Have you ever bought or sold a house or a condo in America? If yes, then how many 5 inch stacks of $100 dollar bills were involved, and how many years were you required to wait between the purchase and moving in? If you can't answer these very simple questions, you are not ready for the Russian real estate market.
The hottest market is, of course, Moscow and its suburbs. The prices for a condo range anywhere between $60,000 for 400 square feet on the outskirts (a few hours from downtown) to tens of millions of dollars. Houses start at about $200,000 even 30 miles out of the city (which can be a three hour commute one-way), they become closer to 3-5 million dollars towards the city, and having a house in the city, or in a nice setting right outside of the city limits can cost as many zeros as you can imagine.
The rent for the apartments within the city limits in downtown area will amaze even New Yorkers. Just follow this link and see how much you have to pay for a 400-600 square feet studio or one bedroom apartment ($1,000-3,000). The prices you see on the websites are in American dollars.
Houses in Russia these days are built without any modesty, and they can imitate French castles, Italian villas, glass and metal artistic objects, etc. The waterfront legally can't be private, but try to argue with the guards, securing the yachts by the villas armed with submachine guns. Security for such houses costs anywhere from $20,000 to $200,000 a year.
This post is not spontaneous, because a few days ago the first arrest of a building company executive took place. Mr. Nazim Darimov was born in Baku, Azerbaijan, and has lived and practiced business in Russia for 25 years. His company "Print Capital" received many awards as a leading builder of condos and apartment buildings. Mr. Darimov himself is a very popular character back home, in Azerbaijan; he was even spoken of as a possible nominee to run for Prime Minister in Azerbaijan, due to his extended connections in Moscow. However, he refused, there's just too much money to be made in Moscow for him to worry about things back home.
Mr. Darimov's connections have guaranteed his impunity from prosecution. He has appropriated millions of dollars through "Print Capital"; the money was wired to his own bank, and later used for his own companies. There is nothing special or outstanding about this story, because many followed Darimov's example, and now there are several thousand families whose money is gone, and who are still homeless. People are so upset, that through the number of demonstrations and protests they've gotten the government's attention, and Darimov was the first sacrificial lamb offered up, though his trial promises to be lengthy and will probably go nowhere.
How does it work? The credit system in Russia is very undeveloped, and almost all purchases are done 100% in cash, in American dollars. This goes for multi-million dollar homes as well. The only way to get an affordable "deal" is to save up money, and buy your future condo before it is built.
Usually you have to invest $25,000 to $100,000 cash within 48 hours, and then you wait for two or three years for the building to be built. Mr. Darimov was the first one to realize that you can sell the same condo to many people, playing with the word "co-investment". Also, you don't really have to finish the project, if the money is safely tucked away, and local government officials are bribed to freeze your project. Many middle class Russian families invested their life savings, and now they are left without any clear answers on how to get the money back, or at least to move in into an unfinished building.
Many co-investment contracts were pure fiction from the very beginning. Generally people are uneducated in real estate issues; they sign huge contracts, give the money, and don't realize that by signing the paper they just assumed the risks of the investment in something that might fail and not give any return to a so-called "investor". There is no legal way to get your money back in this case, however construction executives went even further, they started selling the same space to several people, and even to high-ranking real estate and insurance companies at the same time. That's where they got burned, after thousands of deceived people went out in the streets and demanded government protection, the government had to punish someone. The large corporations that got ripped off along with common people were even more upset.
Knowing Russia, you can be sure that many criminals will get away unpunished, and the investigation will produce just few more enormous bribes. As for the common people -- that's how Russians become homeless or poor, and that's why a homeless person in Russia with 5 dollars a month is not in quite the same position as an American homeless person.
When you purchase a condo or a house from a private individual, a lot is based on trust and your personal connections that could produce armed people to secure the "deal" of transferring the cash.
The complicated part of the real estate purchase is taxes. If your condo is more expensive than $30,000, the seller has to pay 13% tax, with no exemptions. This is truly insane for the families that can barely afford the upgrade, because taxes end up in the tens of thousands of dollars. Russians can try to avoid the ridiculous taxes by declaring the price below $30,000. However, this leads to citizens signing legal contracts which state that, lets say a $300,000 apartment is worth only $25,000.
After that the only way to transfer the payments is cash. That's where you need to chose the right real estate agent, who has a good safe; "good" means secure and spacious (for the little stacks of American cash). Also, make sure that you have the valid credentials, a legit address and the name of your realtor, so in case he disappears with your money, you can find and threaten him or his relatives, so he will "re-appear".
The worst case scenario is if you changed your mind and want to back out of the deal, because that can upset the realtor, and legally he is obligated to give you only $25,000 out of the actual price of $300,000.
One might wonder why Russians put up with all this BS. Well, because that's how things are done in this country, and because $40,000 in tax, non-deductible and collected in cash is not something people with few hundred dollar salaries can afford. There is also no other way to perform these operations, unless you are super rich, but then even the very rich still prefer the fake paperwork and cash, because they can hire more muscle to supervise what is done with their money and property.