 Europe & International Real Estate Slide 7-1 Chapter 7 A Look at Russia

 Europe & International Real Estate Slide 7-2 Geography

 Europe & International Real Estate Slide 7-3 MoscowSt Petersburg  Largest city  National capital  Government and business center  Magnet for foreign investment and business  “Venice of the North”  Second largest city  Cultural capital  Past names: Petrograd, Leningrad  Traditional imperial capital

 Europe & International Real Estate Slide 7-4  2 x land area of U.S., half the population  75% live in western-most quarter  Mismatch between resources and needs  Aging population and negative growth  Lowest life expectancy in Europe: 59 for men, 73 for women, 66 average Population

 Europe & International Real Estate Slide 7-5 Dissolution of the Soviet Union  7 decades of Soviet rule  Mikhail Gorbachev last communist leader of USSR  Perestroika and glasnost opened way  Policy of non intervention in satellite countries  Christmas Day 1991, USSR dissolved, Russian Federation created

 Europe & International Real Estate Slide 7-6  Coincided with Asian Financial Crisis  Extreme capital flight  60% devaluation of ruble  85% inflation  Chronic inflation continues  Extreme capital flight again  Stock market collapse  Some foreign capital returning as loans to companies  Investment by expatriates through offshore companies Economy—Two Crises

 Europe & International Real Estate Slide 7-7 Economy

 Europe & International Real Estate Slide 7-8  Oil-dependent economy  Minerals and petroleum in isolated areas, extreme climates  Out-of-date, inefficient industrial capacity, low capital investment  Uneven adoption of modern methods  Soviet-era “monotowns” remain  Energy supplies as a diplomatic bargaining chip  Large Moscow-based banks dominate Economic Factors

 Europe & International Real Estate Slide 7-9  Ministry of Economic Development central point of contact  American Chamber of Commerce  Association of European Businesses  Russian Union of Industrialists  “Problems with administrative barriers” (bureaucratic obstruction) Economic Initiatives

 Europe & International Real Estate Slide 7-10 The Ruble  Unconvertible outside Russia  € and US$ circulate freely  Prices in Y.E.s (equivalent units = € and US$ )  Payment in rubles  Many personal savings in dollar- and euro-dominated accounts

 Europe & International Real Estate Slide 7-11  Privatization through “loans for shares”  Government default de facto privatization  Banks purchased the shares  Gradual renationalization to regain control of certain economic sectors  Russian government still committed to privatization and economic development Renationalization?

 Europe & International Real Estate Slide 7-12 Real Estate Professionals  No real estate license required  Russian Guild of Realtors provides:  Standards for professionalism and competency  Voluntary Brokerage Services Certification System

 Europe & International Real Estate Slide 7-13  Purchase agreement and down payment  Buyer puts cash in a bank safe deposit box  Investigate encumbrances, privatization  Meet at the bank to complete the deal, sign Acceptance Act  Transfer of ownership after state registration paperwork complete  Safe deposit box funds released to seller Buying Real Estate—Cash Deals

 Europe & International Real Estate Slide 7-14 Residential Real Estate  Foreigners cannot own agricultural land or in sensitive areas or near borders  Government owns most land  Must be reclassified for private use  1991 Law of Privatization gave people possession of living quarters  Soviet-era housing stock, poorly constructed, needs repair or replacement  Property ownership versus right to use  World’s foremost owners of 2 nd homes—the country dacha

 Europe & International Real Estate Slide 7-15  Moscow 57% of deals, St. Petersburg, 35%  High vacancy rates Commercial Real Estate

 Europe & International Real Estate Slide 7-16  No trial by jury  Regular courts: criminal cases, civil disputes between individuals  Arbitration courts: Commercial disputes between companies  Court cases do not set precedent  Supreme Courts issue guiding instructions to lower courts Judicial System

 Europe & International Real Estate Slide 7-17  83 Federal Subjects  46 oblasts: provinces, 1 autonomous oblast  21 republics based on ethnicity  9 krais: territories  4 okrugs  2 federal cities: Moscow, St. Petersburg  8 Federal Districts (administrative)  12 economic regions (statistics and economic development) Russian Federation Structure

 Europe & International Real Estate Slide 7-18  President: head of state  Prime minister: head of government  Executive branch stronger than legislative  Legislature  Federation Council (upper house)  Duma (lower house) Russian Federal Government

 Europe & International Real Estate Slide 7-19  Tax Residency: 183 days within a consecutive 12 month period  Nonresident foreigners: 30% income tax  Corporations: 20%  VAT: 18%  Social tax: 34% paid by employer  No capital gains tax on property held 3 years Taxes-Taxes-Taxes

 Europe & International Real Estate Slide 7-20 Beyond the Basics  Proud of cultural history, endurance  Svyasi (connections) cut red tape  Firm handshake, eye contact  Be punctual, be prepared to wait  Detailed presentations  Hierarchy important, prefer to meet with same rank  Protocol summarizes the discussion, not agreement  “Win-lose” negotiators