By Bill Gottfried
This is the second article in a series to acquaint globally minded readers with the four economies of the BRIC.
BRIC is an acronym for the economies of Brazil, Russia, India and China combined. The general consensus is that the term was first prominently used in a Goldman Sachs report from 2003, which speculated that by 2050 these four economies would be wealthier than most of the current major economic powers. This could prove an important thing to know while planning a long range strategy for your real estate business as investors from these countries are increasingly looking to invest in the United States and conceivably the greater Houston area.
THE RUSSIANS ARE ON THE MOVE IN REAL ESTATE
The Cold War may be over and confined to the dustbin of history, however, a new chapter is being written on U.S. – Russia relations, and this new chapter includes Russia’s interest in real estate, including real estate in the U.S., and increasingly in Texas.
When thinking of Russia, many of us recall images from the 1965 movie “Dr. Zhivago,” starring Omar Sharif and Julie Christi that portrays Russia during the Bolshevik Revolution. Times have changed dramatically in Russia, and over the past 10-15 years, Russia has become an increasingly important player on the world economic stage:
- Russia is the largest country in the world encompassing 6,601,668 square miles
- Russia’s GDP in 2010 was on the order of $2.223 trillion, making Russia the seventh largest economy in the World just below Germany and just ahead of the United Kingdom.
- Russia is the world’s second largest producer of oil and gas after Saudi Arabia, producing 10.1 million barrels/day, at $100.00/barrel, that’s serious money.
- During the Cold War era, the Soviet Union, including all of the Soviet Republics, was the world’s largest producer of oil and gas, ahead of Saudi Arabia.
- Russia is the second largest exporter of crude oil after Saudi Arabia, and the world’s largest exporter of natural gas.
- Russia is the world’s third largest exporter of steel and aluminum.
(Source for this information: Central Intelligence Agency data.)
However, it has not been smooth sailing since the dissolution of the Soviet Union in the early 1990s. Economic reforms privatized most industries with notable exceptions in the energy and defense industries. The economy went through a number of boom and bust cycles during the late 1990s and early to mid-2000s. The Russian economy was one of the hardest hit by the 2008-09 global economic crises as oil prices declined dramatically and the foreign credits that the Russian banks relied upon disappeared. The economic decline bottomed out during 2009 and the Russian economy started to grow back again into positive territory during 2010. Over the past year, oil prices in the area of $100 per barrel helped propel the Russian economy forward during 2011 and Russia enters 2012 on a positive track.
In the real estate sector, IntermarkSavills, a leading Moscow Broker, advises that the average price of Moscow residential real estate increased from approximately $84 per square foot in 2003 to $372 per square foot in January 2010 and $474 per square foot as of August 2011. Sotheby’s Moscow office reported that the total sales of luxury apartments in Moscow during 2010 were approximately $1.2 billion, a high level of investment by any measure.
Russians with equity to invest put their funds into real estate, the preferred asset class during the economic crisis, and, as Sotheby’s Moscow office points out, there is still a large housing shortage in Moscow and Russia as a whole, contributing further to real estate value appreciation.
On the commercial side, Morgan Stanley’s real estate fund recently purchased the St. Petersburg, Russia Galeria, a five-story shopping mall, for $1.1 billion which makes the transaction Russia’s largest commercial property deal in history. According to Jones Lang LaSalle, 2011 was a hugely successful year for real estate in Russia with a total of $8.2 billion in commercial property deals. Jones Lang LaSalle points out that the Galeria transaction is a reminder of why investors remain interested in Russian real estate.
How does all this translate to Russian real estate investment interest in Texas? The inbound business from Russia to Texas is growing. Singapore Airlines now operates direct daily service from Moscow to Houston, bringing upwards of 325 passengers from Moscow every day, more than 2,100 passengers per week. This is a new inbound international buyer/investor demographic for Houston. The cooperation in oil, natural gas, and energy development between Texas-based companies and Russian enterprises further enhances the investment flow from Russia to Texas.
Russian nationals view real estate as a solid and stable investment asset. Houston and other areas of Texas represent excellent investment opportunities for our Russian colleagues, and our Russian friends are increasingly interested in residential, commercial, farm and ranch, as well as land investments. The Consulate of the Russian Federation in Houston advises us of increasing interest in Texas real estate by Russian investors.
Russia is on the move in international real estate, and Russian investment in Texas will continue to grow. Interestingly, FIABCI, the international real estate federation, is holding its 2012 World Congress in St. Petersburg, Russia — further evidence of Russia’s importance in the global real estate scene. As REALTORS®, we need to pay attention to this emerging buyer/investor opportunity.
GOTTFRIED INTERNATIONAL, INC.
Houston, Texas USA
cell: 713-299-0653 (global)