Russian money fuels property price rises in big cities

Russians are taking their money out of stock and shares and putting it into property instead, according to analysts.

As a result the property markets in Moscow and St Petersburg are amongst the fastest growing in the world, according to consultants Knight Frank. Average prime residential prices have risen by 35% in Moscow and 38% in St Petersburg. Some estimates put price rises at 10% over the first two months of 2008.

So what is happening in the land of the big bear? It is simply that more people are looking to buy property, according to Ekaterina Thain, residential department director of Knight Frank.

'There is still a huge imbalance between the demand and supply and the supply is very limited in the centre of Moscow, particularly for newly built houses. The stock market is not doing very well at the moment so lots of people are trying to move their money from stock and try to invest in properties,' Thain said.

The credit crunch doesn't really affect Russians. Only about 10% of apartments purchased in Russia are bought with mortgages and real estate is an attractive investment opportunity for many Russians averse to putting their money in other places.

Buyers in Russian seem to want to stash their money; it's as simple as that. Development Director of Swiss Realty Group, Ilya Shershnev, has evidence that most apartments in business or upper-class buildings are purchased by the same people.

'They invest money in real estate and they purchase a flat not for themselves or their children – they buy 10, 15, maybe 20 flats. It's an investment for them. Real estate taxes are still very low,' Shershnev said.