Real Estate Firms Awash In a Sea of Regulations

"Room for a View" is a new twice-monthly guest column on the Russian real estate market.








Moscow's residential real estate firms currently face a complex and potentially overwhelming licensing procedure that has given preference to competitors owned by Russian banks.


It is a system that may well reflect licensing requirements expected to descend in the next six months upon commercial real estate firms as well. The types of residential activities requiring a license and the procedure for obtaining licenses are outlined by Regulation No. 885, issued Oct. 4, 1994, by the Moscow Government. This licensing procedure raises several considerable obstacles.


First, one or more employees of the firm wishing to be licensed must pass an education program given by the Center for the Support of Residential Property Reforms. The course licenses agents to conduct certain activities for a licensed real estate company, costs $680 in rubles, is given in Russian, takes two weeks, and requires passage of an exam.


Residential real estate firms must also obtain a guarantee from a bank or an insurance company in the amount of 50,000 ecus (about $64,000) for reimbursing clients who might suffer losses due to the firm's actions. Only one insurance company, Votek, offers the coverage, and most commercial banks require that the equivalent of 50,000 ecus be kept on deposit with them if they are to give the guarantee. Many of the 175 licenses issued to date by the Moscow Licensing Chamber have gone to bank subsidiaries.


Five types of activities require licenses, with fees for each running about $900. If the firm plans to market its services for hard currency, Central Bank permission is required -- a feat not easily accomplished.


Another hurdle facing many firms is a requirement that they occupy the premises given as the jurisdictional address in their company's charter. If the space they occupy is not privatized, they must produce a registered rent agreement with the organization that holds the property on its balance, and this agreement must be registered with the city or state property committee.


Additionally, the Municipal Property Department requires either two references from licensed companies or a letter of recommendation from The Moscow Real Estate Guild before it will issue one of the documents needed to obtain a license.


At present, the Moscow government has yet to issue to the Moscow Licensing Chamber the requirements for licensing commercial real estate activities, but it expects to receive these shortly. By autumn, commercial brokers could find themselves caught in a procedural web similar to that entangling their residential counterparts.





Jamison Firestone is a partner at Firestone Duncan & Associates.


?The International Real Estate Federation, known by its French acronym FIABCI, extended membership to Russia last month, a move expected to boost the domestic industry's international recognition.


?Turkish developer Enka last month awarded an 11,000 square-meter, five-building contract to the brokerage firm Noble Gibbons to market the first project it has undertaken independent of the city of Moscow.


The contract includes residential and office units for lease on Sretinka Pereulok and luxury apartments for sale on Tsvetnoi Bulvar. Completion of the project is set for this December.


?Swiss-funded KREST Development broke ground April 16 on a 10,000 square-meter office project located on Gogolevsky Bulvar across from Kropotkinskaya Metro.


Marketing for the eight-story Gogolevsky 11, scheduled for completion in the first half of next year, is being handled by Spectrum Properties.


1-room; Russian: $900


Russian Ren: $1,150


Western: $1,433


2-room; Russian: $1,565


Russian Ren: $1,892


Western: $2,417


3-room; Russian: $2,733


Russian Ren: $3,233


Western: $4,083


4-room; Russian: $3,417


Russian Ren: $4,525


Western: $5,750


5-room; Russian: $4,500


Russian Ren: $5,917


Western: $8,417


1-room; Russian: $617


Russian Ren: $792


Western: $1,017


2-room; Russian: $1,067


Russian Ren: $1,550


Western: $1,883


3-room; Russian: $1,717


Russian Ren: $2,267


Western: $3,250


4-room; Russian: $2,817


Russian Ren: $3,750


Western: $4,633


5-room; Russian: $3,383


Russian Ren: $3,833


Western: $5,500


1-room; Russian: $408


Russian Ren: $525


Western: $750


2-room; Russian: $502


Russian Ren: $673


Western: $925


3-room; Russian: $933


Russian Ren: $1,383


Western: $2,183


4-room; Russian: $1,800


Russian Ren: $2,633


Western: $3,283


5-room; Russian: $2,433


Russian Ren: $3,317


Western: $4,250