Moscow — The Silent Real Estate Boom

Although you rarely hear about it on the international property investment scene, Moscow is currently experiencing a real estate boom of phenomenal proportions. According to Knight Frank apartments are now going for over $19,093 in prime Moscow districts. Between January and December 2006 new apartment prices rose an incredible 92.2%, and re-sales a staggering 69.4%. A small 60 square metre apartment in central Moscow is now worth over $1million dollars, and $40,000 dollars per square metre is not unheard of. The average price of Moscow property is $16,446 per square metre

As Moscow prices have risen so rapidly they have left rental rates lacking behind which has brought about a drop in rental yields in Moscow, to an unspectacular 5.18%. In St Petersburg however, though prices have risen just as rapidly to an average $3,490 per square rental rates have kept up with the rises and in fact yields have actually risen from 7.1% – 9.6%. Rental income is taxed at a flat rate of 30% for non-residents.

It is because Russian prices have gotten so high that you never hear Russia mentioned as a good place to invest. While their is perhaps still room for growth, and while it is likely that growth will take place, there is also a lot of uncertainty over the political situation in Russia, will Putin ever relinquish power, or at least hold an election, or will Russia once again become a totalitarian state (if it isn’t already), as well as that there is the bad relations with the U.S., which would become a lot worse if Putin goes down the totalitarian route. This would likely bring about a sharp downturn in the economy. Another downside is the high Capital Gains Tax, at a flat rate of 30% for non-residents.

As it is now you could compare the boom Moscow has seen to that experienced in London and many places around the U.K. And just as the rising numbers of UK buyers have been forced to look abroad to get on to the property ladder, Russian’s too are also increasingly looking into overseas property, favouring places like Ukraine, Thailand, Goa, Malaysia and Canada.