Russia: St Petersburg raises curtain for investors

By Jane Slade
Posted: 2010/05/30

It is much easier buying property in Russia than it used to be, reports JANE SLADE, so why are Brits still coy about investing there?

WHILE Eastern Europe has become a hot spot for property hunters, many are waving the red flag of caution when it comes to investing in Russia.
Even though the Iron Curtain was lifted nearly 10 years ago on giving foreigners the right to buy, all the traffic continues to be from East to West with Russians buying multi-million-pound homes in the UK.

However, the future is looking more rosy than red, particularly in Europe's fourth largest city and Russia's cultural capital St Petersburg, a three-hour flight away and where huge investment in restoring buildings and infrastructure is being carried out at the instigation of its famous son, Prime Minister Vladimir Putin.

One pioneering investor believes that St Petersburg, also the home town of President Dmitry Medvedev, has a lot to offer when compared with the plight of the euro countries and politically unstable countries such as Thailand.

Stephen Wayne left his job at financial services firm Morgan Stanley in London 19 years ago to exploit the property market in post-Soviet Russia but admits he as a decade too early. "There was no property market, " he recalls. "There weren't even any banks."

Chicago-born Wayne, now CEO of the Jensen Group, learned Russian and started to buy people out of their communal apartments from the mid-Nineties, paying ust £70 a square metre. He is now selling these renovated apartments for more than £7,000 per sq m.

"I was one of the first foreigners to buy property here, " he says. "There was a massive housing shortage during the Soviet era, and still is. The poorest lived in the finest buildings but typically had eight or more people sharing a bathroom. I bought everyone out and leased the apartments to foreign companies."

He focused his sights on buying in St Petersburg's "Golden Triangle", which runs from the Hermitage museum up to the Fontanka Canal and along the Moika River past the handsome façade of the luxurious, five-star Kempinski Hotel with its panoramic rooftop restaurant and wine cellar, along a waterfront of 19th-century buildings to the main street, Nevsky Prospect.

Wayne doesn't know how many properties he owns but admits he is among the top 10 property owners in the city with more than £275million in assets.

"Foreigners are still cautious about buying individual properties so my main business is as a real estate fund for them, " he says. "The benefit of buying in St Petersburg is that you can buy freehold property, hich you cannot in Moscow, and rules are just the same for foreigners as nationals, except foreigners cannot buy agricultural land or property that borders another country or a military base."

Perhaps it is the high prices that have kept Brits away, or the £120 visa. Unrenovated properties can be bought for an eye-popping £3,000 per sq m rising to £10,000 in St Petersburg's centre and a two-bedroomed apartment measuring 100 sq m can cost £400,000 in the Golden Triangle but half that further afield.

Prices have risen more than 150 per cent over the past 10 years but have reduced during the recession.

Modest apartments in the fashionable canal-fronted Cartier building sell from £400,000. "No matter w hat some people say, life here is much better than it was 15 years ago, " says Wayne. "When I arrived no one had a car and now there are traffic jams.

"This would be a fabulous place for an investor who is an opera aficionado or ballet and concert lover, or someone who wanted to experience the summer season of charity balls and White Nights."

However, according to Stuart Law, chief executive of property investment advisers A ssetz, Russia is not even on the radar.

"The story is more about Russians buying property in the UK rather than the other way around, " he says. "I have not seen any demand from Brits wanting to buy in Russia.

"There has been a fear about overpricing and bad press over the bribery culture and the state taking property off people."

HOWEVER, some Brits have decided to buy, like Tobin Auber, the 39-year-old editor of English language newspaper the St Petersburg Times, who came to Russia 16 years ago to learn the language and stayed after meeting his interior designer wife Anastasia.

They bought a 130 sq m four-bedroomed flat for £23,000 in 2001, which is now worth about £275,000 (and is rented out). Five years ago they moved with their young family, Stepan, five, Artyom, four, and Martha, three, to the countryside, buying a run-down wooden dacha.

They paid £58,000 and spent £172,000 converting it into a nine-bedroomed home for themselves and added a four-bedroomed annexe. The dacha is 15 minutes from the Baltic sea in the village of Leninskoe and surrounded by woodland, which is a fantastic playground for their children and two dogs and cats.

"We had no mortgage when we bought the flat, " says Auber. "I just turned up with a rucksack full of cash."

Auber, son of a lawyer and headmistress, had not planned to rent out the annexe to his dacha.

"We were going to use it for guests and family visitors but when we realised we could get £2,000 a month during the summer and half that during the winter we decided to rent it out. Besides, we have plenty of space in our house."

Auber, whose dacha is now worth about £400,000, is seeing more new houses being built around him. "Some properties have been mothballed because of the recession but I have seen an encroachment of larger homes and gated developments."

Auber's dacha is not far from Stephen Wayne's new-town project of 2,000 homes he is building on a site around Russia's oldest gun factory, established by Peter the Great. Wayne has employed British architects Paul Davis to develop Petrovsky Arsenal in Sestroretsk, 40 minutes from St Petersburg. The units will measure 3,800 sq m and sell for £260,000.

The site is close to the Finnish border and of historic interest as it is where Lenin sought refuge during the Bolshevik revolution.

It is also a ritzy enclave, equivalent to New York's Hamptons, where St Petersburg's wealthy elite retreat to their weekend dachas situated in wooded clearings by the lakes and sea.

Also nearby is the beach front Skandinavia Country Club run by charming Swedish general manager Magnus Wetterholm, who offers suites housed in typical restored dachas for £340 a night. This is a haven in summer when horses gallop in the surf and the sun never sets.

Another Brit abroad is writer Jeremy Noble, who was one of the first foreigners to buy a residential home in St Petersburg. He paid just £25,000 for his two-bedroomed apartment behind the famous Mariinsky Theatre in 1996, in the same street where the legendary dancers Anna Pavlova and Vaslav Nijinsky once lived but now he is considering selling for £200,000.

Noble read English and French at Cambridge University, where he had a Russian girlfriend.

"When we broke up I moved to Russia and she stayed in England." He now lives in St Petersburg's theatre district.

NOBLE, 45, formerly from Somerset, is writing a 10-part historical TV documentary about Russia and a screenplay for a film company.

"I've lived in France, Spain and the US but St Petersburg is where my heart is, " he adds. "Even though it is much easier for foreigners to buy property foreigners can't get mortgages, which is why the market is very narrow.

"Brits are also scared of the corruption and feel vulnerable because they don't speak the language but my experience of the Russian legal system is very positive and providing you are above board you should have no problem."

MORE INFORMATION:
Jeremy Noble is happy to be contacted if you want more details about buying in St Petersburg: Jeremy@jeremynoble.com
Petrovsky Arsenal: sestrariver.ru
The Jensen Group: jensen.ru
Assetz: assetz.co.uk
Petersburg Times: sptimes.ru
Skandinavian Country Club: skandinavia.ru
Kempinski Hotel Moika 22, in the heart of St Petersburg, opposite the Hermitage museum.
Double rooms start from €324 (£275) per night, including breakfast, excluding taxes.
Bookings can be made at kempinski.com/en/stpetersburg or freephone 00 800 426 313 55.