The Russian residential-properties market is on a roll. Realtors say the sector has been growing at about 1.5-1.8 percent per month since the beginning of 2003 – a reflection of positive economic growth.

Fraser Lawson, a co-founder of Intermark Realty, says that one noticeable trend is the increasing demand for higher-quality residential real-estate properties in the past 10 months. "Buyers mainly interested in price seek properties worth about $70,000. Middle-level clients who are looking for ones valued between $70,000-120,000 prefer certain geographical criteria, while the ‘elite’ category interested in properties [costing] in excess of $300,000 puts as its priority quality of construction, finishing and utilities."

Another feature is the growing popularity of Moscow Oblast over Moscow, Lawson added. "The main factors stimulating the high demand are prices, which are about 20-30 percent lower than in Moscow, and the cleaner ecological environment in the suburbs."

Local real-estate laws and foreigners

In theory, as far as Russian laws are concerned, foreigners have the same property-ownership rights as citizens, thanks to changes in the Land Code and laws on registration of ownership rights on real-estate assets and using them as collateral.

"These new laws don’t differentiate between Russians and foreigners as far as transactions on real-estate assets are concerned," said Nikolai Shitov, president and CEO of DeltaCredit, a Moscow-based mortgage bank that provides mortgages up to $450,000 repayable after 10 years at a 10-18 percent rate depending on the property’s stage of development. "Consequently, foreigners don’t need any special documents. Neither do they need to have Russian citizenship or registration as to place of residence to own real-estate assets in Russia," Shitov added.

Real-estate lawyers say that foreigners need to have only those documents that are required to legally enter Russia or sign contracts with realties.

Polina Strelkova – a property consultant at Kirsanova Realty, the exclusive affiliate of Sotheby’s International Realty in Moscow – recommends that apartment hunters sign an agreement with a realtor, which will then do all the preliminary work, including carrying out preliminary checks on the legal and ownership status of properties, among other things.

Different segments for different foreigners

The Russian market comprises low-, middle- and up-scale, or elite, properties.

Prices are rising in all segments. Demand remains high while supply is low, a situation that is putting more pressure on price dynamics, says Yevgeny Mekhalenkov, a deputy marketing director at Incom-MBCN, a realtor targeting the Russian middle class.

Prices in this segment are usually about $1,100-$1,200 per square meter. The smallest apartments on sale range from 30 sq. meters, but foreigners usually go for 120-180 sq.-meter apartments. Average agency commissions start from $1,000, but the upper limits depend on several factors, including difficulties in meeting the buyers’ wishes, realtors say.

Strelkova says that the price hike in the elite segment stems from increasing demand and an overall improvement in the quality of properties. "Here, asking prices of 1 sq. meter start from $3,500," she said, "and prices for a mid-scale elite apartment start from $500,000. However, upper price limits depend on the potential buyers’ tastes and wallet sizes."

Popular locations

Foreigners from other former Soviet republics and low-earning foreign nationals usually go for low-priced properties located far from the city center or in Moscow Oblast.

Realtors, however, note that Westerners constitute up to 70 percent of tenants in apartments near Class A office buildings in the city center, such as around Stary and Novy Arbat, Smolenskaya, Kropotkinskaya, the Moscow River’s embankments and the so-called "golden-mile area" – between Ostozhenka and the Frunzenskaya Embankment.

But exclusive, gated elite-housing estates, such as Pokrovsky Hills, Park Place or secluded cottage settlements, are default choices for wealthy foreigners. Riekie van den Brink, a South African Embassy diplomat, says that she is content with Park Place, an upscale 40,000 sq.-meter residential and office complex on Leninsky Prosp. built by GlavUpDK and managed by Hines. "Despite the other choices, I chose Park Place because of its upscale amenities and the quality of services," she said.

Practical cases

But, for your average foreigner, buying apartments is not as straightforward in practice as stated in the legislation due to conflicting official instructions and restrictions that force foreigners to use certain schemes, bordering on breaching the law, so as to sidetrack them. One of these is buying apartments through Russian spouses or friends – a practice that sometimes leads to disputed property-ownership rights and court cases.

Howard Gethin, a Briton who has just secured a mortgage from a Moscow-based foreign bank to buy an apartment, decried the volume of paperwork and mortgage conditions. "These include a 12 percent U.S.-dollar-denominated mortgage interest rate repayable over 10 years and a commission of about 6 percent of the apartment’s value that has to be paid to the bank’s designated realtor," he said.

The paperwork required Gethin to present his and his Russian wife’s passports, a valid visa confirming the legality of his stay in Russia, a driver’s license, a document confirming his educational background, a marriage certificate and letters from his employer and the Tax Ministry, with some requiring translation and notarization. "I think the amount of paperwork needed for the mortgage was a bit large, though it was not difficult to get."

A U.S. citizen who has just bought an apartment in Moscow summarized his ordeal briefly: "It’s better not to get involved in the process."

He said that "this is because everybody feels it’s their birthright to gain something in the course of the transactions – local bureaucrats will hit you with paperwork, landlords pick prices from the air, and realtors are on standby to collect commissions from both parties, while the Tax Police use a microscope to go through the financial statement."

Foreigners with the wrong skin color or nationality can face more problems, as some landlords discriminate against certain people of non-Slavic ancestry.

Mikhail Kikvadze, a 27 year-old Georgian, thought he had gotten a good deal when he bought a room in a communal apartment not far from Stary Arbat in 2002. Everything was going well, he says, and his propiska, or registration of residence – a way to a better life in Moscow for many citizens from former Soviet republics – was already secured, when another problem broke out.

"My new Russian neighbors in the apartment simply didn’t want a Caucasian living in the same place with them," he said.

A law that helped Kikvadze to deal with his neighbors says that vacant rooms in communal apartments can be sold to outside buyers only when those already living there don’t want to or cannot buy them. "Luckily, there was nothing they could do, since they could not buy the room as required by the law," Kikvadze said.