11th July 2013
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How the post-Soviet states are shaping up
Eastern European States, the Caucasus, and Central Asia
Let's take a look at Central Asia: the Caucasus, the Eastern European States and Russia. That'll be a mere couple of thousand miles, vastly differing environments and enormously different possibilities and potentials then. No problem at all.
There is little doubt that, even given the tough time the Baltic States are having, Latvia, Lithuania and Estonia are the jewels in the crown as far as property investment in the former Soviet states go. You'd have a job even finding some of the others on a map, let alone being able to find a profitable place to buy. Many of the countries can be dealt with fairly quickly but there are still the odd bargains out there in the most unlikely of places. It has to be said, however, that there are currently far fewer properties for sale than you'd normally expect; the political situation in several of these countries has become volatile again of late and this has surely had an effect.
Let us start with the Eastern European states. After the Baltics there is probably the most potential within Ukraine, Belarus and Moldova.
The Ukraine enjoyed a massive increase in its property prices in 2006/2007. There were record economic growth rates, huge inward investment, a waking up to the tourist potential and fevered building activity. As a result, many of the best bargains in the capital, Kiev, are long gone and many experts believe that the prices are over-inflated. This doesn't seem to be stopping those that want a property in Kiev, however, and prices are escalating in both the rental and residential property markets. Amberlamb report that land prices have risen threefold in certain parts of the city in just 18 months and there are more skyscraper projects being considered now as a result. The latest to be announced is the Mirax Plaza, a 44-storey, multi-purpose development consisting of 381 apartments, a business centre, a recreation zone and restaurant. While investment in Kiev may still be a positive thing due to the rental market, the capital city is by no means the only place in the Ukraine that warrants closer inspection.
The beautiful and largely unspoilt Crimean Peninsula in Southern Ukraine has been a hotspot for Ukrainian and Russian tourists for generations and today its popularity is increasing as it's attracting a wider, international audience. The peninsula is home to stunning beaches and amazing historic architecture, it has a temperate climate and it already has an active property market. Locations such as Yalta are particularly popular and the town has seen property prices rising consistently and strongly for the past few years, but prices are still largely affordable.
Another great alternative for residential property investment is Odessa - it is enjoying significant infrastructure investment and foreign direct investment is inward-flowing in many sectors. The city offers sea services to the likes of Istanbul and it is also becoming a favourite location for holidaymakers seeking an accessible destination with massive charm. The local population is also increasing as the appeal of the city increases and job opportunities are created. Yields from well-located holiday-let properties during the summer season are good and, as Odessa's popularity rises and, according to the World Travel and Tourism Council more visitors will be arriving annually between 2007 and 2016, it is highly likely that a long term buy-and-hold strategy is a good bet.
Moldova is one of Europe's poorest nations; the Republic of Moldova has resisted pursuing the types of reforms that have vastly improved the economies of some of its Eastern European neighbours. The Communist Party retained political control after winning the March 2005 parliamentary elections and re-elected its leader, Vladimir Voronin, as president in collaboration with the opposition. Although the government maintains a pro-Western stance, it has had trouble pursuing structural reforms and has made little progress on the International Monetary Fund's programme to attract external financial resources. Despite all of this there is evidence that the economy is growing; for example residential real estate prices have risen annually by 30 to 40% over the past five years, according to Lara Real Estate Agency. In 2007, apartment prices in the capital Chisinau rose 12% to 14% in US dollar terms, and 4% in terms of Euro. A lack of supply, coupled with an increase in demand from foreign investors has led to the surge in house prices. It has to be said, however, that the only city in Moldova with reasonable living conditions for an expat is Chisinau and, even then, many of the houses are built specifically to rent. The houses prices, though rising, started at a very low level indeed so it is still more than possible to pick up something of a bargain. The problems in the country are not insignificant but even these are slowly turning around so, if not exactly a goldmine, Moldova could well be an interesting riskier investment choice.
Belarus is one of very few European countries that is still being run by a dictator. The president, Alexander Lukashenko, is starting to look at his neighbours and, it seems, has decided that there might be something in all of this foreign investment. That is not to say that Belarus is suddenly a friend to the western investor but there might just be a few opportunities emerging. Under current Belarus laws every property transaction above $236,000 (approx. £164,000) has to be personally approved and signed off by the president and this bureaucratic process is bound to cause substantial delays for western companies and investors hoping to take advantage of this potentially lucrative market. All property in Belarus is owned by the state and standard rental practice within the general population is to secure a maximum of 50-year leases on their properties. As to be expected in countries experiencing an economic growth spurt, there is something of a commercial real estate bubble in Belarus at present with prices rising by 25% to 30% a year and expected to do so for the foreseeable future. Quality property is in short supply therefore demand is high for new property developments. It is hoped that the more western companies invest so the more relaxed the government of Belarus will become. While this may be true it is unlikely that this country will offer anything other than, at best, a medium to long term investment for some time to come.
Once the Eastern European States are dealt with we then stumble into the realms of former soviet states that most people would be hard pushed to find on a map (or spell correctly). The Caucasus includes Armenia, Georgia and Azerbaijan. Georgia has, of course, been in the news recently after its short war with Russia. This is just another chapter in a fairly turbulent history of a country that contained the ancient kingdoms of Colchis and Kartli-Iberia and has been fought over by the Romans and the Ottoman and Persian empires and was finally, forcibly, incorporated into the USSR in 1991. It is a country that is keenly fought over due to its geographical location. It's not quite Europe, it's almost Asia and it's nearly the Middle East.
Property in Georgia is not a common thought for most people, what with the conflict and other problems reported in the news, but there is a market for the off-plan investor. With stability in the nation looking to hold and tourism increasing, Georgia is a country on the slow road to recovery. Economically the country isn't doing very well, but things - again - have turned around in the last few years. On the whole, Georgia has a far brighter future than anyone would have expected just a few years ago, and with a friendly populace willing to fill you up on their fine cuisine there are more than enough reasons to visit and invest in the country. The recent conflict in South Ossetia has, however, slightly soured things. Not that long ago, Georgia was regarded by the World Bank as the 18th-easiest country in which to do business but, from an investment perspective, Georgia is a risky choice as there is concern that the conflict will have lasting consequences. This sounds the death knell for the real estate market in Georgia, says David Geovanis, Managing Director of London & Regional's office in Russia. Whatever shoots it had shown are now over.
Similarly, Armenia is a country with a history that stretches far back into the very earliest years of civilization. Proudly, they were the first country to adopt Christianity as their national religion, but the years have brought ill-treatment, wars, deportation and extermination. All have combined through history to give the Armenian people a rough time, leaving their plight often compared to that of the Jews. However, in spite of this, the people are friendly, open and proud. Tourism is not as fully developed as one might imagine and there have been recent instabilities which is limiting the number of tourists.
Armenia is not a country at the top of most people's visiting lists, but the country should not be written off entirely. Tourism is on the increase and the capital city is renowned for the easy, laid back lifestyle it offers. Property investors are keeping a close eye; prices are low and the Armenian property market is young. It isn't perfect, but there are worse places.
The final country in the Caucasus trio is Azerbaijan. This majority-Muslim country is not currently renowned for huge amounts of tourism, but a burgeoning oil industry is seeing more and more well-off foreigners taking up residence in the country - mostly businessmen with vested interests in the fuel market, but the region is becoming popular for more 'regular' tourists and the property market is showing signs of taking off. As a country sandwiched between numerous other nations, Azerbaijan has experienced what most other countries in that situation have over the centuries - occupation, invasion and experiencing only a few periods of independence in its lifetime. Recent history of the country has seen an impetus on exploiting the natural oil reserves, and a proposed pipeline through Georgia is expected to see the economic situation of the nation grow vastly. Whilst tensions with Armenia are still unresolved, both countries have established a working relationship with each other, and amidst allegations of government corruption things look to be getting better in the region. Property investors are starting to look to the region in larger numbers, especially thanks to the oil boom, and more Western businessmen and women are making their way to the country each year. It isn't the most traditional of investment spots, but it's certainly an interesting one.
The final part of the complex and disparate nations that make up the former states of the Soviet Union are those of central Asia. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan are not the places that the foreign investor would immediately consider, and, indeed, it seems that few have ever seen anything in these countries other than unrest and upheaval. The vast expanse of Kazakhstan is mostly covered in steppes and deserts, but the remaining area is covered in some delightful scenery at complete odds with the dream-like isolation of the Kizilkum desert, from the mountains of the Tian Shan to the thousands of lakes and rivers this really is a country of vast differences. As with most former Soviet countries, Kazakhstan suffered economic setbacks at the fall of Communism, but the country has rather easily turned itself around and the GDP has been increasing each year thanks to a booming energy trade - focusing mainly on oil.
Kazakhstan is home to a well-developed and popular real estate market, and foreign investment in the country is a large factor in the nation's economy; meaning that the market is ready for any potential off-plan buyer. Kazakhstan is home to a haunting beauty, and the pleasant isolation of much of the land is in complete contrast to the hustle and bustle of Western European life, so while this isn't an investment opportunity for everyone, there is most certainly a market out there for those seeking peace and quiet. The increasing tourist trade and the country's economic potential add yet more reasons to invest in Kazakhstan and it should not be overlooked. However, it cannot go unremarked that a leftover from the Soviet days are the problems with chemical and radioactive pollution in certain areas of the country, stemming from the Soviet 'secret' nuclear tests carried out in Kazakhstan, along with missile launches and space rocket launches. It should also be said that the current financial climate is not being kind to the real estate market in the country; as with other areas of the world that have experienced huge growth in the property sector, much of the development in Kazakhstan has been in the luxury end of the market and the wake-up call has arrived. Being left with a substantial inventory of high-end properties that no one can afford may persuade the government to step in and perhaps take a more holistic view of the property market.
Uzbekistan has been growing all round including in the tourist market, but an apparent danger of Islamic fundamentalism in the country is damaging the reputation of the nation. It's a tremendous shame as the countryside that makes up Uzbekistan is as breathtaking as any in the area. Similar to Kazakhstan, there is a wonderful contrast between the mountains and the deserts and it is a country with yet more fascinating history that lies in wait for any that take the time to explore. Sadly the tourist market in Uzbekistan is currently reeling from the growing problems in the area, though it should be noted that most visits to the country are totally safe. The nation is a long way away from past economic glories, but there has been some turnaround in recent years from the stagnation left from the Soviet era, and the government has allowed opposition parties to at least organize publicly.
Kyrgyzstan, Tajikistan and Turkmenistan are the final three countries to be dealt with and none are generally recommended as places for the foreign investor to look when thinking of buying property. All have varying degrees of problems, all have awkward political and economic issues and all are struggling to come to terms with the dissolution of the USSR. The current concerns in Kyrgyzstan include: privatization of state-owned enterprises, expansion of democracy and political freedoms, reduction of corruption, improving interethnic relations, and combating terrorism. Tajikistan remains the poorest in the former Soviet sphere. Attention from the international community in the wake of the war in Afghanistan has brought increased economic development assistance, which could create jobs and increase stability in the long term. Tajikistan is in the early stages of seeking World Trade Organization membership and has joined NATO's Partnership for Peace. Extensive hydrocarbon/natural gas reserves exist in Turkmenistan which could prove a boon to this underdeveloped country if extraction and delivery projects were to be expanded. However, the country is ruled by a dictatorship and that brings its own problems of course.
As previously mentioned many of these countries are not recommended as places to invest at the moment. While the likes of Kazakhstan have caused a degree of interest over the years, recent events show what a delicate state they are in. With Russia still a dominant force in the region, oil and gas a flashpoint and emerging economies too susceptible to external forces it is a brave person that invests in many of the former soviet states. That said it would be foolish to discount huge tracts of Europe and Asia simply because of current news stories. The economies in the region are still young; they are still finding their feet with tourism and many of the opportunities that a non-communist world offers. If you are interested in a long term investment there still might be something here - as long as you can find something to buy.