303: Russia property investment
The Russian economic situation has taken a hard knock from August 2008 to late 2009, mainly because of:
- the financial meltdown leading that led to investors aversion to risk
- oil prices crashing from $147/bbl in July 2008 to $37/bbl by November 2008 - only recently recovering to $80/bbl
Furthermore, Vladimir Putin taking a back seat may have dissuaded some investors from risking money in Russia because of a perceived new less robust leadership. Property prices have crashed in Moscow and St Petersburg from the giddy heights of early 2008. A country budget deficit was announced mid 2009. Things are now beginning to stabilize as oil prices have risen and gas demand has been strong during the cold European winter.
Sochi Olympics 2014
For the global property investor, Russia is an interesting proposition. There is no other country in the world even vaguely like Russia in it's economic and social attributes - to name but a few:
- Biggest oil producer in the world - 10 million barrels a day (similar to Saudi Arabia)
- Biggest gas producer and exporter in the world
- Most severely declining population of any large country in the world (similar in decline rate to Italy)
- Massive coal reserves and mineral reserves
- Dominated by Moscow - a massive city, with St Petersburg the second city (can anyone think of the names of any other Russian cities?)
- Communist country until ~ 1990 - many generations bought up under communism - market economy less than a generation old
- Many big businesses run by oligarchs
- Significant organised crime issues
- Democracy with controls on media
- Cold winters, warm summers in most parts
- Aging population - many areas deserts - particularly in the east, with densely populated Moscow
For the property investor, one of the key issues is the potential to be "taken for a ride" - losing money from unscrupulous business people and associates. Always make sure you deal with reputable people, with good references from objective and honest people.
There are a number of very positive trends that suggest property prices will re-start the momentum higher - much of these are associated with commodities prices. As China needs huge quantities of oil, gas, coal, minerals, wood and other commodities - with Russia on it's door-step the country is of course well placed to feed this monumental market resource products. As commodities prices rise again, as we expect them to, massive quantities of cash will flood into Russia - and be liberated throughout the economy. This should feed it's way rapidly into the Moscow and St Petersburg property market, plus select holiday home destinations such as Sochi on the Black Sea coast. We expect a five year bull run on property linked to a commodities bull run - starting from mid 2009 (the floor) onwards.
Add to this the Winter Olympics in Sochi in 2014 and the massive infra-structure developments in this area along with wealthy Russians buying villas and holiday homes on the Black Sea coast - Sochi looks interesting.
St Petersburg is a highlight because it:
- is Vladimir Putin's home city - investment levels are high
- has the Gazprom headquarters in the city - new office - one of the most wealthy and influential companies in the world
- is beautiful, historic, rich in culture and a big tourist attraction
- romantic in winter, lovely in the summer, on a nice river
Moscow will always be a highlight because it it's shear size, financial centre, government and importance - along with the quantity of wealthy people living there (a bit like London).
We expect the Russian Rouble to strengthen as oil and gas prices rise. One threat for Russia is low priced gas imports from Norway and LNG from Qatar. But we believe Europe will need all the gas it can get eventually as oil and gas production decline, coal goes out of fashion (CO2 issue) and renewable energy cannot take up the slack. Russia has the largest gas reserves in the world along with Qatar. And the largest oil production.
Within a few years Vladimir Putin will likely be President or at least leader of the country again. With it, national confidence should grow. This should coincide with the Winter Olympics. Plus high oil and gas prices. Russia using it's energy influence - possible setting up a Gas OPEC (GPEC type organisation).
St Petersburg Sochi Island development
OPEC may even sell oil in a basket of currencies including the Rouble by say 2018, instead of only the US dollar. So if you can manage to find properties with robust title, from trusting agents, sellers and legal professionals - you could see both the property price and the Ruble price rise - following up commodities prices and the overall demand for Russia assets. It's by no means a low risk option - but for the experienced international property investor, it could be lucrative in the medium 5 year term. If you think property prices will crash, steer clear. If you think commodities demand from China will abate - steer clear. But if you believe in Chinese demand and higher commodities prices - a big beneficiary will be Russia. With cash flooding into Moscow, St Petersburg and Sochi.
We hope this Special Report has been of interest to you. Happy New Year of property investing - and may you make good returns in 2010.