Inna Panchuck, a Russian born national residing in America, was "wowed" by the impressive growth of Russian property development presented at MIPIM this year.
The Russian Idea … everything on earth is just waiting
to merge with truth, just as moonlight merges with night.
-Anton Pavlovich Chekhov
Coming to the MIPIM Conference in Cannes, France as a part of student delegation from University of San Diego, I was excited to gain a better insight in the European real estate market including my home country Russia. I was ready to encounter a significant number of Russian companies at the conference, but what I encountered exceeded all of my expectations.
From having the largest pavilion just for the Krasnodar Region to heavy advertisement along the main drag, Le Croisette, Russian presence impressively dominated MIPIM 2013. The conference attracted over 2,000 Russian attendees, so anywhere I went I was reminded of the extensive real estate development in the country of my origin. To say that I was surprised would be an understatement. I was shocked. I was also proud. Not surprisingly, I decided to cover the Russian sessions at the conference and dig in a little deeper to figure out what exactly is happening in Russia and what are its current real estate development and investment opportunities.
I started with the 11:30 session on March 12 organized by Russian Vedomosti, which was held in Auditorium A of the Palais des Festivals. The rather large auditorium was almost at full capacity when the session started.
- Igor Slyunyaev, Minister of Regional Development
- Vasiliy Galushkin, Deputy Chairman of the Volgograd region
- Veniamin Golubitsky, President, KORTROS
- Yevgeny Kudelya, Minister, Krasnodar region resorts and tourism ministry
- Alexey Novikov, Director, Sberbank Asset Management
- Igor Divinsky, Vice Governor of St. Petersburg Region
Impressed by the high caliber of the speakers, I listened attentively to every word coming from the stage. According to Igor Slyunyaev, Minister of Regional Development, Russia poses an extensive platform for investment. The reasons underlying this statement were:
- Stable economy and low inflation rate
- Government support and stimulation of the development industry
- Low corporate taxes and other newly released regulations promoting business and development.
Russia has a convenient geographical location between Europe and Asia and a great transportation potential. “Our country must take advantage of these logistical opportunities,” he argues. Plans of the government include development of better road infrastructure, particularly in the low-population regions, and significantly increasing residential construction in other regions than Moscow and St. Petersburg.
Russia is about to host several major international events: 22nd Winter Olympic Games and Formula 1 held in Sochi in 2014, 21st FIFA Worldcup in St Petersburg in 2018, and 8th G-20 summit also in St Petersburg in September 2013. The development of New Moscow Region is another subject of interest, and lots of redevelopment is planned in that region.
Consequently, the above impressive list of events events creates a huge necessity and potential for extensive development and investment. Russian government seems to be very supportive in the process and it is ready to work with foreign investors to create profitable long-term partnerships.
Nevertheless, there are current issues that limit the amount of outside investments. According to Alexey Novikov, there is “a slow and determined development without changes in the government.” “Transparency in the decision and deal making is a crucial factor,” he continues. Veniamin Golubitsky, President of KORTROS Group supports Novikov by saying that “federal problems are the main issue in Russia. For outside investors, stability is what really matters.” Creation of understandable and clear rules and regulations governing investment and development should be the next step in the Russia’s to do list.
The other two sessions I visited that day organized by Vedomosti and then Moscow Times carried the same message: there is a lot of development going on in Russia and even more is needed, but there is a lack of international investment.
The development industry has definitely picked up in the last couple years amidst the global recession. Some of the largest Russian companies would be Donstroy, Hals Development, already mentioned KORTROS that had an extensive marketing campaign at MIPIM (I think many of us tried its red wrapped chocolates), MEBE Development, Morton GC, Est-a-Tet, and PIK Group.
The company that impressed me the most, however, was the developer of the future tallest building in Europe. Two tallest buildings to be exact, since Hermitage Plaza will be an 86 story two tower mixed-use project that will include residential, retail, office, and hotel. Located in La Défense business district outside Paris, this ambitious project will be also one of the most sustainable buildings in France. The architect of the project is Norman Foster, which is another bonus. According to Hermitage SAS President, Emin Iskenderov, he saw a real opportunity to develop in Paris. No other Russian developer seems to build on such scale outside Russia. This bold move is a game changer for Russian development industry and its reputation on the global market.
My overall impression of the current Russian real estate industry was above positive. There are many great projects to be developed and there is definitely enough land for it as well. The standards are high, and Russian professionals follow the latest techniques in design and construction. So what does really stop foreign investors from doing business in Russia?
The answer to this question is well known to many, but it is avoided at the sessions and cocktail parties. The fact is that there is a huge stereotype about business in Russia, and it exists for a reason. Despite Russia’s rich resources and its place among the world’s fastest-growing economies, there remains a general feeling that the country is falling far short of its potential. There is one overriding reason why Russia is failing to achieve its economic potential and failing to attract outside investors: corruption.
Corruption, bribery, and unregulated law system are the main issues in the country that scare foreign investors. No matter how rich is the country or how much possibly profitable development there is, foreign capital won’t get involved in an unstable and unsafe environment. Not every business transaction in Russia involves corruption. But just because of this stereotype and the frightening stories in the news about antigovernment protests and increased emigration, investors won’t put a foot in Russian territory.
The current main task for many Russian companies is to find a way to offer a stable business environment to foreign investors and to prove that a profitable and safe business without constant bribery and corruption is possible in Russia. It is not an easy task to do, but I am sure we will get there. There is way too much potential in this country, and sooner or later (hopefully sooner) the economic and government regulations in Russia will provide a solid, protective fundament for foreign investments.
Next year, Russia along with Turkey and Brazil will be the countries of honour at MIPIM 2014. What progress. Congratulations, Russian Federation!
Now, besides being the “key investment destination,” let’s also become the safest, strongest, and most stable destination. These key elements are what will really make an impact and create the change needed to attract foreign investments, and lift up the country’s economy and development to the level it truly deserves.
Inna Panchuk was born and raised in Russia and moved to the United States at the age of 18. She received her BS in Management from San Diego State University and is currently earning her Masters in Real Estate at University of San Diego. She is a curator of the MIPIMWorld Sustainability and Innovation press review magazine.