Russian Real Estate Market: A Review of 2021 and Outlook for 2022 Among Wealthy Buyers

Growing Demand for Foreign Real Estate: Trends and Motivations among Russian Investors

Amidst periodic fluctuations in the ruble exchange rate, the impact of the pandemic, and global economic changes, Russian investors continue to display an increasing interest in foreign real estate.

According to Irina Mosheva, a partner at the international brokerage firm Savills, foreign real estate is considered a defensive asset class for Russians. During times of crisis, many individuals turn to these investments. This was evident during the pandemic, when Russians displayed a heightened interest in purchasing houses, apartments, and commercial properties abroad. This trend persists today.

Forbes, a renowned business publication, recently highlighted data from Knight Frank, revealing the main reasons behind wealthy Russians’ acquisition of foreign real estate assets in 2021:

1. Desire for Second Citizenship: Approximately 66% of requests for foreign real estate were driven by the aspiration to obtain a second citizenship.
2. Personal Residence: About 20% of requests were motivated by the desire to acquire real estate for personal use and as a residential property.
3. Potential Income Generation: Roughly 14% of requests were aimed at securing passive income through property rentals and exploring business opportunities in other countries.

These factors contribute to the growing demand for foreign real estate among Russian investors, as they seek diverse investment opportunities and the benefits associated with international property ownership.

Shifting Dynamics in the Foreign Real Estate Market: European Market Trends and Russian Investor Expectations for 2022

By the end of 2021, the foreign real estate market had experienced significant growth and was characterized by various key regions based on investor requests. However, the landscape changed at the beginning of 2022 due to the “tense” political situation.

On March 5, 2022, the Russian government approved a list of foreign states deemed to be engaging in “unfriendly” actions against Russia. This list encompasses numerous European countries, the United States, Japan, Canada, New Zealand, and others. As a result, economic relations between the Russian Federation and these regions have become more complex or have ceased altogether.

Naturally, these factors have had an impact on the real estate market. While new opportunities have emerged for Russian investors in regions such as the UAE and Georgia, there remains continued interest among wealthy Russians in European real estate assets, despite certain restrictions compared to previous periods.

QB Agency experts have delved into the reasons behind the high demand for the European real estate market in 2021 and have explored what Russian investors can anticipate when considering this region in 2022.

Premium real estate in Great Britain, Spain, and Greece presents a unique opportunity to obtain citizenship in these countries under “golden” conditions.

Russian investors have emerged as prominent buyers of high-end real estate in three European countries – Great Britain, Spain, and Greece. This can be attributed to the streamlined process of obtaining residence permits and citizenship when engaging in transactions involving luxurious properties, commonly referred to as “Golden Visas” and “Golden Passports.”

Since 2007, England has taken significant measures to curtail immigration, making real estate acquisition the primary avenue for foreign investors to secure citizenship. Mere property ownership is insufficient, as the government mandates that foreign buyers invest a minimum of £1 million in the country’s economy. Once this requirement is met, the owner becomes eligible for a “Golden Visa” (residence permit) and, after six years of residency, a “Golden Passport” (citizenship).

Despite these challenges, the demand for luxury properties in London witnessed a 25% surge among Russian investors in mid-2021, as per Knight Frank statistics. Wealthy Russians, regarding England as a reliable region for preserving their assets, predominantly engaged in high-value transactions.

Spain experienced a similar trend in 2021. Obtaining citizenship and residence permits in Spain proved to be considerably easier than in the UK. Since 2015, foreign investors have been allowed to sign preliminary purchase contracts for real estate, granting them a residence permit within six months and the right to conduct business in the country. To qualify for a Golden Visa, buyers were required to purchase real estate worth a minimum of €500,000, enabling the Spanish government to simplify the citizenship acquisition process. Russian investors found these conditions particularly favorable.

Consequently, Russian investors ranked among the top five purchasers of premium Spanish real estate by the latter half of 2020. On average, they paid around €2,100 per square meter, with only citizens of Denmark, Switzerland, and Germany surpassing them in terms of property value (€2,400-€2,500 per sq. m.). By 2021, approximately 79,000 Russians resided in Spain, with many owning real estate in popular coastal resort areas such as Alicante (16,500) and Barcelona (15,600), where villas and townhouses were highly sought after.

Greece presented similarly attractive conditions compared to England and Spain for obtaining a “Golden Visa.” Investors only needed to purchase property worth €250,000. According to the Greek Ministry of Migration, the number of Russian recipients of the “Golden Fund” surged by 79% in 2021 compared to 2020, reaching 576 individuals and ranking third among foreign buyers. Preferred Greek regions for real estate purchases included Mediterranean resort areas like Mykonos, Nice, Marbella, and Santorini.

“There is a shift towards quality among foreign buyers in Greece, as investments in Greek real estate are seen as a safe harbor,” commented Giorgos Gavrilidis, CEO of Elxis.

In summary, in 2021, Great Britain, Spain, and Greece were the most sought-after European regions for wealthy Russians looking to invest in real estate. These countries offered a secure environment for asset protection and favorable conditions for obtaining citizenship. Moreover, the more Russian investors committed to business and real estate investments, the smoother the registration process became for them.

Montenegro, Italy, and Bulgaria provide excellent real estate options for a comfortable and relaxing vacation experience.

Real estate transactions in these regions encompass more than just the premium category.

In Montenegro, Russians were inclined to purchase secondary properties (starting from 25 thousand euros) and apartments in newly constructed buildings, with an average price of 60 thousand euros. The most sought-after areas were Bar, Budva, and Tivat, primarily due to the simplified citizenship program. This program required applicants to acquire properties in designated zones, with prices ranging from 250 thousand euros in the north to 450 thousand euros in the south.

Italy presents a similar scenario. In 2021, real estate transactions varied greatly, ranging from inexpensive properties in Calabria (under 50 thousand euros) to luxury villas in Liguria and Tuscany. Russian buyers also showed interest in real estate in Rome and Milan. Consequently, Italy ranked fifth among the most popular European real estate markets for Russians in 2021.

The demand for real estate in these regions stems from wealthy Russians viewing Montenegro and Italy as comfortable European vacation destinations. The warm climate and expansive coastlines contribute to their appeal, along with simplified entry procedures. Russian citizens enjoy visa-free travel to Montenegro, while the Italian visa is considered one of the most accessible and quickly processed. As a result, Russian tourists often transition into property owners in these regions.

The real estate market in Bulgaria follows a similar pattern. In 2021, Bulgaria ranked second in terms of Russian buyer interest. Russian investors predominantly favored properties in Bulgarian resort areas, such as the Black Sea coast (Sunny Beach) and ski regions. The focus was primarily on apartments in larger residential complexes built within the past 20 years.

However, the market in Bulgaria faced challenges, with rapidly rising real estate prices and a scarcity of available properties in 2021. This led to a decline in demand from buyers, including Russians, by mid-2021. Towards the end of the year and into the present, some Russians even began selling their real estate assets in resort areas.

According to Philip Berezin, Chief Analyst and Editor of the real estate portal Prian.ru, prices in Bulgaria have been increasing at a rate of 3-4% per year, primarily in major cities, while resort prices have remained stable. However, in 2021, the situation changed, and resort areas experienced growth rates exceeding 6% and approaching 10% for highly liquid assets.

Furthermore, Bulgaria discontinued its “Golden Visa” program at the beginning of 2022, which required investments in the country’s economy. This program was not popular, with only 96 Russians and citizens from the Middle East participating in 2021. Additionally, several other European countries, including the UK, Montenegro, Spain, and Greece, also terminated their “Golden Visa” programs in early 2022 due to political considerations.

What lies ahead for Russian investors in these regions in 2022?

Amidst new sanctions imposed on Russia due to political differences, the European real estate market has become less accessible to Russian investors since February 28, 2022. Furthermore, many European countries have restricted entry even for tourists. Consequently, numerous Russian citizens who own property in European regions have begun selling their assets, as observed by experts at the real estate search service Prian.ru, who noted a significant increase in listings for sale.

However, Montenegro stands as an exception to this trend, with Russian investors opting to transfer property ownership to other individuals, as reported by regional sources based on realtor inquiries. Russian owners are hesitant to sell their real estate as the government has yet to make a final decision on the sanctions policy against Russia. The underlying principle is that while monetary assets may be subject to confiscation, re-registered real estate would likely remain unaffected by such sanctions.

Nevertheless, the situation is not as dire as it may initially appear, particularly as most of the sanctions primarily impact “Golden Visa” and “Golden Passport” programs. The European Parliament had already indicated the potential discontinuation of these programs for not only Russians but also citizens of all countries prior to the conflict in Ukraine. The new project aims to gradually phase out “Golden” Visas, Passports, and investment programs by 2025, with stricter regulations in place. Parliamentarians argue that years of experience have demonstrated that these programs facilitate money laundering and corruption within the EU.

In essence, Russian investors are not prohibited from purchasing real estate in Europe, including both premium properties and smaller apartments or secondary properties. However, the procedures for obtaining citizenship and residence permits during these transactions will undoubtedly be more complex, though they still exist and have not been entirely abolished. For instance, in Spain, an investor can demonstrate financial independence through real estate acquisition and subsequently apply for a residence permit enabling year-round residence in the region.

To summarize, buying European real estate remains a relevant consideration for wealthy Russians, as it was in 2021, albeit with adjustments due to sanctions. These factors should be taken into account when devising effective marketing strategies to attract Russian buyers interested in purchasing real estate of various categories. Additionally, attention should be given to the evolving advertising trends in the region, considering the blocking of certain advertising channels in Russia.

The experts at QB Agency can provide further insights into this matter and assist in creating an effective marketing strategy to appeal to Russian investors seeking to purchase real estate.