Russian rivals
Over 25 percent of stands were dedicated to Russian projects vying for the attention of developers around the globe. Although the rest of the CEE region presented some interesting offers as well, the massive Russian presence naturally forced an unofficial comparison with neighboring markets. The question is: Will the attraction of the Russian bear lead foreign investors to turn away from Poland and other CEE countries?
According to a report by Russian firm Intermark Savills, entitled Elite Residential Property Market in Moscow, most foreign investors in Russia focus mainly on non-residential development, into which they poured $4 (zł.11.6) billion in 2006. Despite the fact that residential real-estate investment in Russia became attractive for international investors only recently, foreign investments in this sector reached $0.5 (zł.1.45) billion in 2006.
Markus Schmitt-Habersack, head of business development in Russia for German firm ECE, said that foreign investors see Russia as a very prestigious market, mainly due to its 145-million-strong population. "75 percent of them live in [Russia's] European areas and in big cities, and the country's economy is growing and the retail sector is booming, which, from our perspective, is very important," said Schmitt-Habersack. "Demand is high, people want to buy. They want to consume and are asking for competition in the retail sector because they want to have choice. Therefore, there is significant potential for the development of the retail sector. What is important is that the situation does not only appear to be in major cities such as Moscow or St Petersburg, but also in many other locations," Schmitt-Habersack adds.
Schmitt-Habersack also sees an increasing level of stability in Russia. "From our perspective, the legal system is changing right now and the Russian government is doing a lot to improve the system and make investing in Russia more secure," he said, adding that the situation in the banking sector also looks brighter.
Obstacle course
There is, of course, still much room for improvement in Russia's investment climate, however, Schmitt-Habersack suggested that it is more and more comparable with the situation in Central Europe just a few years ago.
One of the most prominent obstacles to investment is the fact that, according to Russian regulations, the lease of land upon which developments may be situated can only be granted for 49 years in many major cities. "From the legal perspective you can own land but there are some cities where the law doesn't apply [in the same way]," Schmitt-Habersack said. He added that in the majority of regional cities the process of investing is easier and even those cities with the 49-year restriction allow developers to pursue investments. "You own the building that is on the plot and you have a right to lease this land - from a legal perspective. After the 49-year leasehold expires you are entitled to renew that lease," Schmitt-Habersack pointed out.
Massive investments
As the country's economy improves, investors are slowly turning towards residential real estate and especially to a number of ultra-luxurious schemes now being offered to Russia's elite.
A prime example of the market's development is Rublyovo Arkhangelskoye, a large-scale project initiated by Nafta Moscow, which was on display at Mipim 2007. The residential development will be located just three kilometers from Moscow, on 430 ha of land, and will eventually become home to 30,000 residents. Worth around $3 (zł.8.72) billion, the project will offer 10,000 units.
Like Schmitt-Habersack, Alexander Shatalov, head of marketing and sales for the Rublyovo Arkhangelskoye project, believes the investment climate in Russia has changed considerably as the country has become more economically stable. "The Russian real-estate market is very young, as the privatization process was carried out just over two decades ago," he said. "Developers ... in the past, did not have the funds to develop many projects so what they used to do was purchase a plot and then pre-sell properties to raise funds for construction. Now it has changed fundamentally as we have much larger groups coming to the real-estate boat, like those who made their money in the oil industry," Shatalov noted.
Poland no less attractive
Despite the massive competition from Russia at Mipim, representatives of foreign businesses operating in Poland continue to believe in the latter's potential to grow further. "It is encouraging to find that there is still demand for investment property in Poland and that investors consider that it is a more mature market, offering solid investment assets. Many are now returning to add to their earlier purchases once they have shown strong performances," said Brian Burgess, managing director of Savills in Poland.
In addition, market analysts believe that the Russian market, even if attractive, is still wrestling with a number of problems which could bring trouble and confusion to developers. Kazimierz Kirejczyk, president of real-estate consultancy firm Reas, said that market development in Russia can also be viewed, in terms of President Putin's development plan - something which could be compared to Law and Justice's (PiS) "three million apartments" plan in Poland.
Different rules
On the other hand, Kirejczyk pointed out that the Russian market "is based on rules that are quite different from those of typical developers, which can be seen most clearly in the land-acquisition phase of a development."
Kirejczyk also noted that until the necessary changes are implemented in the legal system, investment risk will remain higher in Russia than in other CEE economies. "I personally believe that it is healthier for the sector's development when investors seek lower risk and accept lower rates of return, but are interested in a longer-term presence," said Kirejczyk. Speculators, he stated, are likely to destabilize the market and cause price fluctuations. "They can go play on the Russian steppes - it's better for us," he concluded.
