Real Estate

Olympic Fever In Sochi

Real estate prices in Sochi have now exceeded all predictions. The scale of the building projects under way in the city and the surrounding areas is truly amazing, though, unsurprisingly the development is concentrated along a coastal strip, about 500 to 800 meters from the sea itself.

Nowadays those keeping abreast of the Russian real estate scene will hardly be surprised to hear that the Sochi market is one of the most dynamic in the country. Sochi, whose status as Russia’s only subtropical seaside resort has earned the nickname “Russia’s dacha,” has become a sought-after brand. In fact, owning property in Sochi became fashionable just a couple of years ago thanks to the Russian business and political elite and some celebrities’ examples. Now there are many people who would like to watch the Olympics from their own window and are eager to pay to do it.

Acquiring real estate in Sochi promises profit as well as pretige. The market dynamics, namely the demand for high-quality luxury projects, perfectly testifies to that statement. And yet enthusiasts claim there are some things money can’t buy, even in the property market. The outlook for Sochi extends beyond 2014 and being just a venue for international exhibitions, conventions, economic fairs, and summits. We might be witnessing the birth of a new center for both business and leisure.

The reasons for this sudden rush are quite simple. To start with, Sochi’s geographical location and, hence, its climatic conditions are, indeed, unique — the city stretches along 145 km of the Black Sea coast and boasts 260 sunny days. And then there’s brand recognition. Its best PR agent is soon-to-be-former President Vladimir Putin, who keeps a summer residence there and has held multiple summits by the seashore rather than in bustling Moscow. Broad media coverage arouses even more interest in the sunny city. In addition, Sochi has a reputation as an honest place to do business, as yet relatively untouched by fraud.

But the most obvious reason for the surge of interest in Sochi is the Olympics in 2014, and the Games’ main contribution is less the event itself than a way to push Russia to start developing the infrastructure of its south, making it a pleasant destination for people and their money.

According to Putin, more than $12 billion will have been invested in Sochi by 2014, including $8 million to modernize the city’s infrastructure, which may take a miracle.

Last but not least, Sochi is adjacent to a great ski resort, Krasnaya Polyana, which is currently open only in winter but which a federal program intends to operate year-round. A new tunnel has already been built to address part of the problem of getting there, and a light metro is planned for Ashtyrskoe Canyon. Interestingly enough, Gazprom is building a five-star hotel at Krasnaya Polyana. This gives us a hint of what city in Russia is nowadays considered to be worth investing in.

A curious fact about the Sochi property market is that it depends greatly on the Moscow one. In fact, most investors in Sochi real estate come from Moscow, and profits on Sochi investments are beginning to rival those of Moscow. But naturally, there are differences between these two markets. First off, in Sochi there is no such thing as “suburbs” or “countryside” — the city stretches along the coast, one district bleeding into the next without any real separation, making it impossible to determine where the city ends.

Thus, in contrast to Moscow with its clear city-versus-outside distinction, access to transport and proximity to the sea are the main determinants of the prestige of a property. Other factors, of course, include view and infrastructure.

Secondly, infill housing prevails here, since 94 percent of the territory is national park. Since construction is permitted only in limited areas, compact multistory developments are the best option rather than single-story houses popular in the countryside. In other words, the thing that makes Sochi so pretty and desireable — its natural surroundings — is exactly what creates obstacles to development. What makes Sochi special is that mountains divided it into several “oases,” and one such “oasis” can easily be further split into districts.

As far as the city’s districts, at present Hostinsky, which includes everything from the Mamaika to the Mazest neighborhoods as well as the city center, is considered one of the best. Another excellently rated neighborhood is Krasnaya Polyana, where the ski resort is, which, as previously mentioned, is now getting substantial federal financial assistance. Further down on the desirability list are Central, Adlersky, and Lazarevsky. (This is something you might want to keep in mind when choosing the location of your own sunlit window on the Olympics.)

Probably the best thing about the forthcoming Olympic Games is that the federal government decided to assign a pretty large amount of money to return Sochi its fancy looks. A special program set for four years will rid the city of unsightly dormitories and tumbledown huts and renovate housing stock and such public institutions as hospitals and libraries — basically, the entire infrastructure. Sochi Mayor Viktor Kolodyazhny even invited Bulgarian experts to help renew the rail links and highways leading to and from the city. In connection with all this road work, problems getting into (and therefore, out of) Sochi are expected. Roads, an eternal Russian frustration, was this time addressed quite seriously.

This year began with the construction of a ring road around the city, which, according to Kolodyazhny, will be a tollway. Another project to carry out is repairing the highway to Krasnaya Polyana and building a number of high-speed routes leading to major stadiums. City officials proudly state that, in all, 580 kilometers of road surface will have been built and renovated.

Never before has Sochi experienced such a challenge to use so much money or to change so fast. But there’s obviously a lot of faith in the city’s future. The investors’ list is by no means limited to the government: Given the amount of money giants as Gazprom, Basel, and Inteko have already poured into real estate development, Sochi is serious business in the private sector. Basel alone has invested $2 billion, not including an airport they intend to build.

After Sochi was officially announced the Olympic capital of 2014, local experts noticed a spike in property prices. Some forecast that it will double for housing as well as for the land itself. Some report an average price of $5000 per square meter, the cost of real estate in Sochi has surpassed Moscow, while others estimate that Moscow still leads at 29% more expensive. In any event, all analysts agree that the two figures are gradually leveling out, especially given the recent slump in Sochi prices about three months ago. As real estate experts have it, one reason for the slump is that legal entities have been deprived of the right to own land, which was substituted for long-term rent. But current stagnation in Sochi is set against a background of property markets growth in Russia’s largest cities — Moscow, St. Petersburg, Rostov, Yekaterinburg, Chelyabinsk. Another factor is the lack of any general plan for development in the city, and vagueness translates into investor trepidation.

But the experts’ forecast is unlikely to be over-optimistic. They maintain that demand for land will rebound soon — real estate here is valuable not only due to the Olympics but because of what the city will soon become. Surely, there will be problems to be overcome, such as unconstrained land-price growth, especially concerning Krasnaya Polyana and Imeretinskaya Bay. Prices are likely to keep growing. Now 100 square meters along the federal route costs around 20,000 euros, dropping to about 10,000 to 15,000 euros further away from the center, so now is a good time to buy.

Apart from that, as all local property agents point out, there’s a huge need for a detailed plan for Sochi development and a great necessity for city branding, something that would give it publicity independent of the 2014 Olympics. Sochi has its own past and its own future, of which the Olympic is just a part.

But still, after all the renovation is done, with the help of money and some time, Sochi has every chance of becoming a worldclass resort. After winning the Olympic bid in July 2007, it obviously gained much more. If you see your future in somewhere warm under the sun, breathing the Black Sea breeze and strolling along palm-tree lined avenues, maybe now is the time to have a go at it.