The volume of investment in Russia's real estate market dropped dramatically in 2009, brought on in large part by an exodus of foreign capital, real estate consultant CB Richard Ellis said in a report Thursday.
Total Russian investment in real estate fell 77 percent in 2009, declining to 790 million euros ($1.1 billion) from 3.4 billion euros the year earlier, the report said. The number of deals reported also plummeted, falling to 22 in 2009 from 50 the year before.
While the recession occasioned a big dip in investment in all asset classes, investment in real estate was driven down hard by a retreat of foreign capital, with only six deals being done throughout the year involving foreign buyers.
"For the first time in recent years the majority of money came from domestic investors, not from foreign investors," said Christopher Peters, director of the research department at CB Richard Ellis. "The reason is that in bad economic times people retreat to their core market. Foreign money went back to the Western market since people felt save with this market," Peters told The Moscow Times.
Russia's image in terms of attracting foreign investments has become quite negative, said Nikita Yarushnikov, head of real estate development at Wermuth Asset Management.
"The most frightening words for investors at the moment are real estate and Russia," Yarushnikov cited an investor as saying.
Most of the deals that we made in Russia's real estate market last year were either forced or agreed to in advance, he said, adding that there were no new projects and no new money was coming to the market.
The average deal size declined to 49 million euros, down from 71 million euros a year before. The largest deal, worth 214 million euros, was developer Horus Capital's sale of five office properties in Moscow to BinBank.
Market players say, however, that the volume of investment in the real estate market will recover slowly over the coming year.
Foreign investors began returning to the real estate market in the fourth quarter of 2009, investing as much as 321 million euros over the period, outstripping the 117 million euros spent by domestic investors, the report said.
But the recovery is likely to be tepid, Yarushnikov said, as foreign investors are being very cautious as they step back in.
"Investors have no appetite for risk in Russia. The only market niche where investment is likely to return soon is in completed projects with low risk," he said.