The Moscow real estate sector has witnessed a flurry of interest from Chinese investors after Cherkizovsky Market was shut down, putting thousands of Chinese migrants out of work.
Last month, the Russian-Chinese Center for Trade and Economic Cooperation signed a deal with Jin Yuan, a Chinese company specializing in oil and real estate projects, which could see more than $1 billion invested in a diverse portfolio of commercial real estate in Moscow.
Among the several projects under consideration is a 30,000-square-meter open market to be built at the current site of a construction-materials market outside the Moscow Ring Road. Trading stalls could be rented to Chinese traders who were displaced from Cherkizovsky Market.
But the trade center denied that the market’s closure was the main reason for a surge in Chinese interest in the sector. The market’s closure, which prompted a visit from a Chinese trade delegation, only put the spotlight on Chinese investors who were on the lookout for real estate bargains, said Sergei Sanakoyev, the trade center’s chairman.
Replacements for the closed market are a drop in the bucket compared with proposed investments in logistics and retail centers. Chinese investors are eager to snap up a 50 percent stake in the $1 billion dollar multifunctional complex Hermitage, slated for construction on a 150-hectare site near Kaluzhskoye Shosse outside the Moscow Ring Road. The complex, which developer Slavyansky Mir is planning to build in the style of the Winter Palace, will include 1.5 million square meters of hotels, offices, retail outlets and warehousing space.
Jin Yuan may also try to acquire industrial parks in the regions, and it has the support of the Russian and Chinese governments, according to commercial real estate firm CB Richard Ellis.
“The strategy of developing business by buying up industrial assets is currently very well-timed, because there is not a lot of quality warehouse space on the Russian market, and at the moment these assets can be acquired at very lucrative prices,” said Konstantin Lysenko, associate director of capital markets at CB Richard Ellis.
“If they pump $1.5 billion dollars into industrial real estate now, then in a few years they can refinance it and spend money on retail property,” Lysenko said.
Sanakoyev said more than 100 Chinese companies have contacted the trade center in recent months with a view to invest in Russian developments. Experts attribute the growth in interest to a fall in property prices and improved trade ties between Russia and China.
Waypark, a large-scale retail and entertainment complex on the Moscow Ring Road that is being developed by Way M, is actively attracting Chinese investment, RBK Daily cited a source as saying earlier this month.
Chinese firms’ interest goes well beyond the retail real estate sphere, however, as some are investing heavily in logistics and infrastructure.
Yevrasia Logistics is negotiating with a Chinese partner about investment in the Moscow region and several Russian cities, Artur Trofimov, the company’s chairman, said earlier this month. The firm operates a network of warehouses and depots with transport links such as the 1.1 million-square-meter facility in northern Domodedovo.
“We constantly monitor investment opportunities and begin discussions with our Chinese partners as they come on-stream,” Sanakoyev said, adding that competition between Russian companies for Chinese investment is intense because of the sluggish market conditions.
But projects like this one may not get very far if they don’t receive sufficient support from the government. “The Chinese side needs guarantees from Russian government agencies, federal organs, municipal and local authorities, or Russian banks which are accredited by China, such as Vneshekonombank, VTB or Sberbank. This is the main obstacle to cooperating on projects,” said Oleg Grinko, an economic adviser to real estate firm Peresvet-Invest.
Peresvet-Invest signed a deal in November 2007 with China Exim Bank, which was to see a $1.5 billion dollar line of credit opened for construction projects in Russia. Hebei Construction Company, headquartered in the northern Chinese province of Hebei, won a contract in an open tender to build the first project, a 600,000-square-meter apartment complex in Saratov.
But Peresvet-Invest, which is handling the administrative side of the venture, has not yet been able to secure the government guarantee necessary to get the first tranche of credit from Exim Bank. Meanwhile, a local contractor has begun construction on the site.
“If Russian developers can secure government guarantees for cooperative projects, it will have far-reaching positive consequences and facilitate the development of large-scale national projects in Russia,” Grinko said.
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