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How to Buy Properties in Russia |
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But unfortunately there are so many legal subtleties and nuances in Russia that a property investor has to tread extremely carefully to avoid getting their fingers burned. As is always the case when buying property abroad, an investor will require the services of a lawyer in Russia. An investor would be best advised to find a lawyer specializing in real estate law and preferably one personally recommended to them by a trusted source. Many estate agents in Russia can recommend lawyers but naturally enough their recommendation may be slightly biased! In terms of using an estate agent, because few older properties are heavily marketed for sale in Russia a decent estate agent will be well worth finding – not only will they have their ear to the ground and be aware of properties as they come onto the market, they will also know about the state of the local market currently and be able to give good advice to a potential property investor. Many real estate investors are drawn to purchasing older, historical and beautiful properties in Russia – their thoughts being that the renovation of these properties and potential conversion of a single building into multiple units will ultimately generate significant income and/or capital growth. This can of course be true but investors considering older properties in Russia may face certain issues such as the fact that occasionally authorities will place a compulsory purchase order on an older property to demolish it and build new apartments. Properties subject to compulsory purchase orders in Russia do not attract a very impressive price and investors who are in the process of spending vast sums on improving a particular project could well lose out if this were to happen. In Russia there is not the same regard for older historical property as there is in countries such as the UK, Germany and Italy – in fact local Russians much prefer new to old and will pay far more for brand new property than they will for even well renovated older property. This is well worth considering for property investors hoping to profit from the local market. Those who do decide to purchase an older property should do their due diligence on the local area to ensure that it has not been earmarked for demolition and new development. A decent estate agent may well have a fair idea about which particular districts are likely to be safe and which aren’t. There is also another common issue with buying an older property, it can be a requirement that the investor has to re-home all those living in a communal building he is interested in purchasing – to do this will naturally cost a significant sum of money. These issues aside, an investor who locates investment real estate in Russia that matches his specific objectives can then enter into negotiation to purchase that property. The price can be negotiated along with the terms for the sale of the property such as a set completion date, the removal of sitting tenants prior to contract closure or, less commonly, the completion of certain repairs etc., before contract completion. It’s not common to have a survey conducted in Russia but it is possible to arrange and can be a wise move for those interested in buying older properties. With the popularity among Russians for brand new property for sale there are a lot of new apartment and town house developments that an investor may also like to consider in Russia. Naturally enough these do not usually require a survey nor are property prices then negotiable. Once an agreement has been reached for the conditions of the sale, the preliminary contract is signed by all parties involved in the sale and purchase. This can be notarized and at this stage an investor’s solicitor will begin investigating the history of the property to ensure that it is safe to purchase and also drawing up the final contract. As part of his checks the investor’s solicitor will need to examine the property’s privatization procedure to make sure all is in order with it and that it is available for sale legally. If all conditions for the sale are met it will complete on a fixed date when the buyer and vendor will meet at a public notary’s office to sign the final contract. It is still common for many real estate transactions in Russia to be conducted in cash. If a buyer is paying in cash they usually place the money in a bank safe deposit box which will only be released to the vendor upon the presentation of the registered paperwork indicating that the property has been transferred into the name of the buyer. Once the final sale-purchase agreement is signed and notarized the paperwork is presented to the state for registration which can take up to two weeks and then the documentary evidence is available to prove the real estate investor now owns the real estate. One final word of warning for potential investors in Russia, currently Russian law places a clear distinction between the right of use of real estate and the right of ownership and disposal – this means that anyone considering buying property has to ensure no one else has the right to use the real estate they are purchasing.
Where to buy? In terms of the investment potential available in Russia it stems primarily from the residential letting market with secondary activity in the commercial property market. Despite the fact that the majority of Russian citizens are intrinsically very poor, properties for sale in Moscow and St. Petersburg in Russia are incredibly pricey! Prices are on a par with Western European cities already and they are continuing to rise - this is because the majority of Russia’s wealth is generated in these two cities alone and it is in Moscow and St. Petersburg that the majority of Russia’s billion and millionaires live. Aside from the super rich both of these cities are home to Russia’s professional core and these individuals have substantial purchasing power and are currently able to afford rising rental yields and in certain cases, rising property for sale prices. The mortgage market in Russia is also limited to these two cities at the moment although it is expected to expand country wide gradually. The fact that mortgages are available for property purchase and also for buy to let property investment in Moscow and St. Petersburg means that more money is pouring into the real estate market from domestic buyers and investors and pushing up prices. St. Petersburg is an incredible beautiful city and one that attracts international second homers as well. If the city becomes the centre of Russia’s governmental and political operations as has been predicted, property prices will rise even more substantially than they have in recent years and it is based upon this speculation that a lot of international real estate investors are committing to St. Petersburg currently. In terms of the commercial opportunities in Russia these are not limited to the creation of office spaces as they are in some other developing and emerging markets. In Russia there is potential for developers to bid to construct hotels, retail centers, warehouses and even industrial premises and there’s the chance for real estate investors to buy into the development phase or to buy commercial properties after completion and enjoy rental income. Other Russian cities worthy of a real estate investor’s attention are Ekaterinburg, Kaliningrad, Samara, and Ulyanovsk for example and investors should be aware that they will be limited to the local economy and market for both rental and resale returns in the majority of Russian cities for at least the medium term. Property investment opportunities in Russia are plentiful but they are restricted to Western towns and cities and investors should apply acute caution when making an investment in Russia because the property market lacks some transparency and clarity. Because of this it is important to have good legal representation and to conduct due diligence on any real estate agency before electing to use their services as well. Vit Klima
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