Expats Buying Less Property
Published: June 18, 2014 (Issue # 1816)
Fewer foreigners are choosing to invest in St. Petersburg residential real estate, now only making up 2 to 5 percent of all real estate transactions, reports real-estate agency Knight Frank St. Petersburg.
The 1990s though to the mid-2000s saw more foreigners investing in local property, mostly to rent out. The most popular area for investment was the city center, in particular the “Golden Triangle” — an area bounded by the Neva River, Ulitsa Gorokhovaya and the Fontanka River. However, in the last three years, an increasing of foreigners have been selling their property.
“We are now seeing more foreigners who bought their apartments in the city in the 90s starting to sell,” said Alla Shinkevich, deputy director of the Nevsky Prostor real estate agency. “This is most likely related to the current political situation and the decrease in profitability from rent,” she said.
Another reason attributed to foreigners selling and their reluctance to invest is the difficulty they face in dealing with companies hired to manage their property when they rent it out. As more of these types of managing companies enter the market, so too do the number of dishonest operators, squeezing the honest companies off the market.
“It is becoming more and more difficult to find a good management company for an apartment, even for 10 percent of the apartment’s monthly rental rate. Ten of our foreign clients have had to sell their flats because their managing company left the market,” said Pavel Pikalev, head of Penny Lane Realty St. Petersburg.
Another issue foreign real estate investors are facing is a growth in taxes for non-residents.
“Foreign customers tend to buy property through a bank rather than pay cash. Even though there are some ways of getting around the legislation, the 30-percent tax that all foreigners have to pay restricts their freedom significantly,” said Pikalev. “As a result, it is easier to just sell the property than to deal with all the headaches.”
There are two main types of foreign customers who purchase property in St. Petersburg: Residents of the former Soviet republics, including Russian citizens that now live abroad, and people married to Russian citizens.
“We received several applications from foreigners this month. All of them work in different Russian cities. When I asked them why they chose St. Petersburg, I got a surprising look as a response, and they answered that Moscow was more expensive. It shows that they are not even looking at other cities for accommodation — only Moscow and St. Petersburg,” said Shinkevich.
While the Golden Triangle was once popular to invest in, foreigners are now more interested in newly constructed apartment buildings, and the Vasilievsky and Petrograd districts, along with Krestovsky Ostrov, are in demand, added Shinkevich.
“Many foreigners are now mostly interested in newly-constructed houses built by western developers, usually by Finnish companies,” Pikalev said.