Russia: Crisis Hits Real Estate Market
Russian media is proudly writing about the nation's anti-ship frigate Admiral Chabanenko sailing through the Panama Canal this weekend. Daily Dni.ru reported that Russian sailors will meet their Panamanian counterparts and engage them in soccer and volleyball matches. As reported by the Russian Embassy in Panama, "the friendly visit by the Russian frigate will raise the international standing of Panama as a naval power, and will demonstrate to the whole world that the Canal is truly neutral." The paper reported that last time Russian ships traversed the Canal was in 1944, when four Soviet submarines traveled from the Atlantic to the Pacific Ocean after undergoing repairs as part of the Allied war coalition.
The paper also commented on the Russian reaction to the US refusal to discuss President Medvedev's plan for Russian-European Security Cooperation initiative at the OSCE (Organization of Security and Cooperation in Europe) meeting taking place in Helsinki. Russian Foreign Minister Sergey Lavrov proposed discussing Medvedev's plan for an all-encompassing Euro-Atlantic security cooperation that would treat all members equally. Lavrov was quoted as saying that "the OSCE is not fulfilling its major obligation - guaranteeing equal security for all. The presence of certain OSCE missions in some countries is considered by these countries as inequality in itself. ... Currently, OSCE is not able to prevent conflicts, and does not react to the violation of its major principles." Lavrov also called for the investigation into OSCE observer's alleged knowledge of Georgian plans to attack its breakaway, pro-Russian province of South Ossetia in August 2008.
Daily Vremya Novostei is reporting on the Russian plans to build a natural gas pipeline to Tskhinvali, the capital of South Ossetia. The pipeline is to be completed in June-July 2009. The actual pipeline construction commenced in the spring 2007. Prior to the August 2008 war between Georgia and Russia, South Ossetia received its natural gas from Georgia, which itself was delivered from Russia.
The evidence that the global financial crisis is hitting Moscow was highlighted by the Business Daily Vzglyad report that the developers of the much-talked about, ultra-modern high-rise project called "Moscow City" - a series of high-rise commercial and residential properties on the Volga River overlooking older sections of downtown Moscow - are trying to sell off their properties at a loss. One of the main developers- Russian Mirax Group - must return 200 million euros (approximately $300 million) to Credit Suisse in February 2009, if it is unable to get refinancing from the Russian Vnesheconom Bank. The developer must follow that payment with an additional 65 million euros several months later. If the Russian bank will be able to issue credit to the developer, then Credit Suisse, the original lender, will get the "Federation Tower" - one of the the tallest buildings in the complex - as collateral, since all other projects advertised by this developer exit only on paper.
This is a stark turnaround in the fortunes of one of the "loudest" and most-advertised projects in Russia - altogether, "Moscow City" was supposed to be poster child of the resiliency and attractiveness of Moscow real estate market, judged as the most expensive in the world by leading industry indicators. "Moscow City" was planned as a state-of-the-art commercial and residential property complex - yet today, its value is deflating rapidly.
Another developer in the complex, "Russian Land Company"- whose assets were valued at nearly $10 billion before the global financial crisis - is stopping construction on the complex's signature project - "Tower Russia," a 612-meter (2,007-foot) skyscraper that was planned as the tallest building in Europe and second-tallest in the world. The developer cited the financial situation in Russia and the "state of the markets in general" as the reason for its decision. On December 5, Vzglyad reported that "Tower Russia" will be purchased by the British oil company "Sibir Energy" for half the cost.
Russian business experts commented on the drastic effects of the global financial crisis on the once-hot Russian real estate mega-projects: "The crisis greatly lessened the actual value of these projects- or rather, it showed how inflated those projects really were," stated analysts at ProServiceMarket. "The inability to attract additional credit is forcing the developers to shed their once-flaunted projects as ballast." "Vzglyad" concluded that the previous price tag of "Tower Russia" - valued at $2.5 billion - could in reality be nothing more than "smoke and mirrors," just like the value of many other major real estate projects around Moscow.
