It is fair to say that the Russian national football team has outperformed even the most optimistic of expectations by reaching the quarter-finals of the FIFA World Cup 2018. The tournament itself has cast a very interesting light on life in Russia and smashed many unfounded rumours and common beliefs. Every time we have a major sporting event from the World Cup to the Olympics there is constant speculation about how the tournament will impact both the national economy of the hosting country and local economies. So, will the FIFA World Cup have a lasting impact upon the Russian property market?
This time last year
This time last year there were concerning reports of a reduction in the Russian economy with the secondary property market suffering a major downturn. At a time when house construction was still relatively high, but real-time wages were struggling, developers were forced to introduce very attractive mortgage terms. As a consequence, the cost of many relatively old secondary properties fell below the build cost of similar new properties which is very rare to see.
The fact that the new build market was over supplied, and there were pricing pressures, culminated in what can only be described as a nightmare scenario for the Russian economy. However, things are starting to change!
Fundamentals back in place
It is fair to say that the Russian economy is highly dependent upon natural resources such as oil. Recent concerns about a glut of oil pushed prices to below $40 a barrel although they have recently bounced back towards the $70 mark. This will have a major impact upon the Russian economy in the short to medium term and with relatively little in the way of household debt, with 80% of Russian wages accounting for consumer spending, there is certainly scope for more adventurous monetary policies.
A recent report by the Urban Land Institute and Price Waterhouse Coopers has given investors some hope for a recovery in the Russian property market in the short to medium term. On the whole, there has been a 2% increase in the cost of secondary housing per square metre since the start of 2018. As you might expect, the 2% average increase in the cost of secondary housing varied across the country with Moscow still struggling after the recent downturn.
St Petersburg and Sochi
While house prices in Moscow have not increased since the start of 2018, St Petersburg has seen an increase of 3% in the secondary housing market and Sochi an increase approaching 6% over the last six months. These were two of the more prominent host cities for the 2018 World Cup and it does look as though the expected short-term increase in economic productivity and property prices has actually emerged this time.
Reputation, reputation, reputation
Prior to the FIFA World Cup, English fans were advised not to travel to Russia due to political and cultural issues. However, it is noticeable that no English football fans experienced any issues in Russia with regards to violence or prejudice of any sort. There are high hopes that the Russian government will be able to build on this feelgood factor although there are still concerns about the volatile relationship between Putin and Donald Trump. There is no doubt that a continuing trade war between the US and the rest of the world would impact Russia, the increase in the oil price and signs of economic growth in some areas of the country are certainly encouraging. While investment in Russian property continues to carry an array of unique risks, the relatively weak rouble does also play into the hands of overseas investors giving better relative value for money.
The Russian property market is one for the brave but maybe, just maybe, the country is slowly emerging from the modern day Cold War with the US and the rest of the world?