A Home of Your Own?
Moscow residential properties are rated as one of the best investments in Europe. One developer has opened a London office to market homes to potential landlords. Despite this, only a small percentage of expatriates here own their own homes. Unless you speak fluent Russian, the bureaucracy you have to deal with, the number of checks you should perform, and the volume of documents you need, can be off-putting, to say the least. To de-mystify the process, John Bonar has been investigating.
At the absolute top end of the elite housing market, turn to one of the international real estate companies such as Knight Frank, which has now opened a Moscow office. In their 2005 forecast they predict the highest demand will be in the Ostozhenka area, where the average sales price is $9,356 per sq m.
Work out the math! Now, if you don’t have the spare $1 million to buy a 100 sq. m. or so apartment, don’t worry, there are lots of other bargains out there and a select number of professionals to de-mystify the process. Elite homes in this exclusive city-centre area are now almost exclusively the province of Russian buyers. Increasing affluence is driving demand, and purchasers are seeking to upgrade to higher quality homes.”
“If you have a London-type salary and are buying here, you can still get a bargain,” says John Horton, a British marketing executive based here. John, with his Russian wife, is in the process of buying their second property here (see case studies). The best bargains are in buying a decent size apartment in an old building in a good area, and doing it up, says Guy Eames, who did just that five years ago. His $150,000 investment, including western-style renovation, has trebled in value in that time. You may not get that kind of capital value growth if you are buying now. Residential property values increased by an average of 30% in 2004 and over 2005 you can expect an appreciation of between 15% and 20% according to agents active in the market.
Inspired by the complexity of the process, Guy has set up a property search agency – Mosproperty, to help expatriates buy their own.
New cottage development near Istra, West of Moscow
The first thing to decide is what kind of property you want. There are a few basic choices: One, buying an old apartment, or house, and doing a renovation. This costs less and gives good potential for capital appreciation. Two, buying a new property, direct from a developer, either turnkey with kitchens and bathrooms fitted or, more commonly in the Russian market, what is known as a core and shell. Finished, ready-to-movethe- furniture-in properties will naturally be more expensive than a core and shell, where literally all you are buying is the structure and a roof, with utilities piped into the house.
Expect to pay at least another one third of the purchase price for flooring, internal wiring and plumbing, decoration and fitting kitchen and bathroom appliances.
Three, buying land and building your own. Be prepared to deal with architects, builders, sub-contractors and municipal inspectors. This is only recommended for the really adventurous, and land can realistically only be purchased outside of Moscow.
Finally, the easiest and most trouble-free option, is buying a turn-key flat or house from an established developer. The greatest capital growth will come from renovating older properties.
In Russia, unlike many other parts of the world, most secondary properties are located through an estate agent or private agent. Their margin is included in the sales price, and here the buyer pays the commission. Pricing is not flexible and negotiating downwards is hard.
One of Moscow’s many new elite housing developments
Statistically, but by no means all expats end up buying properties for between $250,000 and $400,000 in four or five areas inside the Garden Ring. The main thing to remember is the buyer does not part with the bulk of the contract value until he has the ownership documents. This is normally done through an escrow arrangement involving a bank safe deposit box with the bank acting as third party, giving each party security.
So what do you do when it’s time to move on?
You can sell, hopefully at a profit in Russia’s booming economic climate, or hold onto it and benefit from the rent.
John Ortega, the publisher of this magazine, clinched a deal this summer on a 290 sq. m. two-story house on 15 sotok (1,500 sq. m.) of land. It is 9 km SW of the MKAD and commands views over a forest, lake and a corn field. John discovered it by driving around looking for property to buy close to the dacha owned by his girlfriend’s mother.
The house is an unfinished core and shell, white with a blue roof, and John is having some additions, including a wine cellar and servants apartments, built on. Finishing, landscaping and the extra construction works will add another $300,000 to the $425,000 purchase price he personally agreed with the owners, using a VFBS lawyer for contracts.
He bought for a number of reasons: property values appreciating; air and water quality better in the country; great views from huge triple glazed windows; and a big territory for his new baby daughter to play in.
“I have the best of both worlds,” he says. “lakeside country living and shopping, restaurants and theatre just eight minutes away in Mega Mall at Teply Stan.”
Five years ago Guy, a British businessman with ten years experience in Russia, decided to make the plunge and buy an apartment. He and his wife chose a 100 sq. m. apartment with high ceilings in a distinguished building dating from 1880 on Petrovsky Boulevard. Even speaking fluent Russian and with the enthusiastic help of his Russian wife he found he was at the bottom of a steep learning curve.
They paid $110,000 for the property, spent another $40,000 on renovation, and some five years later he estimates it is worth $450,000.
“I was amazed that there was no one helping foreigners through the process of dealing with all the bureaucracy and paper work involved,” he says.
Three years ago he decided to put his experience to work and launched MosProperty, a property search agency specialising in doing just that.
He is also building a second home, a country house outside Moscow.
In 2000 Moscow residents John and Polina Horton bought a derelict 63 sq. m. apartment in central Moscow, close by the World Trade Centre. They gutted it, and today it is a western-style apartment with a large bedroom, open-plan kitchen, dining-living area, toilet and bathroom.
John and Polina Horton
“We chose this area, as prices would be driven by the Moscow City development and the third ring road, and sought agents that had property within one square kilometer. Currently it is 300% up on our original investment and that’s because of location,” says John.
The appreciation was a combination of the bargain price because of its condition, and the fact that a lot of the renovation work was done by John himself.
This autumn the couple are trading up, and taking possession of a 198 sq. m., core and shell townhouse in a new secure compound five minutes drive from the Mega mall at Khimki.
The kind of companies that can help:
MosProperty bills itself as the capital’s first Property Search Agency. The three-year old British-managed business offers what many see as the only acquisition service for expatriates working in Russia. The agency promises to "de-mystify" the purchasing process, minimise risks of purchasing property, and minimise the time spent by the client viewing properties himself.
The seven member team headed by Guy Eames, who has been managing service sector businesses in Russia & Eastern Europe since 1991, offer a six-step process from a free, initial consultation to completion of the deal that nurse-maid a client from beginning to end of their quest for a home.
Buying a new house from a reliable developer can be the easiest, hassle-free route to owning property here. The developer is responsible for all the planning permissions, installation of utilities, and building an access road. A new home has none of the baggage of previous owners or registered tenants.
The western-managed Westbuild Group specialises in building country homes using North American timber frame technology, and an energy-efficient, heat-exchange, warm-air heating system which can be converted to cooling for the hot Moscow summers. Westbuild’s genial American general director, Carl Margraff, has over 34 years experience in the building industry, of which the last decade has been in Russia.
Westbuild is currently marketing 270 sq. m. pilot homes, each on 20 sotok (2,000 sq. m.) of mature woodland north of Moscow for $450,000. The three-bedroom, two-storey homes incorporate a two-car garage, conservatory, parquet floors, Italian design open-plan kitchen and spacious bathrooms.
Timber frame technology adapts the use of wood to 21st century technology, and is the construction method most favoured in cold climates such as Scandinavia and the Northwest of Canada, as well as cold states of the USA. In terms of outdoor finishing and external appearance, timber frame is extremely flexible. It is actually the world’s most popular building technique. In the USA for example, over 90% of houses are built from timber; 80% of homes in Sweden are timber frame; 48% in Scotland; 20% in the UK.
MosProperty Western-managed property search agency.
Tel: (095) 264 6729 www.mosproperty.ru
Westbuild Group Western-managed developer and construction company.
Tel: (095) 977 0222 www.westbuild.ru
Stroyarsenal The first Russian developer to open a UK office to sell their brick-built, timber-clad, two storey villas in four villages they are developing about 40km west of Moscow’s ring road.
Tel: (095) 783 3230 www.7sa.ru/eng
DOKI A new real estate agency launching in September, with plans for 50 local offices covering the Moscow market in depth. Will offer full buying support as well as usual realty services.
Tel: (095) 500 0001 www.doki.ru
Knight Frank International real estate consultants.
Tel: (095) 981 0000 www.knightfrank.com
VISTA Foreign Business Support.
Tel (095) 933 7822 www.vfbs.ru