The return of the rouble is a new lease on life for Asian markets
Russian real estate investors are back and once again exerting their influence in the region
In the Thai resort city of Pattaya, the streets have a very cosmopolitan flavour. Snap-happy Chinese tourists rub shoulders with Arabs and Indians. Meanwhile, long term residents from around the world observe the lively street life from the city’s famously rambunctious bars. Until recently, however, one nationality had been conspicuous by its absence.
For the last decade at least Russians have helped buttress the city’s property market, which offers more bang for the rouble than in expensive Bangkok. Russians were purchasing about 20 to 30 percent of properties, making them the second-biggest pool of investors after Thais themselves, according to data from Pattaya-based real estate agency Premier Homes.
Then came Russia’s incursions into Ukraine. That 2014 military campaign, and the annexation of Crimea that followed, earned Russia the opprobrium of NATO. The attendant economic blockade, along with the global oil price slump, resulted in the rapid depreciation of the rouble, which crashed 56 percent against the US dollar by December 2014 and hit a record low of RUB82 against the greenback in 2016.
But the currency is bouncing back. It has been one of the best-performing emerging market currencies of 2017, rallying more than 10 percent against the dollar over a 52-week period.
“The stabilisation of key macroeconomic indicators, gives us an optimistic view of the market,” says Mikhail Titov, associate director for research at CBRE Russia. “We expect the Russian economy to reach pre-crisis level with steady real estate market recovery.”
The domestic property market was early to illustrate the rouble’s resurgence. Investment in all Russian real estate sectors stood at USD930 million in Q2 2017, up 102 percent from the same quarter in 2016, according to data from the National Statistics Office.
“The appreciation of the rouble is improving investor confidence and perception of Russia,” says Olesya Dzuba, head of research at Jones Lang LaSalle (JLL) Russia & CIS.
And the rouble rally is sparking a resurgence in interest in Asian favourites such as Thailand, where the currency has appreciated 20 percent against the Thai baht in 2017.
“While Russian investment into property markets in other Asian countries is insignificant, that’s not the case in Thailand,” says Yulia Kozhevnikova, real estate researcher at international property brokerage Tranio.com. “They almost disappeared in 2014 and 2015, but have been gradually returning since 2016.”
Take-up of condominiums in Phuket soared 22.6 percent in 2016, partly because the Russians are “back in business,” according to Risinee Sarikaputra, director for research and consultancy at Knight Frank Thailand.
In Banglamung, near Pattaya, Russians have recently purchased “some hundred or more” units in the luxury villa complex Baan Dusit, says Clayton Wade, managing director of Premier Homes. A Russian Orthodox church has been built at the entrance to one of the project’s seven villages.
“I think it is too early to calculate the recovery, but the Russians are definitely coming back to Thailand,” he says. “We all know that the Russian crisis will come to an end and a new and thriving property boom is ahead of us, it is just a matter of when.”
Most Russian buyers had before the crash been seeking residential property in Thailand for end use, but are now more are active in the buy to let market, Wade adds.
Indeed, Thailand emerged as the top destination worldwide for Russian investors seeking relatively high yields, according to a 2016 survey of Russian investors by Tranio.com. Sixty-two percent of respondents sought yields north of 8 percent when purchasing residential properties in the kingdom.
In Southeast Asia, it is not only Thailand that will welcome the reinvigoration of the Russian rouble.
Russians are the second biggest tourism source market for Vietnam, next only to the Chinese. And with Vietnam easing restrictions on foreign ownership of residential property, Russian investors will clearly be a target.
The Philippines is having its Russian moment as well. President Rodrigo Duterte returned home from a Moscow trip in 2017 with USD875 million in investment pledges from Russian firms, including property developers.
The impetus for Russian property purchases abroad goes beyond mere economics though. Political and economic stability, potential for price growth, and the possibility of obtaining residency are among the chief factors driving Russians to scour for property overseas, the Tranio survey revealed. About 50 to 70 percent of respondents cited prospects for capital growth as their motivation for investing in Thailand, along with Portugal, the UK, and US.
In any other market, a volatile currency would exhort investors to take on less risk. Overseas real estate, however, remains a great hedge against inflation — a viable store of wealth at a time of crisis. And with their purchasing power returning, Russian investors are once again making their presence felt in places such as Pattaya, Phuket and beyond.
This article originally appeared in Issue No. 145 of PropertyGuru Property Report Magazine
Author: Patrick Lusted