Billions of Russian Rubles Destined for Overseas Investments

Russia’s Central Bank recently announced that capital flight will double to $70 billion this year, as the revised estimates indicate a change in foreign investor sentiment.

Russians are now in favor of buying less vulnerable foreign assets amid increased volatility in global financial markets, the Central Bank document said. However, the statement added that Russians are not investing money in their country either, scared off like their foreign colleagues by the country’s “unfavorable investment
climate.”

Between January and September, Russia’s net private capital outflow hit an estimated $49.3 billion, according to Central Bank Chairman Sergei Ignatyev. Capital flight surged in the third quarter, especially in September, when $13 billion — or 70 percent — of the third-quarter outflow left the country. The 2011 total has now exceeded that of 2010, when $35.3 billion left the country, but still less than the $133.7 billion that left at the height of the financial crisis in 2008.

Since all speculative movements in the Russian market are correlated with the commodities market, the widely expected dip in global oil prices will adversely affect the Russian economy and trigger even more capital outflows according to Yevgeny Pischulin, a trader at the Region Broker Company. Pischulin said that Russia is particularly vulnerable to the ongoing global financial turmoil as investors try to avoid emerging markets in favor of safe havens in Europe and the United States.

This sentiment was echo by Kim Waddoup CEO of the aiGroup, organizers of several major international real estate shows, held in Moscow and St Petersburg. According to Waddoup they saw a significant rise in attendance at all shows and exhibitors reported strong interest in their properties.

A staggering 71% of investors, who visited their four events between September and November, stated they were planning to complete buying on an overseas property within the next 3-6 months. 33% had more than Euro 300k to invest with Spain, Bulgaria and Italy the most popular choices.

The US is also experiencing Russian interest. Edward Mermelstein, an attorney and managing partner with Rheem Bell & Mermelstein LLP based in New York, says that in his 20 years of practice, he has never before seen this kind of buying spree among Russians. The average price of property in Manhattan is $3 million, and the greatest demand is for luxury apartments in New York’s most upscale buildings, at around $800,000–900,000.

Fine and Country Spain also commented that the number of Russians looking to buy homes in the area has doubled since last year. Part of the attraction to buy property in Marbella is the 81 direct flights from Russia into Malaga.

Russians are not know to be big savers, and historically have tended to put their excess funds into overseas investments, with real estate being one of several popular choices.

www.1-property.ru is Russia’s leading online source for overseas real estate. According to Olesya Zubova, their Project Supervisor, their portal has reported record hits during the past six months peaking at over 4,000 visits per day.

Russia’s financial authorities appear to be optimistic as well. Sergey Shevtsov, vice-president of the Central Bank, does not anticipate any serious threats to the domestic economy, though he admits that the crisis might lead to a shortage of liquidity.

“We expect it to peak in mid-December and, thereafter, the budget will be disbursing actively,” he said on the fringes of an international financial conference sponsored by Sberbank.
It would seem that while their Central Bank suffers, Russian investors will be able to pick up some exceptional deals abroad, particularly real estate bargains, as the rest of the European property markets slide into deeper recession.

Footnote. With more than 18 years experience in the developing Russian markets, the aigroup is highly qualified to offer you effective marketing solutions. The group organizes several International exhibitions including the Moscow International Property Show, The St Petersburg International Property Show and the Moscow MICE Forum. In addition they publish Russia’s leading real estate magazine International Residence and own Russia’s No 1 real estate portal www.1-property.ru. Full details available at aiGroup.

Press Contact : Mike Bridge mike@aigroup.ru, tel +66 831 986700.