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. Last Updated: 07/27/2016

After St. Pete Real Estate Debacle Moscow Agents Defend Market

In recent months, four St. Petersburg real estate agencies have failed, taking with them millions of dollars of their clients' money.

Accusations flew back and forth about what or whom to blame for the failures of Inter-Occidental, Dom Plus, Kredo-Peterburg and Klondike. St. Petersburg's Association of Realtors and House-Builders has even claimed a "mafia takeover" of the market was under way.

Whatever the dark undercurrents, industry analysts agree that the collapses have highlighted the problems in a system common among real estate agents in St. Petersburg of requiring excessively large deposits from clients.

Moscow real estate agents are quick to point out that down payments for the purchase of an apartment, and the risks of a repeat of the St. Petersburg crisis, are much lower in the capital.

Exactly how the down payments contributed to the demise of the real estate agents in St. Petersburg is unclear. Alexander Moshkalov, vice president of the Baltic Union of Realtors, another coalition of St. Petersburg real estate agents, said the collapses were the result of the mismanagement of investors' cash down payments. As an example, he said that one of the agencies had been putting clients' money into a "pyramid" financial scheme.

In St. Petersburg, cash down payments can be up to 50 percent of the total cost of an apartment and are often held by the agency while the documentation is completed.

This process can sometimes stretch out for months, especially in cases where the apartment for sale is communally occupied. Often the occupants of the communal apartment must all be individually resettled in new housing before the deal can go through.

The risks are heightened by the absence of any laws regulating what the agency can do with the money it holds.

Moscow realtors said the situation in the capital was fundamentally different. Grigory Kulikov, director of the Moscow real estate agency Miel and vice-president of the Moscow Association of Realtors, or MAR, said one difference was that the down payments here are much smaller, usually 5 to 10 percent of the total apartment price.

"I do not believe that such a situation could happen in Moscow," he said.

He said it was possible that problems could arise with property developers who pre-sell apartments in buildings that have not yet been constructed. But he said that real estate agencies were not involved with this sort of speculation.

"I don't know of a single real estate agency in Moscow that tries to attract funds for the purchase of an apartment," he said. Sergei Bagayev, MAR's president and the head of the Vavilon agency, agreed that the Moscow real estate market was more secure than in Petersburg.

"Things are peaceful here now," he said.

He said down payments of 5 to 6 percent were only required to reserve an apartment for a would-be buyer. Other Moscow realtors said down payments were generally 5 to 10 percent, but also said where the money goes until the deal is completed depends upon the agreement.

Not everyone in Moscow real estate says the industry is safe as houses.

The Western Group's Gabrial, who does not use a second name, said the field was filled with legal gray areas.

"The industry is inventing itself out of nothing," she said.

While emphasizing that her firm deals mostly with Western clients who expect Western levels of security, she said that there are no laws at all governing how property transactions take place.

"Only now is there a law on the regulation of the real estate industry, but you have companies out there that have been operating for four or five years."