Buying a house in Moscow – Moscow residential real estate market

AS HIGH-RISK and high-reward buy-to-let schemes go, there has been nothing like this. The houses in question are detached, well-built and cheap at £100,000 to £175,000 for three bedrooms. Tenants seem easy to find, and respected British estate agents predict 20 per cent-plus capital appreciation for this year. The catch? They are in Moscow.

So far the East European property revolution has seen big investment from British individuals and syndicates in Bulgaria, Estonia, the Czech Republic and Hungary looking, usually for apartment purchase. Markets and locations may have been new but the buy-to-let rules were like Blighty’s — investors bought city-centre flats to attract corporate tenants or leisure-resort flats for holiday rentals.

But now a series of gated estates built by the Moscow developer Stroyarsenal, the first Russian properties to be marketed to British investors, present a very different proposition. The houses are brick-built, timber-clad, twostorey villas with a hint of gingerbread design.

They are on the western side of Moscow, off one of its densely packed ring roads, and look out on beautiful forest 30km (18 miles) from Red Square and the business district. There is 204-501 sq m (2,200-5,400 sq ft) of living space in each home. Rooms have granite and hardwood surfaces, under-floor heating and über-modern kitchens and bathrooms. Outside there are private gardens, some with sauna huts.

Security is high. The thick, steel front doors on each home have four locks, video cameras are common and each estate has at least one 24-hour manned checkpoint. This is Russia’s dacha country, where well-off Muscovites have second homes and visiting corporate grands fromages live to escape the pressure and danger in the heart of the capital. “Welcome to Surrey, Russian-style,” says Nicolas Kullmann, Stroy arsenal’s London representative.

This sounds and looks beautiful, but there are clear risks for buyers. No UK mortgage firm will lend on residential real estate in Moscow, while only the insane would buy into Russian mortgage schemes aimed at foreign buyers with interest rates of 11-19 per cent plus a “loan tax”. So the individual investor must pull down up to £175,000 from the equity of his or her principal home to buy outright, while a large-scale investor should treat this purchase as by far his or her riskiest venture.

There is tax on rental income, but no capital gains tax. Although it is legal to take property investment profit out of Russia, the processes are relatively untried compared with most countries. Whatever the truth may be, the reputation of Russia as a country with excessive bureaucracy, corruption and crime makes this a volatile area for investment compared with the string of tried-and-tested markets luring British property investors today.

But if those risks sound extraordinarily high, so do the rewards. The Russian economy grew 7.3 per cent in 2003 and 6.7 per cent last year, according to the US Government. Market players say that property price rises across the city are among the highest in the world. Average home values rose by 20-22 per cent last year, and this year demand for high-quality homes is outstripping supply by 15 per cent. A good time to buy or sell house in Moscow. Buyers are increasingly sophisticated and seek better specifications and unusual designs for residential properties in Moscow. Tenant numbers are now double those of late 2003, with the highest demand for homes fetching £1,150 to £1,435 a month — precisely Stroyarsenal’s territory with its villas.

Another top-end British agent, Savills, is also sniffing around. “By Christmas we’ll probably have a link with a developer selling investment property,” predicts Charles Weston- Baker, head of Savills’ international department. “The market is enormous. At the moment young people live with their parents. There is no mortgage culture and older housing is inadequate. There is vast pent-up demand and a sharp investor would benefit from good rental income and high capital uplift.”

A few Britons have been working as estate agents dealing with Moscow apartment sales since the perestroika era, which began in the 1980s, when many of the city’s 14 million residents were given their often decrepit state homes, creating an instant market in private property.

Stroyarsenal recognises that its villas, which are being launched on Monday, may be hard to sell to investors who normally buy an apartment in Moscow. It is, therefore, offering each buyer a 10 per cent annual rental guarantee for the first three years of ownership, plus, no doubt, a much-reduced purchase price if the buyer wants to barter.

Capitalism in Moscow is nothing if not direct. Just as commuters flag down drivers, negotiate a price for a ride, then hop into their impromptu taxi, so potential buyers of Stroyarsenal’s homes can negotiate a deal.

“They should come and tell us what they want,” says Vladimir Ostashkevich, deputy director of the firm. “We’re sure there’s a deal to be done. After all, this is Moscow.”

HOW TO BUY

To buy a flat or house in Moscow prices are quoted in US dollars and costs vary from $8 million (£4.5 million) for city-centre luxury apartments to $10,000 (£5,735) for tiny, poor-quality high-rise flats with no lifts.

Buyers should set aside 4 per cent of the purchase cost for surveyor and estate agent fees, searches and title deed processing. Legal fees will be another 1 per cent. Always get independent legal advice. Don’t go it alone or use a legal adviser who is part of a development firm or agent. Expect the purchase to take eight weeks if there are no complications.

For those wishing to sell an apartment in Moscow the process is similar, as long as the property deeds are in order. There are a number of reputable foreign Estate agents who deal with Moscow flat sales.