Is Moscow Becoming the Most Expensive Market for Luxury Rentals?

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Moscow​ is considered to be one of the ​world's​ ​most​ ​expensive​ ​cities​ ​for​ ​buying​ ​luxury​ ​rentals​.

In 2014, The Telegraph said, "For $1 million, you can buy 43 square meters of upmarket space in Moscow. Apartments in a palatial new residential complex on the Ostozhenka are priced from around $2.2 million."

Most recently, however, prices for luxury rentals in Moscow are rising higher than ever, by double, almost triple digits, which is good news if you own property in the gilded capital and have a steady stream of renters. It’s bad news if you’re looking to rent or are buying for immediate return on investment.

Russia’s economy has slightly improved since a year ago, but that's not saying much. In 2015, Russia was said to have entered its second recession since 2009. Interest rates were appallingly high, inflation was sickening, and its GDP contracted by 4.6 percent in the second quarter of that year, according to the Federal State Statistics Service (Rosstat).

Late last month, global real estate agency Knight Frank ranked the Russian capital as top of the list in its most expensive luxury rental index released Wednesday, with prime rents rising 11.1 percent in the second quarter, compared to a year earlier riding the back of a ruble that’s stronger than the dollar.

“Around 15 to 20 percent of the rental supply is dollar-based, so a stronger ruble against the U.S. dollar over the last quarter has forced these dollar-based prime rents higher,” explains Taimur Khan, senior research analyst at Knight Frank.

After a hefty decline last year, the ruble superseded the dollar in the second quarter of this year and has remained relatively stable since, supported by Russia's central bank’s decision to rein in interest rates, at least until the end of this year.

Prices are high, but at a predicted GDP contraction to 0.7 percent, they’re nowhere close to the level they were in 2015, when Russia’s economy shrank by 3.7 percent.

These sky-high prices are unfortunate for renters but wonderful for investors, since more people are unable to afford their mortgages and place their quality homes on the market. This is the time when property prices falter to tantalizing lows, which means that investors who are looking for opportunity in Moscow are given a pick of large properties, luxury homes, and villas that they can buy low and sell higher, or hold onto and gain a splendid return on investment from renting at recession's end.

That was the situation in 2015, when luxury apartment prices rose by 2.86 percent, but house prices steadily fell in all but six out of 51 Russian cities during the third quarter of 2015, according to the portal Mir Kvartir. Experts wondered that home prices had not fallen further.

Moscow is the capital of the Russian Federation. Over the course of its long history, the city was conquered and destroyed many times but always rose again. Many famous VIPs choose to live in Moscow, in places like Ostozhenka and Yakimanka, as well as Sadovoe Koltso. They look for large properties, since luxury homes in Moscow are synonymous with absolute prestige and elegance. The quality of a home is measured by its size, and having a large property in Moscow, one of the most expensive cities in the world, is a real status symbol.

These factors are likely to retain current demand in Russia's luxury property market, particularly since the government is also seeking to boost the Russian real estate market by offering mortgage rate incentives to those who buy property in Russia.

Image courtesy of Shutterstock

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