13 September 2010

How Russian Real Estate is Practiced... Like No Other Place in the World!

Sunset on the Neva river in St. Petersburg.
Image via Wikipedia





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My Western Nerves
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Imagine my feelings on the Metro subway and driving through the streets of St Petersburg
with the  equivalent of $20,000... 600,000 rubles, all in cash.
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If it’s lost it’s gone forever.  If we are robbed there will be no recourse.
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How real estate is marketed and transacted in Russia is unique... and astounding to Western eyes!  The sales process is chaotic, awkward, and risky when compared to the stable processes in Britain and America.
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We bought an apartment in St Petersburg in 2001, a house in Tversky oblast in 2003, and gave advice on the sale of another house there this summer of 2010.
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You must pay in hard cash!
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Back in 2001 and 2003 we paid with cash... no bank check, no bank transfers, just rubles, probably packed in an old plastic milk bag... 600,000  ($20,000)  in  2001,  and 120,000  ($4,000) in 2003.
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In 2001 Larissa and I and our new son-in-law met at the bank where we had deposited money wired from America.  We went past uniformed security to a small private room with a cashier cage, received the cash, and at my insistence split it three ways to carry to our apartment half an hour away by subway and bus. Larissa and Son-in-law thought I was
needlessly nervous.
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Who will know that I am carrying a lot of money?  We always do things this way!  Why do you worry so much?
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A second risky trip to a bank...
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The day of the closing is in the first paragraph.  We had to bring all this cash to a bank from our apartment.    To anybody who wanted to rob us, we were pretty obvious... but most everybody did it this way.
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Once inside papers are checked and double checked.  Larissa went into a private room and counted all the money we brought... again.  Then the seller went into the room and counted the currency.  I could see all of this through a window.  Money was exchanged, more papers signed, and we owned another apartment.
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This transaction method continues to today for 95% of property sales, although bank transfers are slowly increasing.  * Unlike the English speaking world, Russia has no tradition of using checks... and many people still do not have bank accounts.
Meanwhile in our little village...
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In late July of 2003 Larissa took me to visit her cousins in Tversky oblast.  We slept in the hay loft for a week, saw the beautiful farm, and met unforgettable people. 
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Every night I was down the loft ladder and out with the stars (the best I had seen since Texas), the crisp air, and among wandering dogs, bear, and wolves (my imagination based on vivid reports).
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We decided to buy our dacha in this far away beautiful and ecologically pure part of Mother Russia.  There was no established system to do this.
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Not anything like Western Europe or the States...
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I have never seen a For Sale sign posted except in the big cities.  Most every sale is done in relative secrecy as people by nature do not want to broadcast information, even if it would benefit them with a higher sales price.
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Fortunately, Tonya, the farmer’s wife, telephoned us to wish us a Happy New Year from their other home in Zabelina.  We told her we might want to buy in Zaloza.  In a month she called us with news that she believed Claudia wanted to sell.
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Country Trading...
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In April we stayed with our relatives and contacted Claudia and two of her sons who lived in Zabelina.  They were cautious and uncommitting... 
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Yeah, we might, but my brothers aren’t agreed... one in Kronstadt, (19 miles west of St Petersburg) isn’t sure,  another brother wants to keep part of the land,  another  is in Ostashkov (next large town to Peno) but we don’t know how to get in touch with him (no land phone, no cell phones).
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We, Claudia, and a few sons drove the ice-sheeted craggy road that links Zabelina and Zaloza... sliding near the river and icy swamp, but arrived in the snow covered nearly empty village.
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We stepped over a fallen fence to get to the front door.  It was dark inside, with a few holes in the floorboards, newspaper glued on some of the walls... the rack and ruin of a house empty for a year or two.
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How we prevailed...
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Larissa has a great ability to deal with Russian bureaucracy.  Slowly we got the sellers to do the necessary owner papers so they could sell.
 
We contacted all the brothers and arranged a time we could meet again in May.  To encourage the sale we had the brother who is a glazier build new windows for the veranda and kitchen... at a high price, but not well done.
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The paperwork and prescribed wait meant we couldn't start moving in when we wanted.  The selling family wrote a note giving us permission to live in the house up to the time of property transfer.  Sometimes informality and less government can be a benefit!
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In this situation you need tenacity and determination or nothing will happened.  We and they had no lawyers, and no agents.
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Claudia and her sons had no bank accounts, and wanted to see the cash ‘on the barrelhead’, which they promptly split five ways.  One son used his share to buy a motorcycle, another wasted it away with socializing and drink. 
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The calendar changes to 2010...
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This summer our village neighbor Valla, across the way, who has lived in her small house full and part time since 1962, decided she wanted to sell the building and her 15 cotka,  сотка  *
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*   cotka are officially called ares.  15 cotka = .6 acre, the same size property we have.
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She sold it a week ago for 600,000 rubles... but had no plan as to how to take the money to her apartment in St Petersburg.  She never has had a bank account, and a bank transfer is beyond her understanding. Finally, after talking it over with us, she decided to pay a trusted driver to take her to the city, probably carrying the money in a little sack.
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Now the money is safely in her new bank account in St Petersburg.
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A little history...
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Before 1917 Russia was slowly developing a normal capitalistic economy.  Some of the richer people even had started to use checking accounts.  The Revolution started a 70 year hiatus of no large private property rights.  Inheritance was codified and legislated... no need for a will.
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Suddenly in 1991, Russians were expected to be sophisticated about money matters when they had no experience or cultural background.   Those young that were quick on the uptake adapted fairly well... and within 20 years are now using credit, and are comfortable with a supply and demand economy. 
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But many people who were in their forties and fifties in 1991 have never gotten up to speed.  They still have no bank accounts... or at the most a small savings account at the government bank, Sverbank (north bank).  And they are slow to break the habit of paying for everything in cash. .. even taking mass transit to pay at utility offices every month.
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Word of mouth more than broadcast publicity...
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Marketing property is more difficult because of  unwise competitiveness, disorganization, and concerns for privacy... which overrule the benefits of publicity.   The prevalent Russian characteristic of stesnietsa, стесняется (hesitation, prideful silence, concern for propriety) has a dampening effect.
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Valla was secretive about wanting  to sell.  Village gossip spread but she said little, and only explained her plans to a few people.
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Contrast this secretive approach in Russia to how Americans market real estate.  If I were in the States, I would tell everybody... friends, strangers, clients... that I had property to sell.  I’d make sure my agent did outstanding marketing, or get another one.
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Times are changing...
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A welcome trend to me is that the more enterprising individuals and agents are placing ads on the Internet.  Scanning these photos and offers gave us a way to understand comparable values for Tversky Oblast and the Peno area.  Our neighbor had no idea what to ask for her property.  The range now is between 500,000 and 1.5 million. 
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I reminded Larissa that the value of a property is determined  by the price at which it sells.
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There seems to be no Multiple Listing system as found in the United States.  Each agency keeps listings to themselves.
 
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How have prices changed between 2000 to 2010?
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Inflation has cut the power of the ruble (my calculations) in half since 2000.  So any gains in the last 10 years should be halved to get a more exact understanding.
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* American Russia Observations
   Bargain Expatriate Life in St Petersburg
   9 Oct 09

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The apartment we purchased in 2001 for $20,000 is now worth $164,000... 8.2 times the purchase price. The house and 15 cotok we bought in 2002 for $4,000 is now worth at least $33,000... around 8.25 the purchase price.
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But this money is locked as we do not plan to sell either property in our lifetimes.
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Some parting advice...
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As with many things in Russia, if you are willing to take a calculated risk, you can gain or lose big!  In the 90’s as a CLU, people would ask me for financial advice.  I still say... 

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Be careful wherever you invest, and as you get older, get more conservative, as you have less time to recoup your loses.

And... Good Luck!
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1 comment:

  1. I can relate to the cash deals that has long since been part of Spanish culture - although the authorities are trying to stop it - using the threat of terrorism to make new harsher laws prohibiting cash transactions. But yes we have to carried cash around - nerve racking. But secrecy about ?For Sale' would be no use where we have so much for sale at the moment.

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