16 March 2004 04:01
Russia Is Next Step for International Investors
CANNES, France -- Ask a Western investor what he thinks about Russia and he will go on about its enormous potential.
But ask him if he is ready to put his money into the country's booming real estate and his enthusiasm suddenly
evaporates.
Over 16,000 people, representing almost 2,000 companies from 65 countries, participated in last week's annual
International Exhibition of Property Market Professionals, known by its French acronym MIPIM, held for the 15th time in
Cannes.
And although Russian could not be heard nearly as frequently as French, German or English in the corridors of the
Palais des Festivals, Russia's participation has been growing steadily in recent years, veterans of the exhibition
said.
This year some 400 Russian investors, developers, architects, realtors and realty consultants, representing over 100
companies, attended the event.
Especially noticeable was the large, centrally located Krasnodar region stand, highlighting investment opportunities
in the southern area's hotel industry. Complete with Cossack songs and dances, miniature trains and numerous
building models, it was Russia's largest stand at MIPIM. Other regional stands included those of Moscow and St.
Petersburg.
Companies that had their own separate stands included the international property and legal consultants that have
offices in Russia, as well as Sberbank, engineering firm Ecoprog and developers Sistema-Hals, Espro-management, Legion
Development, and KV-Engineering.
The upcoming ascension of Central European countries to the European Union, scheduled for May 1, is definitely
shifting European investors' interest further east.
"EU expansion pushes us east," said Guy Barker, managing director of Germany's Invesco Real Estate,
which has invested heavily in Central European countries over the last decade. "There is no reason for us to
continue investing in Central Europe if yields there are on the same level with Western Europe."
The development of the property market in Central and Eastern Europe was discussed at several MIPIM panel
discussions, presentations and conferences, with topics ranging from the investment potential of Czech cities to the
effect of the EU's expansion on the local real estate market and the Moscow hotel business.
The debate on "Expanding Europe: Investment and Development Opportunities in Central and Eastern Europe"
was largely devoted to the Russian market and, like all the MIPIM events related to Eastern Europe, was extremely
popular with participants.
"I did not expect such a high turnout. My MIPIM experience suggested that no more than 30 people would
attend," said William Kistler, president of Urban Land Institute Europe, who moderated the debate.
For MTLegion Development was one of many Russian exhibitors in the MIPIM exhibition.The "Emerging Trends in Real
Estate: Europe 2004" survey, published in January by ULI and PricewaterhouseCoopers, ranked Moscow highest for
investment opportunities and total returns, while calling it "the least developed and least integrated real estate
investment market in Europe."
Kistler said that while many real estate professionals agree with the study's findings, they still view Moscow
and Russia with extreme caution.
"During one of our conferences many people agreed that Moscow was a very promising market. But when I asked who
was actually going to invest there, no one raised their hand. Something must be wrong," he said.
Russia, despite its exemplary economic growth in the last five years, is for the most part seen as backward and
undeveloped, even by Central European standards.
"There are certain prejudices like crime, insecurity and dilapidating building stock," Invesco's
Barker said.
But it was also "little things" like the necessity of getting a visa in order to see what Russia is like in
reality that prevented people from making the final decision to enter the market.
"You don't need a visa to travel to Prague or Budapest. But in Russia it is a real nuisance," Barker
said.
"Rewind 10 years in Central Europe -- that's where we think Russia is now," said Gordon Black,
managing director of Heitman International, which has invested in real estate in Central European countries and the
Baltic States.
He said that Heitman was interested in Russia but would not be more specific about the company's eastward
expansion plans.
Barker said that Invesco is planning to launch a real estate fund with a "specific commitment to Russia" in
early 2006. However, as a sign of high local risks, only one-fourth of this Central European fund will be invested in
Russia.
A Thursday presentation by Maxim Kunin, head of real estate at the Fleming Family & Partners Russia Real Estate
fund shed some light onto why such deals are still a rarity.
The key problems cited by Kunin that prevented international investors from entering the Moscow market were: the lack
of professional players and investment-grade properties, scarce investment experience because of the low number of
completed deals, the unfavorable terms of debt-financing, an unclear legal base and the absence of land ownership in the
city.
But there were also positive aspects noted by potential investors. One of them was the size of the Moscow market. As
the Central European markets are becoming overcrowded, Russia with its huge territory and large population is seen as
the next logical step for Western investors that have already set up shop in Poland, Hungary or the Czech Republic.
"Bigger countries are more interesting for us. Moscow alone has more people than most Central European
countries," Barker said.
Barker also praised the recent positive changes in Russian legislation and taxation practices, adding that the
country's "legal aspects are more favorable than in other countries in the region -- namely Ukraine."
And -- if somewhat slowly -- perception of the Russian real estate market abroad is changing.
The change occurred over the last 12 to 18 months, said Gerald Gaige, partner at Ernst & Young.
"Before that, whenever investment in Russia was brought up, the answer was always 'no.' But now, it is
no longer a question of 'if' -- it is a question of 'when,'" he added.
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[The Moscow Times] |
RUSSIA IN FACTS
