No Time to Think of the Crisis. The investment show was marked by business activity

The International Investment Show held in Moscow on March 13-14, 2009, corroborated the well-known tenet that business activity grows in times of crisis. There are quite a few high net worth individuals in Russia willing to invest their money. But in order to make a weighted investment decision, an investor should have exhausting information on a given market, legislation and economic outlook. Such information was in abundance at InvestShow.

The previous Investment Show organized by aigroup took place in October 2008. Less than half a year has passed but during the crisis everything changes very fast so this meeting also revealed the current trends in the real estate market. The show organizer, president of aigroup Mr. Kim Waddoup, pointed out that while the number of participants remained roughly the same (the whole venue of the T-Module showroom was crammed with stands), the number of destinations increased.

During the InvestShow we requested the heads of companies and experts working at the stands to say a few words about their offers. We were also interested to know their opinion about the state of different markets and their economic outlook. Their short interviews were quite revealing for analysts.

Huseyin Buyukballi, director of the sales department at Cebeci (Turkey), pointed out that the relationship between Russia and Turkey is getting better all the time. "Turkish leaders realize that North America and Europe have almost exhausted their growth potential. The European market is locked and while we used to sell our real estate to Germans, Dutchmen and Irishmen now we see a burgeoning interest from Russians." Mr. B?y?kballi sees the reason in geographical proximity, favorable climate and beneficial legislation (a real estate buyer is granted a residence permit). "Russia is a strong nation and it will quickly recover from the crisis," emphasized Mr. B?y?kballi. To the question about the trends in the Turkish real estate market he answered that problems are faced by those companies which built on loaned funds so now the buyer has to be very circumspect. But his company invests its own capital into construction projects. And even though the amount of built space is limited, this scheme is most dependable. The average price is reasonable - from 1,500 Euros per sqm on the first shoreline. The Cebeci spokesman corroborated the company's regular participation in the Investment Show and said that the number of visitors did not go down compared to October 2008.

The Show was also highly appreciated by Roland Eichorn, director of Exquisite Real Estate, and Wolfgang Thum, managing director of Profiba S.A. As was noted by the latter, visitors ask such "special questions that it becomes clear they are well informed about the market trends and know what they want." Both companies operate on the German and Swiss markets. The situation is not easy there; the mater concerns stagnation at best, but this is the right time to buy. Mr. Thum also recommends considering the entry to the commercial real estate market. On the one hand, the growth period is over, but on the other hand, by making a proper acquisition now one can make a good back-log for the future.

Stevo Zuhic, general director of IMG in Croatia, said his company presented both ready properties and its own projects developed in Istra Peninsula. Mr. Zufic explained that IMG had purchased development plots and obtained all necessary permits. Now it looks for a co-investor in order to launch construction. In the words of the company's chief executive, he is interested in Russia because he appreciates the vastness of this market. The Croatian authorities are environment-conscious and it is extremely difficult to obtain a construction permit alongside the coastline. But though the offer is limited the prices are quite reasonable, from 1,800 to 2,700 Euros/sqm, and the demand is high. Stevo Zufic said he came to the October show to see how it goes. This time he was a full-fledged participant and never regretted this move.

In the words of investment consultant with IMEX Real Estate, Mr. Serdar Durdyev (Dubai), his company offers its possible buyers and investors "a wide range of properties, from low budget to high-end." Preference is given to completed projects which account for up to 70% of the demand. The reason certainly lies in the crisis: "Dubai is not located on Mars; some developers have problems and some projects are suspended; therefore we offer only finished properties - high-liquid projects." The expert is positive that Dubai's potential has not been exhausted; surely the development has stalled, but on the whole nothing tragic is observed and the outlook is bright. The lowest price is $1,500/sqm and there is no upper limit. The company of Mr. Durdyev is a permanent participant of all major property events. As regards the shows organized by AIGroup on Tishinka, they always produce the most favorable impression. "The main thing is that people know the situation and do not come just to talk; they know what they want," commented Mr. Durdyev.

Lydia Goncharenko, director of Laris, explained that her company pursued two lines of business at the show. "Our first specialization is the real estate market, but now the sale of ready businesses is taking on great significance in Europe; this is interesting to Russian investors and we observe burgeoning demand." In the words of Ms. Goncharenko, while they formerly put up mainly dry-cleaner's services, laundries and dog nurseries for sale, now they are more interested in petrol stations, metalworking and transport undertakings. "This is not about selling businesses in Russia and exporting cash; simply Russians widen the scope of their activity; for instance, those engaged in inland shipping operations are now entering international markets. The same can be said about the purchase of petrol stations, which are now a very promising investment." As regards the property markets, the demand is very high, underscores Goncharenko, and her company vigorously offers apartments, studios and flats in Greece, Italy, France, Spain and Germany. Many Russians buy 2-3 apartments to get rental income; this not only a good anti-inflation measure, but also a guaranteed income during the next 5-10 years. Berlin, where it is possible to buy a studio for only 30,000 Euros, looks most promising. The point is that after the capital was carried over to Berlin many corporate headquarters and establishments also moved here with their employees. Eager to refurbish old quarters, the authorities began selling rundown buildings for symbolic sums. This remarkably slashed the expenditures of construction companies and helped avoid a surge of prices. Utility lines, infrastructure and lifts are replaced in such old buildings and a parking garage is fashioned; as a result, studios with 2 or 3 rooms are delivered to the market. Ms. Goncharenko illumined that the show, to which she was a novice, appears very helpful. It is here that she began realizing her new project: the offer of Russian businesses for sale in Europe and the world over. The interest in such purchases is keen. Western businessmen do not fear to enter the Russian market once they are aided by local partners.

Chief executive of IPC Russia, Olga Volf, assumes that the main market trend is the growing demand for overseas properties. The crisis is global by nature and every nation is somehow affected. But experienced investors are braced up for any unexpected turn of event. Spain rouses great interest, the expert underlines. "Spanish economy indeed suffered at large, - Olga commented. - However their financial system proved very steady: banks did not go bust and advance loans on a 3% interest, which is an unrealizable dream for us." Interestingly enough, banks credit those willing to buy real estate and do not allow for the ongoing drop of prices in their property appraisal. Therefore the loan recipient gets double gain. According to Volf, "Spanish" clients accounted for up to 70% of the show visitors, though interest in other markets - Turkish, Bulgarian, Austrian and even Finnish - is also rather keen. Her company, acting as an international advisor, is capable of providing information on almost any segment. Olga Volf believes that now is the best time to buy. In Bulgaria it is possible to buy a studio for 16,000 Euros, in Tunisia - for 26,000 Euros, and these are great offers. The Tunisian market will be getting more and more popular - first and foremost, because a property purchase makes the buyer eligible for a residence permit; secondly, because the prices are very reasonable, and thirdly, because the Tunisian economy is closed and this serves as a safeguard against the crisis. Getting back to Spain, Olga Volf told about the interest of visitors in a yacht marina investment project. Although it will be completed only in two years, it should be noted that the demand for leasing yacht marinas in this region is planned for two years ahead. When the construction is finished prices will have further grown and so this investment definitely looks promising. Estimating the show in general, Olga Volf pointed to the fact that the number of visitors at her company's stand increased: "Clients are serious; they know what they want and there were many inquiries about the projects worth 2-3-4 million Euros. These are solid budgets and I have an impression that it has dawned upon Russians what the investment is all about."

Vladimir Malkov, general manager of Cheda (Egypt) and a permanent participant of InvestShow, is also satisfied. Commenting on the situation in the Egyptian market, he reminds that is boasts the best sea, best climate, cleanest air and organically grown foods. This is why Russians are so enthusiastic about buying real estate here and this trend will certainly persist. "The deferred demand keeps swelling, - Malkov explains. - As soon as the situation stabilizes, a fantastic leap in purchases can be expected - the demand for Egyptian properties will be rabid!" Even now some deals are cut. New larger investors are entering the Egyptian market, buying seaside properties. Low-liquid bids far from the beachfront in desolate areas are getting cheaper indeed, but this is natural. In some districts you may buy 100 sqm for $500 but will you be able to dwell there? - Vladimir Malkov reasonably questions. On the other hand, an investment in a new seaside project with prices around $1,200/sqm is very promising.

Julia Sores, development director of Balkan Estate, said her company brought sale offers scattered along the entire coastline. "We sell off-plan and completed projects - studios, homes and penthouses." The Bulgarian market is now stagnant, - she stated. - Prices are stable and this is the best time to buy. Julia Sores emphasizes that under current conditions her company abstains from offering projects at the zero development stage and prefers to deal with projects in the final construction stages. As regards the show, the number of visitors has not dwindled, Sores emphasized, and "there are even more clients who made a firm decision to buy."

Rumen Uzunov, director of California Dream, presented a company operating in the Bulgarian market and said that real estate prices dropped due to cheaper construction materials, though not as low as could be expected. "Cement prices have reduced by 10-15%, Ukrainian metal prices have dropped but that was not enough to produce the much-desired effect." As regards the investors, including those from Russia, they are more prudent now. They are more willing to buy properties on the second shoreline. Prices average 900-1,000 Euros per sqm, though real estate can be purchased even at 600-700 Euros/sqm directly from the builder. Mr. Uzunov believes that when lower prices are offered this must alert the buyer, since building quality can be unacceptable.

It was difficult for Dmitry Bogatov, managing director of VFI Europe (Italy), to find time for an interview - so active the buyers were at his stand. "We are one of the biggest developers in Calabria, - he said, - delivering about 3,000 projects at one time. The Italian market is stagnant, deals are few, but Calabria is the last European destination where prices are rising." VFI Europe sells the properties it builds: private clusters complete with all essential infrastructure, apartments, villas and townhouses. Altogether we have 12 communities with off-plan projects. The prices are now at the low level starting from 1,500 Euros/sqm. Mr. Bogatov said his company participated in all shows. As for the current Investment Show, I'd point to its productivity. "We strike deals right here. People hold negotiations, get acquainted with our offers and fly to our destinations. By the middle of the second day more than 20 transactions had already been completed."

The Moscow International Investment Show corroborated that most investors saw a way of escape from the current conditions in the intensification of their business activity. From these perspectives it's hard to overestimate the events like the Investment Show.

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