Moscow sets out to woo UAE investors over property projects

Moscow’s property market has been hit hard by the double whammy of sanctions and falling oil prices.
The skyscrapers of the Moscow International Business Centre. Andrey Rudakov / Bloomberg
The skyscrapers of the Moscow International Business Centre. Andrey Rudakov / Bloomberg

Moscow is looking to the Arabian Gulf to help fund a raft of property projects as the sliding rouble threatens a winter of discontent for the real estate sector in the Russian capital.

The city aims to attract investors from across the GCC to implement planned urban projects with a mid-term real estate potential of about 180 million square metres, said Marat Khusnullin, the deputy mayor of Moscow for Urban Planning Policy and Construction.

He made the disclosure in a speech in the Russian capital timed to coincide with the Russia-Gulf Trade and Industry Forum taking place in Bahrain this week.

Speaking at the fourth Moscow Urban Forum, Mr Khusnullin said that the city hoped to attract finance for investment in four key areas – New Moscow, transportation infrastructure, industrial zones and the Moscow River.

City authorities unveiled plans to effectively double the size of Russia’s capital in 2012 in an attempt to reduce congestion with plans for four new mixed-use urban centres dubbed New Moscow.

The city also said last year that it planned to invest US$54 billion in road and rail infrastructure over the coming five years to ease the city’s chronic traffic jams.

But, with the Russian economy faltering, cash has been harder to raise. The rouble has tumbled 44 per cent against the US dollar this year.

Moscow’s property market has been hit hard by the double whammy of sanctions and falling oil prices. Demand for luxury apartments to rent in Moscow has fallen since the summer as European and US firms have removed staff from the country in the wake of international sanctions. Real estate brokers report that they are currently renting out only around a third as many luxury flats as they were a year ago.

The retail market has been equally hit, with the property broker JLL reporting that the vacancy rate in shopping centres has increased from 3.5 per cent in the second quarter of 2014 to 6 per cent in the third.

And with companies pulling out of Russia, the commercial real estate sector has also suffered. Brokers point to the fact that in Moscow City, a vast new office complex next to the Moskva River designed as a centre for emerging market finance to rival the likes of Manhattan and Canary Wharf, vacancy rates are so high that the landlord has allowed a youth hostel to take space.

“The project of the New Moscow development is an absolute priority for the city. We are, in fact, creating a brand new city here and the opportunities for GCC investors are huge,” Mr Khusnullin said.

“In order to implement these projects, we plan to use state budget funds, private domestic investments, as well as build partnerships with investors from the GCC and other geographies. In return, the Moscow government is ready to provide the most favourable investment climate and individual approach to those who are interested in developing Moscow.”

He added: “These goals open up new opportunities for GCC investors in Moscow. In the next five to 10 years, the Moscow city council may issue a permit for the construction of about 180 million square metres of real estate.”

But some real estate professionals have advised caution.

“Given the macro economic and political situations, in our view now is not the time to invest in Moscow,” said the IP Global director Richard Bradstock. “You could make the argument that the value of the rouble has fallen so much that you could make money on the currency play, but we believe that values may still fall further and would advise our clients to wait a year or so.”

UAE developers and investors are already present in Moscow.

Among them is the Dubai developer Limitless which, alongside the Russian developer RDI, broke ground on a first phase of 750 homes at their 111-hectare Zagorodny Kvartal project 24 kilometres north-west of Moscow in 2011.

Property developers worldwide are increasingly turning to flush GCC investors to drum up fresh investment with a similar push made by some London developers this year to tap into UAE investment amid slowing growth in the central London property market.

lbarnard@thenational.com

Published: December 15, 2014 04:00 AM

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