BUSINESS

Foreign Property-Hunting Picks Up in Pace, Gains

Special to The St. Petersburg Times

Though a market that has only gained notice in the last two years, realtors say demand for foreign real estate has skyrocketed. In 2004, Russians spent over $7.5 billion on buying property abroad, according to realtor estimates.

With the Western European real estate seen as predictable and annually increasing in price on average by 10 percent to 15 percent, market insiders predict another bounty outflow of Russian capital this year.

In addition, interest is expected to increase in property at exotic destinations, such as Thailand and Goa, where riskier conditions offer very impressive returns on investment.

"The demand for foreign growth over several years has been constant and smooth," said Natalia Ivanova, executive director of Estate Tour Consult Ltd. "The decision [of where to buy foreign property] depends on the client's purpose - whether they want to buy a holiday house or diversify assets."

"For the former they would choose Finland, Cyprus or Spain. That's the market for upper-middle class clients. Upper class buyers prefer Italy and France where prices are 20 percent to 30 percent higher," she said.

To make business investments, Russians usually look to England, South-East Asia, South Korea, Hong Kong and China, often buying hotels and restaurants, Ivanova said.

HOME VS. AWAY

Less than a third of property buyers are interested in commercial real estate.

Nikolai Kazansky, senior consultant at Colliers International in St. Petersburg, says that this segment of the foreign property market cannot promise as good a return on investments as commercial property projects in Russia.

What it can guarantee, as opposed to the domestic market, is stability, Kazansky said, which suites conservative investors.

"One of the main reasons for buying property abroad is not profit, but savings. In 2004 returns on investment in Russia were bigger. And besides, investors rely on their ties with authorities here," Kazansky said.

In Germany, real estate prices annually rise 3 percent. Even mixed investment in residential and commercial real estate gives 7 percent to 12 percent profit, reports Moscow-based legal firm The Law Office of Danis Miller on its web site.

Olga Yegorova, managing partner of Overseas Realty, says despite the lower returns, foreign commercial property still finds its client.

"Commercial real estate in Moscow is extraordinary profitable. But the costs of entering the market are also enormous. The market is overcrowded and unsteady. That induce investors to seek for alternatives," Yegorova said.

SUNSHINE DRIVE

Avenue Property, and investment
and real estate company, reports that 15 percent of Russians buy property in Spain, including Canary Islands; Cyprus claims second place and Bulgaria third.

As well as the climate, the sunshine coasts present a strong growth potential due to the influx of tourists and those dreaming of a retirement home by the beach.

Analysts predict property prices in Cyprus to hike by up to 25 percent this year. French and Spanish coasts could enjoy a more moderate rise of about 10 percent to 15 percent in 2005.

Since the Turkish authorities allowed Russian residents to own property in the country in 2003, the low price of housing and rate of tax has attracted many a buyer. And the value of Turkish property is only likely to strengthen once the country joins the European Union. Market analysts quote a price increase anywhere between 30 percent and 50 percent.

Another candidate for EU membership by 2007 has come to be Bulgaria. A knock-on effect on property values will be at least on par with Turkey, but as yet, Bulgaria remains one of the cheapest countries in terms of real estate in Europe.

"New EU members combine a low cost of market entrance with vast opportunities," Yegorova said. "Investors seek an appropriate ratio of risk and profit. So far the most popular countries are Croatia, Montenegro and Bulgaria."

Yegorova added that in Croatia real estate prices have already increased anywhere between 20 percent and 50 percent in the last year.

KEEPING IT IN THE FAMILY

Price is not always the defining factor for Russian picking property abroad, realtors say. About 10 percent of the buyers pick out property for their close family or relatives: children studying abroad, elderly parents in need of medical treatment.

In such cases, many choose the United States and modern European capitals, preferring comfortable apartments near educational and medical centers. As a temporary residence, the popular choice falls on France, Italy, Spain and Switzerland.

Part of the attractiveness of this foreign property comes from having access to cheap loans. Cyprus and Spain offer mortgage deals with 3 percent to 5 percent interest. Furthermore, in Croatia, Montenegro, Spain, Cyprus and France property ownership facilitates the getting of a visa or a registration certificate.

A promising market for seasonal cottages, especially for those living in the northwest region of Russia, is Finland. Considering that a house in the suburbs of St. Petersburg can cost as much as $1 million, Estate Tour's Ivanova says plumbing for a Finnish cottage makes more sense.

"Finnish cottages cost about 300,000 euros ($). And you can get a solid house with a living space of more than 80 square meters, a couple of bedrooms and a sauna," she said.

Finnish apartments, on the other hand, tend to be picked by elder people and newly married couples, Ivanova said. A one-room flat costs about 30,000 euros ($). A three-flat apartment in Helsinki would run up to 700,000 euros ($).

For a good-value deal, Imatra, Kovala and Espoo regions offer similar sized flats for five times less, Estate Tour Consult reports.

GOA THIS WAY

Developments in some more "exotic" countries have stimulated buyers to look outside the traditional markets of Europe or the U.S.

"This year Goa authorities let non-residents own real estate and land. The region became very popular and prices increased two to three times," Kazansky said.

Russian tourist and real estate agencies already operate at several Thailand destinations, namely at the beach resort Pattaia, the island Koh Samui and the country's capital, Bangkok.

"Demand from Russians has grown dramatically. For 100,000 to 200,000 euros you buy a flat or a small one-storied house in Europe. On Koh Samui, that's the cost of a house with a vast adjacent territory, 2-3 bedrooms, a swimming pool and a garden," said Yelena Kocheshkova, director of informational portal ThaiProperty.ru.

"Friendly legislation attracts Russian buyers unwilling to declare their profits. Besides, Thailand is closer to Russia than Australia, Maldives or Fiji," Kocheshkova said.

Land prices in Thailand have picked up at an annual rate of 30 percent to 35 percent, she said and several industry experts forecast a 100 percent increase in land prices by 2008, compared to the current level. At the moment, the cost of a square meter ranges between $30 and $150.

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