While the decline in prices for residential property in Europe was more substantial than in the Moscow market, Russians who used to buy Moscow apartments for investment purposes are turning more and more to European property — and they are also taking advantage of favourable mortgage conditions offered by foreign banks.
In 2010, European banks are going to provide $6 billion in mortgage loans to Russians buying property abroad, while the total value of foreign residential property to be bought by Russians this year is to be $12 billion, RIA Novosti reported, quoting an analytical report by the international realtor Gordon Rock and mortgage broker Lowell Finance.
While residential property prices in Moscow — which went up at a record rate for a few years prior to the global economic downturn and brought high returns on investment — declined in 2009, this shift wasn’t as noticeable as that in some of the European markets.
“True, Russians have taken advantage of a decline in property prices in Europe and have begun investing in foreign property more actively,” Inna Ignatkina, executive director of MIAN, told The Moscow News. “For the whole year 2009, [residential] property in Europe became 20 per cent to 30 per cent cheaper, while on the Moscow market, the decline was between seven per cent and 20 per cent, depending upon the segment.”
The dramatic decline in prices for European residential property made Russians look at Europe more closely, experts say, while investing in apartments and houses at home no longer seems to be as lucrative. “Certainly, the increased interest in European property has had an impact on the Moscow property market, where the proportion of ‘investment purchases’ was no higher than five per cent to seven per cent last year,” Ignatkina said.
Russians buying property abroad are taking advantage of interest rates on mortgage loans provided by European banks, which are significantly lower than those offered by Russian banks. According to Gordon Rock and Lowell Finance, the average interest rate offered by European banks is 4.5 per cent, while in Russia the figure is more than twice as much.
Russian citizens are also attracted by relatively low prices for property in Europe. According to Ignatkina, in 2009, the average residential property deal in Bulgaria was 2 million roubles and 5 million roubles in Montenegro. “Today, it is impossible to purchase residential property of the same level in Moscow with this kind of money,” she concluded.
Meanwhile, about one half of all residential property bought by Russians abroad is intended for vacations, while only 20 per cent to 25 percent of purchases were made with investment purposes in 2009, Ignatkina explained.
The economic downturn also brought about a decline in foreign nationals’ interest in Russian residential property in 2009, which is slowly coming back this year. According to Ignatkina, European citizens have primarily looked at buying property in Russia for short-term and long-term stays, while the proportion of investment deals has been insignificant.
“In 2009, foreigners’ interest in Russian residential property experienced a slump, but since the beginning of this year, we have seen a slight increase in demand for elite and business-class property,” she said, adding that under the Russian law, a foreigner can buy property here on credit only if they are legitimately staying and working in the country.
Buyers are westward-bound
The Moscow News