INVESTMENT FORMER SOVIET UNION: Investors look for eastern promise
The Independent – United Kingdom
May 25, 2005
Chris Partridge
Britain’s army of property investors has swept eastward through Europe
over the last decade, from Spain to the Black Sea.
The former Warsaw Pact countries are now crawling with Brits looking
for bargains. And now they are reconnoitering the old Evil Empire
itself ” the countries that used to make up the USSR. But will they
finally meet their match?
Russia itself is still the economic dynamo of the region and is
already attracting investors, especially to the booming Moscow
market. But new interest is focusing on the newly independent states,
especially the Ukraine. Experts are advising caution, however. The
states of the former Soviet Union are still evolving their legal and
political systems, and investment is very risky.
John Miller, of surveyors and property consultants Thomas and Adamson,
has been operating in the Ukraine for 10 years, from the capital
Kiev. ‘Here wehad a country with a population of 50 million, a
landmass larger than France and a marketplace in which little or no
development had taken place. We could see that this place had to
happen,’ he says.
Thomas and Adamson have worked on offices, hotels and residential
developments in the Ukraine, neighbouring Moldova and Russia
itself. The main obstacle to development is officialdom, which still
seems to operate in the traditional Stalinist manner.
‘There is a huge amount of bureacracy, but the longer you are over
there the better you understand it,’ Miller says.
It can also be difficult to borrow money, another hangover from Soviet
times. ‘Whereas our economy is based on debt, they buy with cash or
on a five-year mortgage,’ Miller explains. ‘Money tends to be hidden
in a biscuit tin under the bed because they operated in the black
economy for so long.’
In Kiev itself, a huge rebuilding and modernisation programme has
brought on a property boom.
‘Kiev has a huge residential market with flats going for fairly
inflated prices, currently about pounds 100 a square foot. That is
high by Ukrainian standards but you won’t get much in the UK under
pounds 250 a square foot,’Miller points out.
Unfortunately, British investors may have already missed the Kiev
opportunity. ‘Someone I know bought a flat last year and has seen a 60
per cent increase in value already, but values will peak soon,’ Miller
says.
The other area of interest to British investors is the Crimea, famous
not only for the charge of the Light Brigade but as the favoured
holiday destination of the Soviet ýlite. Now its pretty Black Sea
coastline is slowly gaining attention.
‘In the Crimea we are seeing a reasonable amount of development but
nothing like the standard of European holiday destinations,’ Miller
says.
Outside the Ukraine, the risks of property investment rise
substantially. Belarus is currently ruled by the dictatorial
Alyaksandr Lukashenka, who has just changed the law to allow him to
continue in power. Belarus is definitely a no-go area until true
democracy returns.
Moldova, the tiny, strife-ridden republic sandwiched between the
Ukraine and Romania, has a surpisingly advanced legal system, but
another feature of Soviet times has been retained ” the kickback.
‘In practice a lot of things are ahead of the Ukraine but they are
more dogged with corruption,’ Miller says. ‘One project we were
involved in was delayed for years because the relevant administrator
was in jail and couldn’t decide the matter until he got out.’ The
situation gets worse the further away yougo, according to Laura Brank
of law firm Chadbourne & Parke, who covers all the old USSR from her
base in Moscow. The areas that are next in line for investor attention
are Armenia and Georgia, despite their current political turmoil and
internal violence.
‘Armenia and Georgia are very pretty and eventually these countries
should attract people, and skiing in the Caucasus is already getting
popular,’ Brank says. ‘Georgia has a young and impressive new
president and if he succeeds the country could be a good place to
invest.’
Further away, the Asian republics known collectively as ‘the Stans’
are moving towards Western-style legal systems, at least in theory.
‘The legal systems are developing nicely in the Stans and the laws are
a bit more Westernised due to extensive Western influence, but this
does not necessarily translate into practice,’ Brank says. ‘You can
buy an apartmentbut cannot buy the underlying land even though you are
supposed to be able to.’
The Stans aren’t even very pretty, consisting mainly of windswept,
treeless steppes. For most property investors, they are a step too far
indeed.
Thomas and Adamson, 020-7659 0448
Chadbourne & Parke, Kyiv, +380 (44) 230 2534