US investment banking giants Morgan Stanley have just completed their first major foray into real estate in Russia, Century 21 the US based real estate agency brand are set to move into Russia and hope to dominate the estate agency market, and foreign direct investment commitment in Russia rose by almost 20% in the first six months of 2006 proving that Russia is growing in popularity and becoming a hot market for property investors to check out.

According to Opodo the numbers of bookings for flights and travel packages to Russia have increased 24% already this year, and as 2006 goes on the interest that tourists are showing in this emerging market is intensifying.  Opodo see 2007 as being a record year in terms of the numbers travelling to Russia and industry opinion supports this and views Russia as a positively and rapidly emerging travel location. 

Not only is Russia emerging as a popular destination for independent travellers and visitors looking for an interesting holiday location but the numbers of businesses and private investors committing to Russia just further serves to prove that the country is increasing in popularity and offers a great deal of opportunity for those in it from the outset. 

This is why Morgan Stanley’s real estate arm has bought a 10% share in RosEuroDevelopment, a large property development company in Russia. 

Morgan Stanley made the move at a time when it is widely accepted that Russia’s real estate sector is beginning a boom period.  International funds are being ploughed directly or indirectly into property funds in Russia, local and international finance houses are extending loans to property development companies in Russia and the rate at which new properties are being constructed in Russia to meet intense demand from local and overseas sources has outstripped expectation. 

All in all these positive factors have resulted in foreign direct investment in Russia increasing by 16% in the year to date and a great deal of state and private funds are now being directed into infrastructure improvement projects to benefit the nation and raise the standards of living in Russia.  As a destination for risk taking tangible asset investors interested in a market with long term and broad appeal, Russia is well worth a look. 

The Real Estate Buying Process
The real estate buying process in Russia is theoretically relatively straightforward because foreigners have the exact same rights when it comes to real estate in Russia as local Russians do. 
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 investment property in Russia has to ensure no one else has the right to use the real estate they are purchasing.