Russian outbound property investments to fall by a quarter in 2015
Russians have recently been spending up to $10 billion a year on purchasing property abroad. However, that figure could fall by a quarter in 2015 to $7.5 billion.
Russians have good reason to be less upbeat about international real estate markets – the Russian economy is facing issues in connection with the ruble plummeting against the US dollar and the euro. Most customers’ incomes are in Russian rubles, and these earnings saw no increase after the onset of the recent economic turmoil, hence the collapsing ruble makes foreign property prices exorbitant, and also drives up maintenance costs on houses and apartments, as well as airfare and entertainment costs. The dollar rate has doubled against the ruble, from 35 rubles in late January 2014 to 70 rubles in late January 2015, while during the same period the euro gained more than 60%, from 48 to 78 rubles. Experts at the National Research University Higher School of Economics in Russia predict that the ruble’s devaluation will also continue into 2015, depreciating
Why are Russian outbound real estate investments set to shrink by 25% rather than by 60% or 100%, i.e. by the same rate as the above currency moves? First, some Russians have savings or earn salaries denominated in a foreign currency, hence they are not exposed to the adverse effects of their plunging currency. Second, residents of other CIS countries, e.g. Kazakhstan (whose economy is now in much better shape than Russia's), often buy property from foreign real estate agencies, who categorise these deals as being from Russian buyers. Third, customers are refocusing their priorities, and are now more reluctant to buy resort property for their own stays. More and more customers are bullish about real estate as an investment, and are diversifying their assets with
2015 – Key potential trends:
- the ruble will continue to weaken against all main currencies;
- inflation will rise;
- capital outflows from Russia will be lower than in 2014, but higher than
- Russians will invest less in foreign resort property, and shift their focus more towards
high-yieldingproperty in stable economies
- buying resort property for a vacation retreat will remain the main motivation behind a transaction, reducing the total number of deals
The troubled Russian economy
Russia's outbound real estate investments will hinge on the domestic economy, which is shaped by the international geopolitical climate,
The Russian economy will fall into recession in 2015. As oil prices declined,
Nabiullina also stated that the annual inflation rate may hit 15% and would peak in the second quarter of the current year, ignited by a weak ruble. Bank of America Merrill Lynch Global Research adjusted its forecast for the 2015
Cheaper oil, a contracting economy, and a high rate of inflation – all these economic woes mean that Russians will spend less on holidays abroad and on foreign property, and indeed this trend can already be discerned: VTB24, one of the largest Russian retail banks, reported 40% lower outbound visitor spending’s during the holiday season
Net capital outflows from Russia totalled $151.5 billion, a nearly threefold increase on 2013. It has been reported that the CBR has raised its capital outflow forecast to $120 billion from $99 billion, which beats all other forecasts.
Russia's Finance Minister Anton Siluanov has forecast that Russian capital outflows are likely to slow down materially at the end of 2015 compared to 2014. “Total capital outflows should not exceed $100 billion”, Siluanov commented.
For comparison purposes, 2012 net capital outflows from Russia averaged $57 billion, and then surged to $63 billion in 2013.
Why are we expecting to see declining foreign real estate investments when capital outflows are forecast to rise? A Tranio.com study, Russian Investments into Foreign Property, found that “c.
Capital outflows are on the rise, partially because many Russian funds that earlier invested in domestic companies are now focusing on moving their capital abroad. Some
Fewer lifestyle acquisitions, more investments in commercial property
Investments in liquid,
In a Tranio.com study, Russian Buyers of Foreign Property, 17.4% of real estate agents surveyed stated that political and economic stability abroad vs. instability in Russia was the key reason why Russians make foreign property acquisitions.
“Political and economic stability is a key factor in Germany and the UK, where these issues were cited by 83.3% and 75.0% of respondents, respectively. Stability is in second place, after climate, in the US and France, although in the US this factor is accorded the same attention as price (52.9% of respondents), while in France the price of a property is not a sensitive issue”, the study finds.
Whenever the Russian economy gets into trouble, focus shifts to the above countries – the UK, Germany, the US and France. All these, with the exception of Germany, are not mass markets, so local demand there is unlikely to improve the big picture of declining investments. The only country where demand may rise is Germany, as property there (particularly
Purchasers of investment property in the UK, Germany, the US and France are used to doing business abroad and tend to keep their money in Swiss banks – hence they are immune to ruble lows and other Russian travails. They will often move some of their
A number of Southern European and Balkan countries (such as Spain and Bulgaria) are preferred by Russians who spend their vacations in these countries but do not do business in them. These buyers usually have capital in Russian rubles, receive
There will be a general increase in demand for commercial property and liquid housing as a safe haven for capital, whereas fewer acquisitions will be made for holiday or lifestyle reasons. Resort property will still receive more investments in absolute figures, but the gap will be bridged by more buyers preferring
George Kachmazov, Tranio managing partner