those who had not bought anything yet.
Therefore I see more and more buyers seeking to enter the market on the bottom understanding that real estate, especially class A and especially in Moscow, is currently a good choice, since some of the projects are offering returns within five years or even less.
However, the Russian real estate market operates on its own rules. Each deal in commercial estate is individual although almost all of them have something in common. Money is being transferred abroad and sellers are looking to avoid taxation, making the structure of the deal opaque and hard to understand at a glance. When investing, keep in mind that title deeds of properties to be purchased have to be considered closely and preferably by professionals. In addition, do not forget that about 90 percent of all deals are still deals with the company’s shares (although, legally speaking, the “shares” category does not exist in the commonly used “OOO” designation, the Russian version of a limited liability company). This definitely makes investment risky, and it is up to you to decide if it is worth it. At the end of the day, Russia is still an emerging market.