Russian investment into overseas property more than halved since 2014 to total $870mn last year as a silent crisis curbed traditionally lavish spending on prime foreign real estate. But while residential investments are falling, those into commercial real estate rose in 2016.
Globally, last year saw impressive increases in foreign investment in several markets, where investors are increasingly putting funds into overseas real estate to diversify their portfolios and protect their wealth from any risks at home, a survey by Tranio.com found.
Based on the major markets examined by Tranio.com’s analysts, in 2016 the total volume of global cross-border real estate transactions came to $426.8bn; cross-border investments in commercial properties amounted to $188.4bn, and $238.4bn accrued to residential properties.
The US market was the largest by volume of cross-border real estate transactions: foreign nationals spent a total of $149bn – $48.5bn on commercial and $100.5bn on residential property – in 2016. The UK came in second with $86.1bn: of this total, $33.1bn went to commercial properties and $53bn went to residential properties. Foreigners comprise some 57% of the commercial real estate market in the UK.
Germany, where cross-border property purchases totaled just $25.8bn, saw most of its incoming funds flow into commercial real estate ($22.7bn) and comparatively little go towards residential ($3.075bn). Foreign investment transactions constituted 40% of the commercial property segment in 2016.
Foreign investors in the commercial property segment were relatively active in markets such as Ireland (72% of all transactions), the Czech Republic (70%), the Netherlands (62%), Italy (62%), Spain (60%), and the UK. We found that Singapore (25% of all transactions) and Spain (13%) had the greatest shares of foreign investors in the residential segment. The mean and median ratios of commercial to residential investment from abroad are 1.63 and 0.63, respectively, with the sole outliers being Germany and Australia, where commercial investment greatly outpaced residential investment.
Russian cross-border deals slump further in 2016
According to the Central Bank of Russia, in 2013 and 2014, Russian citizens annually invested just above $2bn in foreign property, which is a fraction of the Chinese outbound property investment of $33bn in 2016, according to Tranio.com.
The silent crisis of 2015 hit Russian investments hard, causing them to drop to about $960mn, while the final tally for 2016 was $870mn. The amount invested in the first quarter of 2016 by Russians in overseas property was a mere $199mn – the lowest first quarter tally since 2009.
Meanwhile, commercial property purchases increased by 20%. In addition, Russians now seem to prefer budget residential properties, income properties with high yields and commercial properties to anything else, especially luxurious second homes.
Notably, since the banking crisis in Cyprus, the previous safe haven for the comfortably well-off Russians, prices have been driven up in places like the Berlin residential market.
According to Tranio.com data, the budgets of Russian nationals’ purchases increased, from $295,000 in 2015 to $415,000 in 2016 for residential properties, and from $860,000 to $2.1mn for commercial ones.
As demonstrated by the Wordstat Yandex statistics, between January and November 2016, Russian citizens searched most for Spanish, Cypriot, Italian, American and German property. Other metrics show that Switzerland and the UK are also popular markets among Russian investors; interest in the Greek, Latvian, and Montenegrin markets, however, is on the decline.
The preliminary 2016 Tranio.com survey results pointed out that if, in 2015, the fact that the investors constituted a significant part of the clients was denoted by 71% of the market players surveyed, in 2016, as much as 85% of the respondents already considered the trend perceptible.
Sergey Kosarin and Thomas Espy, analysts at Tranio.com, an international overseas property broker with a network of 700 partners worldwide and a catalogue of more than 110,000 listings in 65 countries, prepared this report.