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Press Release

The Global Property Guide downgrades Moscow

May 30, 2007



BRIEF SUMMARY
Moscow residential prices are among the highest in Europe. But Moscow apartments earn only moderate yields, taxes are high, the law is pro-tenant, and the political environment is deteriorating. We believe that despite Russia’s strong economic growth, residential investors should avoid Moscow.


ARTICLE
Moscow property prices are now among the highest in Europe, at from US$10,700 to US$20,500 per square metre in the key areas of central Moscow where the elite and foreigners live, such as Patriarch’s Ponds, Arbat, Tverskaya, Zamoskvorechye, Chistye Prudy, Ostozhenka, and Kropotkinskaya. Demand for residential property is still strong, being fuelled inter alia by the oil and gas boom.

Buying prices for large used apartments (250 sq. m.) in key central areas of Moscow average US$20,506 per square metre (sq. m), while the average for all sizes is US$16,446 per sq. m. High quality new apartments can, of course, fetch considerably more (see Global Property Guide Russia yields).

Rent rises in Moscow have not kept pace with the rapid price appreciation during the past year.

Moscow’s key central areas now have moderate gross rental returns (yields), with an average of 5.18%, down significantly from last returns in the same period last year, which ranged between 7% to 9.5%.

With prices rising and rental returns falling, the Global Property Guide considers that Moscow is now an unattractive investment destination for investors in residential property.

Prices seem obviously unsustainable, given construction costs, labour costs, and local purchasing power. There are many other negatives.

  • Yields at around 5% - 6% are no longer exceptional
  • The costs of buying and selling a property (round trip transaction costs) are no less than 25% - a very high level.
  • Gross rental income is taxed in the hands of foreigners at 30%.
  • There is a pro-tenant environment.
  • There are serious security issues, and also property rights issues.
  • The political environment is deteriorating.

In the last few years, there has been a rush of foreign investors to Moscow. Some have made very good money. But in our judgment the risks now outweigh the benefits, in view of the substantial taxes and costs incurred by foreign investors, the investment risks, and the deteriorating political environment.

In St. Petersburg the situation is very different. Apartment prices in St. Petersburg have also risen, and city-centre apartments in key areas now sell at an average of US$3,490 per sq. m. But St. Petersburg rentals have more than kept pace. Gross rental returns (yields) in St. Petersburg have therefore risen this year, in sharp contrast to Moscow, to an average of 9.6%, from an average of 7.1% last year.

References:


Description:
The Global Property Guide is an on-line property research house. On-line newspapers, magazines, etc which use material from this release MUST provide a clickable link to www.globalpropertyguide.com. Sites found not providing the link will be removed from our press list.

Terms of Use:
On-line newspapers, magazines, sites, etc wishing to use material from this press release MUST provide a clickable link to www.globalpropertyguide.com Sites found not to be providing the link will be removed from our press list.


Economics Team:
Prince Christian Cruz, Senior Economist
Phone: (+632) 750 0560
Cell: (+63) 917 735 2228
Email: [email protected]

Publisher and Strategist:
Matthew Montagu-Pollock
Phone: (+632) 867 4220
Cell: (+63) 917 321 7073
Email: [email protected]

Address:
Global Property Guide
http://www.globalpropertyguide.com

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