Global Edge Russian Summit 2011

The Russian Overseas Property MarketPresented by

Kim WaddoupCEO, aiGroup, Russia

The Russian Overseas Property Market

This presentation will explore the general market to help you to form an appreciation of the desires and requirements of Russian investors and their current buying habits.

We will look at the countries that are most popular for Russian buyers and explain why.

We will explore the Russian market place, how to promote/market your company and how to deal with initial enquiries.

The conclusion will offer some specific recommendations, including what does a Russian client look for, how to reach them, gain their trust and complete the sale.

Brief history of current Russia

1991 the end of communism rule and first free election for a democratically elected President, Boris Yeltsin

91-98 troublesome years for an emerging country/economy

1998 August economic crisis

2000-2008 The Putin Years 2008-the present The

Medvedev/Putin tandem The future………

Current economy & Current economy & predictionspredictions

Russian economics – heading for higher Russian economics – heading for higher growthgrowth

(Morgan Stanley Report July 2011)(Morgan Stanley Report July 2011) Growth in Russia is poised to accelerate to Growth in Russia is poised to accelerate to

5% in 2011 and 5.5% in 20125% in 2011 and 5.5% in 2012 Retails sales and industrial production Retails sales and industrial production

continues to increasecontinues to increase Wages disposable income & consumption Wages disposable income & consumption

are increasingare increasing Inflation under control and falling(max 8%)Inflation under control and falling(max 8%) Unemployment is falling (6.1%)Unemployment is falling (6.1%)

‘‘Local Business Politics’Local Business Politics’

• The business environment in Russian The business environment in Russian remains erratic. For many businesses remains erratic. For many businesses high capital gains are relatively easily high capital gains are relatively easily achievable, however corruption and, achievable, however corruption and, hardly legal pressures can be brought hardly legal pressures can be brought on to companies operating in Russia.on to companies operating in Russia.

• Many businesses rely on off-shore Many businesses rely on off-shore alternatives ensuring security for alternatives ensuring security for profits and capital gains.profits and capital gains.

How the overseas property market in Russia has developed:

In 2003 aiGroup created the first specialised Moscow International Property Show

Visitors 186! 26 participating companies Estimated sales – in excess of $.100 million

(1 agents alone sold in excess of $.20 million

Since then, there has been a gradual change in the market as the middle class emerged. We now organise 8 specialised events per year in Moscow and St. Petersburg.

Average number of participants 200+ Average number of visitors 7,000+ Estimated sales from Russia now estimated

in excess of $.12 billion

Current market Current market segmentssegments

For many reasons, reliable statistics are impossible to For many reasons, reliable statistics are impossible to obtain. We therefore create statistics from detailed obtain. We therefore create statistics from detailed research of web searches. These are not facts, but a research of web searches. These are not facts, but a

good indication:-good indication:-

Purchases in excess of $.10 millionPurchases in excess of $.10 million 3%3%Purchases between $.3 – 10 millionPurchases between $.3 – 10 million 4%4%Purchases between $.1-3 millionPurchases between $.1-3 million 9%9%Purchases from $.500,000 to $.1. millionPurchases from $.500,000 to $.1. million 19%19%Purchases under $.500,000Purchases under $.500,000 65%65%

Who are your Russian clients? The rising Who are your Russian clients? The rising Russian middle classRussian middle class

The Russian middle class is increasing very fast especially in The Russian middle class is increasing very fast especially in the major cities. This sector represents vast potential for the major cities. This sector represents vast potential for

overseas property.overseas property.

The majority own their own apartmentsThe majority own their own apartments Low monthly running costs(water, gas, heating, Low monthly running costs(water, gas, heating,

electricity)electricity) Salaries are rising creating more disposable Salaries are rising creating more disposable

incomeincome Minimal household debtMinimal household debt General income tax at 13% on declared(!) General income tax at 13% on declared(!)

incomesincomes Less than 8% have mortgages to repayLess than 8% have mortgages to repay

What investments are Russians What investments are Russians generally looking for?generally looking for?

In a recent survey we asked In a recent survey we asked Russian investors what their Russian investors what their

main reasons were for investing main reasons were for investing in property:in property:

As a safe investment 55%As a safe investment 55% Buying for own enjoyment 30%Buying for own enjoyment 30% Buying to let/rent (create Buying to let/rent (create

income) 15%income) 15%

Where do Russians buy and why

Statistics provided by 1-property based on searches for International Property for July-September 2011 the most popular requests are:

Bulgaria 17% Easy destination, language, similar mentality

Spain 14% Sun, prices, lifestyle Turkey 11% No visa, traditional holiday

destination Montenegro 10% popular destination Italy 6% primarily Calabria(price) Czech Republic 5% Mostly buy to let Cyprus 5% traditionally popular Germany 4% Mostly buy to let Greece 4% bargain seekers France 3% also a traditional market Others 21%

Where do Russians buyWhere do Russians buyStatistics from Yandex, Russia’s largest search engine, based on

searches for Property abroad May-August 2011:-

Request May2011 June2011 July 2011August2011 Total %

Increase in 2011, %

property in Bulgaria 42035 41914 40413 42057 166419 32 37,1

property in Spain 17215 16769 17933 18420 70337 14 23,0

property in Montenegro 11229 11561 12074 11978 46842 9 20,9

property in Cyprus 7773 7455 7460 14224 36912 7 56,5

property in Turkey 8493 7471 8725 8676 33365 7 30,5

property in Italy 7505 7142 7718 7660 30025 6 38,6

property in Germany 6657 6485 6796 7601 27539 5 52,5

property in Greece 4728 6173 5472 4997 21370 4 29,7

property in Finland 4218 4079 4832 5564 18693 4 30,3

property in USA 4097 4004 4503 5941 18545 4 48,8

property in Croatia 3651 3978 4597 4296 16522 3 25,4

property in France 3576 3921 4267 3892 15656 3 34,2

property in Israel 1735 1581 1627 1648 6591 1 6,1

property in Dubai 858 1030 937 931 3756 1 50,8

How to sell to Russian overseas property buyers?

Remember that Russia is still a ‘developing’ country. It is not regulated and has few of the structures that

are associated with established markets. Traditional thinking and systems may not work here!

Be prepared to re-think the way that you work and become more flexible.

(Just remember that a Red Signal on a Moscow street does not guarantee that all drivers will actually stop!)

Russian Russian Overseas Property AgentsOverseas Property Agents The number of agents specialising in overseas property is The number of agents specialising in overseas property is

slowly growing. slowly growing. There is a elite sector of well established companies that There is a elite sector of well established companies that

have generally been operating for more than 10 years in have generally been operating for more than 10 years in the up-market sector.the up-market sector.

The majority are smaller companies, they are generally The majority are smaller companies, they are generally under-funded and are eager to make quick sales. However under-funded and are eager to make quick sales. However the level of professionalism, whilst now improving, is not the level of professionalism, whilst now improving, is not high. high.

Many foreign developers have established their own Many foreign developers have established their own offices or have representatives that only promote the offices or have representatives that only promote the developments of the parent companydevelopments of the parent company..

Target Agents or Target Agents or Consumers?Consumers?

► Moscow International Property Shows Moscow International Property Shows (April & November)(April & November)

► Moscow International Investment Shows Moscow International Investment Shows (March & October)(March & October)

► St. Petersburg International Property Shows St. Petersburg International Property Shows (March & (March & October)October)

► Bulgarian Home Exhibition Bulgarian Home Exhibition (February)(February)

► The Moscow Golf & Luxury Property Show The Moscow Golf & Luxury Property Show (April)(April)

► International Residence Magazine – International Residence Magazine – 2 issues/year, 35,000 2 issues/year, 35,000 copiescopies

► www.1-property.ru portal portal 5,000+ targeted visitors per day5,000+ targeted visitors per day

With the agent infrastructure currently limited, many International developers and agents have preferred to

primarily target the consumer through the range of specialised property shows, magazines and portals that are

available:

Once you have attracted a potential Once you have attracted a potential Russian client, what do they Russian client, what do they

expect/require from you?expect/require from you?

o Answers to a LOT of questionsAnswers to a LOT of questionso Efficient and professional adviceEfficient and professional advice

o Availability of Russian speaking staffAvailability of Russian speaking staffo The possibility of a Russian speaking lawyerThe possibility of a Russian speaking lawyer

o All prices on the table, no hidden extrasAll prices on the table, no hidden extras

To successfully close sales to Russian clients, you must first gain To successfully close sales to Russian clients, you must first gain their trust and respect!their trust and respect!

Specific recommendations for Developers or Agents looking

to sell in Russia

If you are looking at the Russian market, you should consider a longer term view, Rome was also not built in a day!

Consider marketing actions to establish brand/name recognition prior to attending Property Exhibitions

Research and learn to compete with other countries popular on the Russian market

Re-evaluate the current situation, what are the USPs for your destination

Quality, price, lifestyle, investment potential…

Thank you for your attention!Kim Waddoup

CEO, aiGroup, Russia

This presentation can be viewed at http://www.slideshare.net/AIgroup