Alexey Konovalov: preferences of a Russian property buyer (transcript of a report)

For more than a year already the “Prian.ru - International Property” portal has been consequently conducting the research aimed on studying Russian buyers of overseas property. Alexey Konovalov, editor-in-chief of the Portal, has reported on most recent results of these studies on the INFOREAL Congress.

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The study is focused on two main aspects: first - the buyers’ interest in specific property markets, second - motivations of Russian buyers of overseas property.

First we need to define the term “interest”. Interest is not an actual indicator of transactions’ level. It reveals how much a particular market attracts the Russian buyer at given time. Interest may evolve in demand, if the companies would meet the consumer and provide him/her with necessary amount of information and offers. In fact, it is impossible to calculate the volume of transactions, since each company has its own information about the concluded deals. And no doubt the performance of one company can not reflect the market as a whole.

I would like to present the data on interest in August 2009, as well as on yearly changes in Russians' interest in overseas property over the period from August 2008 to August 2009. The study is based on an analysis of nearly seven million visitors to the Portal’s property database. Over the year, the Portal was visited by about two million potential buyers of overseas property from different regions of Russia. 42% visitors were from Moscow, 30% - from Petersburg. Yekaterinburg, Novosibirsk and Nizhny Novgorod occupy the third to fifth paces, respectively.


Russian buyers’ interest

Bulgaria is a traditional leader of our rating. This is a “country by default” for Russian consumers. From Russian buyers’ standpoint Bulgaria is country of affordable housing.

Germany occupies the second place. The difference between these two countries works out more than ten percent. This gap has always exceeded 9%, sometimes even 11%. Germany is situated on second place due to the interest to its commercial and luxury property. It is a stable market, where prices have not declined for a long time. Relatively inexpensive housing can be purchased in Berlin and the eastern part of the.

Spain occupies the third position, throughout the history of our rating the country has always been located in the TOP-5 which is reasoned by a huge number of offers and extensive advertising. Finland is positioned right below; it attracts Russian buyers not only from St. Petersburg but also the Muscovites. Finland is a special region for residents of St. Petersburg - it is a kind of a country house abroad.

The U.S., which has attracted customers mostly due to the crisis, occupies the fifth line. Prices there have plummeted by 50% in some cities (Las Vegas, Miami and Phoenix). Moreover, Russian buyers have received many reports regarding the foreclosed properties sold at steep discounts in the U.S. However, the purchase of foreclosures is often connected with certain difficulties.

France and Egypt did not hop aboard the TOP-10, they deserve however to be particularly mentioned. These countries have previously reached the TOP-10 and are now very close to it. The reasons for their “fallback” are different. As for Egypt, there is some prejudice that only cheap, poor-quality housing in close vicinity to Arabian neighborhoods may be purchased there. In fact, it is not quite true: elite developments in Egypt are also available. On the contrary, low-cost, affordable housing in France is not advertised actively enough and the Russians now have an impression that France is a market of elite housing solely on the Cote d'Azur or in Paris.

I would also like to highlight Greece, Cyprus, Ukraine, Lithuania and Thailand - markets situated on the approach to the TOP-10. Greece and Cyprus are actively advertised, but the interest does not fully correlate with the number of offers. As for Lithuania and Ukraine, the interest expressed toward the former Soviet republics increases. Latvia, for example, in August, has instantly leaped from 11th to the 7th position. The point is that Russians are very interested in reports regarding the possibilities to buy extremely cheap secondary housing in Latvia, even in Riga.


The rating changes

The following graphic demonstrates the changes which have been happening in the Prian.ru rating over the period from August 2008 to August 2009. Bulgaria has a large margin from its competitors we can observe two declines and two peaks. The graphic includes Germany, Spain, Finland, USA, Italy, Latvia, Czech Republic, Montenegro, Turkey, Egypt, France.

In November, various media has been actively discussing the worsening condition of Bulgarian market, the fact that the price growth, which has persisted through 2006-2007, has finally stopped, and a number of projects that have been shelved. Such abundance of news has actually attracted the attention of potential buyers from Russia. The growth over October-November has amounted to 6.74%. This has become the sharpest monthly increase registered within the history of the rating. Interest towards Bulgaria has started to decline in January, as buyers patiently waited for the promised reduction of prices, which has never occurred. Several messages regarding the beginning of property prices declination have appeared in May-June, and as a result, the interest began to grow. After that, as it may be seen on the graph, the interest began to decrease, or, more precisely, stabilize. Currently it works out 19%, and I am sure that it will stabilize and remain on this level.

The first half of 2009 may be noted for the plentitude of reports regarding the situation on the U.S. housing market. Everyone expected prices to bottom out, which has resulted in the growth of interest towards the U.S. market; the country has even been ranked second in March, thus outscoring Germany and Spain. The market has never bottomed out and the interest started to decrease.

At the same time, also in May, the interest in stable property markets - Germany and Finland - has increased. However, subsequently it has slightly declined.

Latvia has reached the seventh place only in August. The most stable markets are Montenegro and Turkey: they have always remained in the range between the eights to eleventh place. These markets have occupied their niche. However, Turkey's potential higher. Still, this market is a little bit under advertized in Russia.

The existing trends are expected to prevail by the end of 2009. Bulgaria will keep its leadership. Numerous requests for commercial and luxury properties in Germany suggest that this market will reach the TOP-3. Spain and Finland will also retain their positions.


Purchase objectives

Six months ago the Prian.ru portal has conducted an online survey in order to identify the most important factors affecting the interest of Russian overseas property buyers. An overwhelming number of respondents were “novice” market actors. In fact, this has allowed us to study the insight of foreign property buyers that are on the stage of initial acquaintance with the market.

The study has revealed that 38% of respondents purchase foreign property because of the possibility to obtain residence permit, 32% are interested in buying vacation homes, 13.5% are looking for a way to make a profit and 11.5% see foreign property as a way to save money during the global financial crisis.

If you survey the professionals, who offer properties on the markets most popular among Russians, they would answer almost the same however with a one, but rather significant, exception. For buyers, who have already inked their deal, key factors are the acquisition of housing for seasonal holidays and investment in order to save money or make profit. By no means is the purchase of foreign property connected with prospects for permanent residence.

Comparing the results of these surveys, we can conclude that Russian buyers are poorly informed when entering the market. In the majority of countries buying property does not provide the owners with any advantages in obtaining a residence permit. However, increasing the level of knowledge will help interested parties quickly come to an understanding with realtors.

We regularly conduct similar researches on a smaller scale - the result remains virtually unchanged.


Summary

In conclusion I would like to point out another key feature of Russian buyer. Let’s take a look at the TOP-10. Nearly 60% of all requests are submitted for the countries included in it. And there are only twelve that have ever reached the TOP-10. This shows that Russian consumers not only have little information, but are also very conservative in their purchases. This is reasoned both by a buyer, and by market professionals.

Take a look at the following chart (slide 5). We see the percentage ratio between companies offering property on various markets. If we look at the first 20 countries in this ranking, we would see the same old traditional markets which interest Russians. People buy what they are offered. However, there are a lot of directions, which Russians do not know.

Realtors are reluctant to offer new investment opportunities to Russian buyers – introduction of a new market seems quite expensive for a single company. On the other hand, the crisis is forcing buyers to carefully consider their investments: search and compare all available opportunities. At the moment, it is a great time to present a previously unknown market – one may only wait for a company that would not only follow the market trends, but also shape them.