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Real estate: Rebuilding a house of cards

Guy Norton
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In 2008, Russia’s property developers were hit by a brutal mix of fast-shrinking funding options and falling customer demand, sending equity valuations into a tailspin. Guy Norton reports from Moscow on the prospects for recovery.

Russia: Fairy tale ending or start of a nightmare?
Reforms are crucial to recovery

ALWAYS READ THE small print. It’s one of the cardinal rules of any successful investment strategy but seemingly one that was widely ignored when it came to the Russian real estate market. In the pre-credit-crunch period, investors snapped up billions of dollars-worth of stock in initial public offerings from the sector in the belief that demand and prices for real estate in Russia were heading in one direction only – to infinity and beyond. With the benefit of 20/20 hindsight, that highly optimistic belief in the sector’s prospects looks sadly misplaced. Financing for developers and their customers has all but dried up, with the result that prices for commercial and residential real estate are already down 30% to 50% over the past 12 months and still trending lower.

Although real estate...