Developers can escape the gloom in this self-confident and booming country
I have written before about the real estate opportunities in Russia but while Europe is suffused in gloom the contrast is particularly sharp. This is the most exciting of countries since it recovered its self-confidence. It may frighten many in the West, for there certainly are real political implications from Russia’s new-found pride, but it is also a crucial factor in national development. President, now prime minister, Putin has given his countrymen a sense of purpose: the cranes that tower over cities from east to west are witness to his success. As a result, at a time when the downturn has affected so many markets in Europe and America, there is still boom in Russia. There will, no doubt, be some fallout from the credit crunch but, for the moment, confidence prevails.
I write this while in Moscow for the AGM of the property company of which I am a director so I declare an interest although, as is so often the case in the House of Commons, those involved in a business may well have the most useful things to report. The new Russia has ambitious plans for property development, much of it off the back of its position as an energy producer. The signs of the pervasive importance of gas and oil are everywhere. Gazprom has become even more clearly an arm of the state with a minister as its new chairman. He has made it quite clear that his plans for the aggressive growth of the business are based upon a recognition of the role of the company in the building of national power and prestige.
The energy of energy
It is little wonder that credit-strapped, fossil-fuel dependent economies in Europe and North America are finding that times are hard. We have built our growth on abundant credit and abundant energy. Now we have neither. As a result, we have become just as concerned about energy security as we are about climate change. Indeed, almost all the measures that we should be taking to reduce our carbon footprint in the fight against global warming we will need to take to reduce our dependence upon oil and gas producers. Russia has neither concern. It still has a massive credit in carbon – a hangover from the collapse of its old, inefficient factories. Its modern extractive industries and massive gas reserves give it an economic strength that is fuelling the development boom.
Foreigners are encourageed to participate in property development and joint ventures are both commonplace and profitable. Many local operators relish working with Western companies, recognising their need for technical expertise as well as further sources of capital. Although, as has always been the case in Russia, the state is actively present, real estate is not one of those areas in which it feels the need for pervasive control.
Vibrantly competitive
The sector is vibrantly competitive. Putin has clearly decided that it is Russia’s natural resources that he needs to reserve to the Russian state. That leads not only to his determination to control the extractive industries but also to his imposition of an export tax on raw wood to encourage the development of added value within Russia. This has caused serious problems with Finland, its traditional market partner.
The Russian presence that has been striking at the MIPIM property show for some years is now all the more important as the country is one of the world’s few property growth areas. Nonetheless, all is not entirely rosy. There are worries about inflation and, as a result, the dual pricing of gas continues to be a central part of the state policy to ameliorate price rises in food and other essentials. Partially as a result of this, the government is not experiencing the antagonism that inflation usually arouses, but the danger is still there. That will make Medvedev and Putin much tougher in negotiating with the WTO to protect Russia’s fuel subsidy regime. They are already making a point of Ukraine’s failure to do a good enough deal in return for membership.
This is therefore a country of contrasts. Huge and exciting growth, yet widespread poverty, particularly in the countryside a government that intervenes, especially in basic industries oil wealth and inflation fears and a restricted democracy that has still been able to put the buccaneering chaos of the Yeltsin years behind it. Of course, all this spells risk but there is real reward in a nation where development is welcomed and the property boom continues.
