Not long ago Russian investors were the most prominent buyers of overseas property in Europe. So if you were looking to sell overseas property in Spain, Portugal or France, your best option would have been to market your home to Russian buyers on online forums and property portals. But now, it seems that the Russians are just not buying as much as before.
Indeed, it was very easy for Russians to make money in the overseas property market prior to 2014. Those were days when their property investments would get returns of between 15% and 30%. Those were the “fat years”, years of high profits and massive spending. With oil prices over $100 and the Russian economy booming, seemingly Russian investors could buy anything, anywhere.
There were many who made huge profits in European property, as prices in this period rose by 20 to 30%. Many bought extremely high risk properties and benefited from the increase in prices. But 2014-15 was not a good period for Russian buyers.
2014 shook property owners in Russian like never before. The devaluation of the Rouble led to foreign exchange losses of 60% or more, erasing any gains. The Rouble depreciated further with the drop in oil prices and lost 60% of its value against the Euro and twice its value against the US dollar.
Suddenly Russian investors realized that a beachfront property in France or Spain that they could purchase for €250,000 in 2013 was now costing them €450,000, largely because of how the Rouble had depreciated.
This set the alarm bells ringing and soon enough, Russian overseas investments plummeted. Russian property purchases declined from $2 billion in 2014 to just $962 million in 2015. Many buyers simply put off their plans to purchase properties abroad and looked at other options.
Russian property hunters face several new challenges. Chief among them not just weak economic growth in Russia, but sluggish growth in almost all property markets in Europe, which means prices are not rising as fast as they did in the past.
There are other issues that Europe has been struggling with, such as the refugee crisis, stricter regulations and control of the financial sector and high taxes. It is no longer possible to earn money quickly in Europe. The days of “cheap money” are well and truly over.
Russian property investors have changed course and are no longer into property flipping as they used to be in the past. Now the goal is to hold on to overseas properties in France, Spain or Portugal and earn a rental income from them.
According to the 2015 Tranio CIS Investor Survey 2015, over 50% of Russian investors said that they planned to hold on to their overseas assets for the foreseeable and not speculate any longer in the overseas property market. The focus is on redevelopment of existing properties and earning a decent rental income from them, rather than on buying and selling.
Many Russian investors have cancelled their plans to buy a holiday home in Spain or Bulgaria, as lifestyle purchases are no longer on top of their agenda. Investment in commercial property is on the rise, as this is considered to be a safer investment than residential property.
Russian investors are certainly more mature than before and more realistic about their expectations. They just don’t seem to have the same appetite for risk that they had in the past. Even so, many believe that investing in overseas property is actually better and safer than alternative investment vehicles such as securities. Ultimately, Russians hope to ensure a comfortable retirement for themselves and a safe future for their children.