Russians choose most expensive real estate abroad despite crisis

Luxury residential property abroad is still popular with Russian-speaking buyers according to Tranio’s upcoming report on Russian and CIS Buyer Activity in 2015¹. In the top twenty destinations for these buyers, ex-USSR investors are still more likely to choose residential property at above market rates — particularly in the world’s most expensive real estate destinations. In contrast, spending on commercial real estate is much less extravagant, focusing on yields rather than prestige.

Russians choose residential real estate for status and commercial for yields

Take-aways:

  • Prime residential property gets biggest investments in expensive countries
  • Low/medium budgets destined for foreign commercial real estate
  • UK, France and Switzerland have highest spending compared to local budgets
  • Cheapest property markets see lowest spending and smallest budgets
  • +440% spending over local average for residential property in Switzerland
  • –70% spending under local average for commercial property in the UAE

Residential property: outbidding the locals

The more expensive the country, the more Russian and CIS buyers will spend on residential property is the main conclusion of this Tranio report. These buyers outbid the local average budget in all but two out of twenty top investment destinations.

Highest budgets in most expensive countries

For instance, they spent 440% more on average for residential property in Switzerland, 350% more in the UK and 130% more in France. Russian-speaking clients with big budgets have a preference for prime property in distinguished locations such as London and Surrey in the UK, Paris and the French Riviera in France and near Geneva Lake and in Alpine resorts in Switzerland. These locations are known for the prestige, affluent lifestyles and luxury real estate on offer, all of which are traditionally attractive traits for this buyer segment.

Russian/CIS spending vs. local budgets in top 20 destinations

Price category Country Average
property
price
to world
average
ratio*
Residential property Commercial property
Average
Russia/CIS
budget,
EUR thousands
Tranio
index**,
%
Average
Russia/CIS
budget,
EUR thousands
Tranio
index**,
%
Low Bulgaria 0.53 0,060 0+10 0,250 +00
Hungary 0.65 0,075 0+10 0,308 +00
Turkey 0.66 0,070 0+10 0,400 +10
Medium Greece 0.89 0,120 0+20 0,400 −10
Montenegro 0.94 0,110 0+10 0,325 −20
Portugal 0.96 0,200 0+70 0,535 +10
Latvia 0.96 0,200 0+70 0,584 +10
Cyprus 1.09 0,133 0+20 0,500 −10
Croatia 1.10 0,200 0+60 0,600 +10
Czech Republic 1.19 0,124 00+0 0,571 −10
Thailand 1.28 0,089 0−20 0,626 +00
Spain 1.47 0,165 0+20 1,000 +40
High Germany 2.18 0,249 0+30 1,000 −10
USA 2.22 0,358 +120 0,894 −10
Italy 2.30 0,300 0+50 1,000 −20
UAE 2.33 0,340 0+80 0,671 −70
Austria 2.40 0,350 0+80 1,100 −10
Very high UK 2.92 0,800 +350 1,500 +10
France 3.15 0,500 +130 1,400 −20
Switzerland 6.40 1,255 +440 3,000 −20
Source: calculations based on Tranio and Numbeo data 2014–2015
* Calculated from Numbeo data from November 2015
** Compares average Russian budget to local average spending in country

Lowest budgets in cheapest real estate markets

In the lowest budget segment, Russian and CIS buyers spend between €60,000 and €75,000 per property on average — just 10% more than the local average budget in the three cheapest countries: Bulgaria, Hungary and Turkey.

Czech Republic (+0%) and Thailand (–20%) stand out in this research as being the only countries where Russian-speaking buyers spend the same or even considerably less on residential real estate.

Interestingly, most residential purchase averages are well below the preferential visa thresholds for property investments set out by Europe’s most famous Golden Visa programmes (below). At the same time, for instance, the minimum investment in Portugal is €500,000 — a particularly high sum when the average price for a property of 100 sq m is just €130,00.

Average Russia/CIS spending vs. “Golden Visa” investment thresholds

Country Minimum investment
threshold,
EUR thousands
Average Russian/CIS
residential budget,
EUR thousands
Portugal 500 200
Spain 500 165
Cyprus 300 133
Italy 300 300
Latvia 250 200
Greece 250 120
Sources: Tranio, golden-visa-europe.com

Currently, it would seem that permanent residency may not be a catalyst for low-budget overseas purchases in this segment or is simply out of reach, considering the dramatic currency recalibration undergone by the ruble recently.

Commercial property: yields, not prestige

In contrast to activity on the residential market, Russian-speaking clients buying commercial real estate usually choose properties within the average price range of the destination.

Below budget spending on commercial property

In fact, Russians only pay more than the local average per property in six countries: Turkey, Portugal, Latvia, Croatia, Spain and the UK. Ex-USSR buyers have a yield-oriented view of property investments, rather than prestige of ownership. Property prices are not the main indicator when it comes to potential profits, rather, these buyers are motivated by the desire to transfer their assets to safer and more reliable markets where assets will gain value via capital growth and yields.

More loans to leverage yields

Buyer activity in the UAE provides a stark contrast with residential habits, as Russian and CIS citizens pay 70% less on average for commercial real estate — but 40% more in Spain. This is conditioned by the availability of bank loans, which are rarely granted to foreigners in the UAE but used to leverage the investment in Spain so as to increase yields. According to a Tranio survey of Spanish real estate agencies, over half the respondents report that more Russian and CIS buyers have been obtaining loans, from 18% of buyers in 2013 to 31% in 2015.

Many visa programmes in the EU accept buyers who choose commercial property (e.g., buy-to-let) and the average Russian and CIS buyers purchases are well above the minimum investment thresholds. Exceptions to this rule are the UK which does not grant visas for property and France, which has set the minimum investment at €10 million.

In brief and to come

Russian and CIS investments have changed in the wake of the currency crisis and ensuing recession. Both internal and overseas property investments have suffered from the economic turmoil and Russian investments in foreign property were halved by Q2 2015. In our upcoming article, Tranio’s experts will explore the effects of the currency crisis on Russian buyer activity during 2015. The full analysis will be released in January 2016.

Yulia Kozhevnikova, Daria Berezina, Rostislav Chebykin — Tranio

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¹ This in-depth survey involved hundreds on market players and buyers across the globe and the analysis of over 200 transactions by Tranio clients in the 20 most popular countries between 2014–2015

 
 
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