Moscow real estate set to benefit from World Cup boost

17.08.2016

Ahead of the 2018 football world cup, accommodation prices are soaring and real estate professionals are hoping property will follow suit. The Russian government moved to cap hotel accommodation prices ahead of the 2017 Confederation Cup and 2018 FIFA World Cup in Moscow and 10 other cities.

As a result, Russian tour operators have predicted up to a 50% rise in prices for hotel rooms across Moscow and St. Petersburg in 2017 as bookings rise and the contests get closer.

In addition, financial specialist PWC has named Moscow as top of its Cities of Opportunity Report.

Ruslan Ilyazov, Producer of leading real estate event organiser, Russia GRI, says the World Cup is part of a ‘golden opportunity’ for the Russian property sector.

“Russia currently is a truly ‘golden opportunity’ for the brave. The country will remain an attractive market for investment despite all, due to its geographical position, natural resource-driven economy and government efforts, such as the public exposure achieved by the previous Winter Olympics, the upcoming 2018 world cup and promotion of investment attractiveness…

“But time is of the essence; there is lot of interest, both domestic and international and the profit margins for projects will not remain as high as they are now for long.”

A substantial rise in domestic tourism, boosted by fewer Russians taking holidays overseas, is behind the hotel boom, as well as rising demand from China, India, and the Middle East.

The weak ruble had forced his hotel to raise prices by around 15% to keep pace with inflation and the rising price of utilities.

Russian Prime Minister Dmitry Medvedev signed a decree earlier in the year to introduce maximum rates for accommodation in each city to prevent hoteliers hiking up prices ahead of the tournament, but the caps are generous.

Five-star hotels in Moscow will be able to charge up to $8,355 for a night, while a room in one-star hotel in Moscow during the World Cup can reach $126.

Luxury St. Petersburg hotels can charge even more, with the limit on five-star hotels at $9,000 per night, with the fee at one-star hotels  at up to $93 for a single room.

Accommodation elsewhere is cheaper, with one-star rooms in Kaliningrad and Rostov having a limit of just $31 per night.  Accommodation prices at the past two World Cup tournaments have been capped.

In the PwC Cities of Opportunity report, Moscow has taken first place in five PwC indices out of ten, namely in transport infrastructure, investment capital, sustainable development of environment, level of technological availability and demographics, says Moscow Mayor, Sergey Sobyanin.

“Esteemed colleagues from PricewaterhouseCoopers have been publishing their Emerging Cities report for several years now where Moscow is rated along with Beijing, Dubai, Shanghai, and other capitals. Russian capital always made the top three and was in the second spot last year,” says the mayor, speaking at the Moscow Urban Forum (MUF), which focused on Fast-Growing Megacities: Technologies for Dynamic Development.

Moscow took the first place while Beijing came in second, followed by Mexico City (Mexico), Sao Paulo (Brazil), Mumbai (India), and Istanbul (Turkey).

PwC experts evaluated cities using ten key indices, including volume of foreign direct investment,  workforce productivity, year to year real GDP increase, city greenery acreage dynamics, percentage of college graduates among residents, general Internet availability, public transport network reach, the overall state of housing, and gridlock dynamics.

Other Moscow Urban Forum delegates praised Moscow’s progress. Over 120 experts came as part of international delegations from Europe, United States, Mexico, India, Japan, and other countries.

“I am really impressed how Moscow changed over the last six years. This is a dazzling result. Moscow is peerless in subway construction, the sheer quantity of new underground stations opened and new transfer hubs development,” said Maurice Leroy, ex-minister of Paris City Affairs in charge of the Grand Paris project”.

Marat Khusnullin, Deputy Mayor, Moscow Government, Urban Policy and Construction, says, “Our first task was to solve traffic problems via scalable and rapid development of city’s transport infrastructure. Up to 70% of the city construction budget is spent on transportation network upgrades.

“De facto, we are implementing a gigantic integrated development project which will be the cornerstone for Moscow’s development for the next 20 years.”

Moscow Government 2016-2018 budget for Moscow development is 1.17 trillion rubles ($18.3 billion U.S. dollars.). The bulk of this investment (up to 70%) goes to funding Moscow’s “mega-projects,” most of which are infrastructure-related: construction of 300 km of roads, 78 kilometers of subway lines and 38 underground stations, construction of transport and passenger traffic exchange hubs as well as revitalization of the Moscow Ring Railway.

Other “mega-projects” include “New Moscow” construction, Grand Sports Arena “Luzhniki” renovation prior to the FIFA World Cup 2018, construction of the park “Zaryadye”, revitalization of industrial parks and redevelopment of Moscow River riverfront.

The Moscow Government offers a wide range of investment solutions to international investors,, including a popular public-private partnership (PPP) investment vehicle. Over the past five years, Moscow authorities signed over 500 billion rubles ($7.8billion) worth of PPP contracts. Foreign investors can invest in both infrastructure and development projects in the Russian capital.

“Large cities become gravity centers for the types of investments that simply are unattainable in other cities. They become centers where new lifestyles are becoming economically feasible and trigger new classes of services for residents, where new scalable markets for regional products spring up, where financial centers for national development appear,” Mayor Sobyanin said.

Forum experts noted evergreen interest of foreign investors in Moscow real estate. One reason for this interest is favorable to foreign currencies Russian ruble exchange rate factored into asset appraisal, the other is sustainable 20 per cent per annum profit margin associated with real estate projects in Moscow.

Experts agree that currently the biggest opportunity lies with large infrastructure projects that are closely linked with commercial realty. For example, representatives of investment and development company Eagle Hills Properties (UAE) announced their intention to fund the construction of several transportation hubs in Moscow, namely “Alma-Ata”, “Novokosino”, “Seliger” and “Rasskazovka”.
Similar projects are closely considered by one of the oldest Japanese architecture bureaus Nikken Sekkei. Nikken Sekkei’s official delegation visited Moscow in May for technical negotiations with transportation hub project developers. Moscow transportation hubs are also considered by investors from China and France. Besides hubs, French investors from Engie company may participate in the design of modern energy-efficient administrative and business center in New Moscow, as preliminary agreed upon by Engie official representatives and Moscow city officials of the sidelines of Moscow Urban Forum.

Moscow Urban Forum is a conference showcasing Moscow city projects, dedicated to further the search for new approaches and activity clusters aimed at Moscow urban development. Since its inception, over 10,000 delegates from 45 countries attended Moscow Urban Forum.

Adrian Bishop

OPP.Today (OPP Ventures group)

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