A house in the South: in which countries do Russians buy real estate in 2023

Last year, Russians began to buy foreign real estate more often. Some bought housing to move, others — to save, and if possible, to increase the money. In 2023, interest in foreign housing does not weaken. Ekaterina Rumyantseva, Chairman of the Board of Directors and founder of Kalinka Group, told where Russians buy real estate, why they began to prefer smaller houses and what areas they should pay attention to in order not to lose time and money.

How have the priorities of buyers of luxury real estate abroad changed

According to our observations, the buyer has become more cautious inside Russia. Regardless of the goals of acquiring real estate, he seeks to reduce risks, so today he more often refuses long-term projects and housing at the excavation stage. Basically, people invest money in completed or at least in the final stage of projects. But when buying foreign real estate, many people make a decision faster. The demand of Russians for real estate abroad doubled in 2022 and continues to grow. At the same time, the priorities of some buyers have changed.

For the investors we work with, the focus is now not on increasing capital, but on maintaining the purchasing power of the portfolio. In addition, due to the uncertainty of the future, the importance of high liquidity of facilities and the ability to quickly exit them has increased. Therefore, buyers often choose objects of a smaller area — the larger the object, the more difficult it is to sell it.

A significant criterion when choosing a country to buy real estate was the opportunity to obtain citizenship or a residence permit. The Russians are looking for a "spare airfield". Previously, wealthy buyers received "golden passports" in EU countries, for example in Greece and Portugal. But these countries in 2022 began to reject the applications of Russians. Therefore, now people are looking for the same programs in "friendly" or at least neutral countries.

In addition, the sanctions imposed after the start of the "special operation"* have complicated the conduct of financial transactions, so another criterion for choosing our clients is the simplicity of the process. It is important to the buyer that he does not have problems with transferring funds from Russian banks, confirming their legality, conducting any transactions.

What directions are interesting for Russians in 2023

According to our data, last year Russians bought foreign real estate mainly in the UAE and Turkey. In 2023, this trend has continued. In the first quarter of 2023, Russians were the leaders among other foreigners in terms of the number of real estate purchased in Turkey: every month they purchased more than 1,000 objects. By May, the figure had decreased to 991 objects in a month, but the Russians are still in the lead.

Turkey, according to our observations, has been gaining popularity as a country for buying foreign real estate since 2020. Istanbul and Antalya are mostly popular among Russians. This country is interesting for the opportunity to obtain citizenship for an investment of $ 400,000 or a residence permit for the purchase of real estate from $ 75,000 ($ 50,000 for some cities). Turkey also shows a neutral position towards Russia, and given Erdogan's recent victory, this position is likely to remain in the near future, which gives a certain sense of stability.

The UAE is primarily a destination for wealthy Russians, and Dubai is of most interest here. The country has not imposed sanctions against Russians, is actively developing, becoming a center of business activity. The population of Dubai mainly consists of expats who receive a resident visa (equivalent to a residence permit), including for the purchase of housing. In addition to Dubai, Russians are interested in Bahrain: the share of buyers from Russia in the primary residential real estate market of this country in the first quarter of 2023 increased by 30% compared to the fourth quarter of 2022.

Russians are also interested in real estate in Thailand, Cyprus, Portugal and Greece. But these countries already account for a significantly smaller number of transactions than Turkey and the UAE. And Georgia is very popular among the CIS countries: in 2022, Russians bought more housing here than other foreigners.

What is happening with the real estate market in popular countries

The Turkish real estate market is large and has huge potential. In 2022, it grew by 168.7%, according to the estimates of the Central Bank of Turkey, almost 1.5 million residential real estate objects were sold there, and the share of transactions with foreigners increased by 4.6%. Turkey as a whole has several growth drivers: this is active tourism, which increases the demand for rental housing, as well as a good geographical location, high rates of construction and exports.

Nevertheless, the Turkish real estate market is sometimes stormy. In February, it was affected by powerful earthquakes. They led to the destruction of buildings and caused a drop in demand for real estate — this was noticeable by the rejection of transactions in our Turkish office. At the same time, apartments in safer areas have risen sharply in price. In the near future, buyers of real estate in Turkey will select objects based on seismic risks. Now the situation is recovering, buyers are returning. Already in March, the Turkish real estate market grew by 5.4%, the Turkish Central Bank says.

The UAE real estate market has been marked by rapid price growth since the beginning of 2022. Luxury real estate in Dubai in the first quarter of 2022 rose by 58.9% compared to the first quarter of 2021. According to our analysis, the average cost of housing in apartment complexes under construction in 2022 reached 1.4 million dirhams (about 32 million rubles), and villas on the primary market — 2.6 million dirhams (about 60 million rubles). Prices per square meter for apartments and villas increased by 18% and 41%, respectively.

Some experts believe that the real estate market in Dubai is overheated. But, according to a study by UBS, Global Real Estate Bubble Index in 2022, prices in Dubai are fair. And indeed, the rapid growth of the Dubai real estate market is not connected with the inflating of the bubble, but with the course of the UAE authorities to attract investment and human capital.

What you need to consider before buying a property abroad

Regardless of the country in which the interested housing is located, the buyer should study in detail several nuances that are relevant in the new reality. Firstly, taxation issues deserve close attention, especially if the purpose of the purchase is to receive rental income. Secondly, you need to pay attention to the specifics of compliance in local banks: what documents will be requested, how long will the buyer be checked. Thirdly, to assess the possibility of international money transfers: through which banks, how long the money goes, whether it is necessary to open a local account or it is possible to conduct a transaction from Russia, etc. d.

Ever since the pandemic, the popularity of online transactions has been growing, but local agents may keep silent about the features and nuances of the selected object. Therefore, if possible, it makes sense to fly in and inspect it personally and only then make a deal.

When choosing a country for investment, it is worth paying attention to the climatic features of the region. This sometimes affects the real estate market. For example, in Dubai, the chances of renting a house from May to September are falling. The heat above 50 °C forces many to leave the UAE. And frequent natural disasters in the region force developers to change their approach to the construction of facilities — as in Turkey after earthquakes. This can lead to an increase in the cost of housing. While objects in vulnerable areas will become cheaper because the owners are trying to get rid of them.

The peculiarities of the culture and traditions of the country can also affect the real estate market and the profitability of different objects. For example, regarding the UAE, and Dubai in particular, there is an opinion that during Ramadan (the month of obligatory fasting), the market falls asleep, transactions freeze. Our practice shows that this is not quite true. The only thing related to traditions: during Ramadan, people spend more time at family events, so there is a growing demand for short-term rental housing near mosques.

Investors who plan to invest in UAE real estate should consider several nuances. The first is that developers, in response to high demand, are withdrawing more and more projects, and, according to the experience of our clients, the investor has a risk of facing a loss of liquidity of the object. There are difficulties with resale, because the supply is growing in the market. In particular, this is possible with high-rise towers for 600-800 apartments. To reduce the risks of loss of liquidity, it is better to invest in niche projects.

The second nuance: the dynamics of the Dubai market is abrupt, as our analysis shows, and after rapid growth there is always a lull. At some point, prices may start to adjust, and there is a risk of falling into a "demand pit". Then the profit from speculation will fall: again, it will be more difficult to profitably resell the object. But so far we do not see any prerequisites for stopping the growth of the market.

Problems of Russians when buying foreign real estate

The main difficulty in buying real estate abroad today is international payments: not all foreign banks agree to accept transactions from Russia, someone is very suspicious of this money and checks its origin too carefully. In a number of "unfriendly" countries, mainly European, it is necessary to open an account with a local bank for such transactions — and this is not even a task with one asterisk.

And some countries have even introduced a legislative ban on the sale of real estate to Russians: for example, the Lithuanian authorities did this for non-residents. And it is extremely difficult to get a residence permit card in Lithuania now.

Traditionally, "friendly" and neutral countries remain loyal. These are already listed UAE, Turkey, Thailand. There are no big difficulties with transactions in them. But there are other obstacles: in Turkey and Thailand, where the check is lower than in the UAE, there is now a shortage of new buildings. Investors have to buy an object at the excavation stage and hope for a price increase for a successful sale in the future.

Dubai is loyal to buyers of real estate from Russia: it does not impose restrictions, is not interested in the origin of money, has a base for conducting transactions through SWIFT. What is even more interesting, you can even buy real estate in Dubai for cryptocurrency. Bitcoin, Etherium and Altcoin Ripple (XRP) are accepted, but the most popular is Bitcoin. The transaction takes place on verified sites that buy currency and change it to dirhams. The process is almost instant and transparent.

Relatively neutral-minded Cyprus periodically surprises with unpleasant surprises: for example, in April, the largest bank in the region, Bank Of Cyprus, began notifying Russians about the closure of accounts.

The countries of the near abroad and the CIS that are attractive to Russians do not impose serious restrictions. However, the situation is not stable everywhere. For example, a bill has been registered in the Georgian Parliament that could prohibit the sale of real estate to Russians.

How soon will the investment pay off

As an investment tool, real estate in the Middle East is much more attractive than real estate in Turkey, Thailand, Cyprus and other countries accessible to Russians. The return on investment in the UAE is on average at the level of 7-8%. The exact figure depends on the type of property. For example, Prime Offices will bring 6.75–7.25%, and residential real estate — 7-7.5%. At the same time, the numbers are constantly growing.

Housing in Turkey is more often purchased for the sake of a passport and direct residence. In Istanbul, the rental yield will be 2-4% per annum, 5-10% is possible on the coast, but the price of the apartments themselves is higher there. In addition, earthquakes occur in Turkey, which can negatively affect the investment attractiveness of housing in some areas. But all new complexes are being built and tested for earthquake resistance, which for investors serves as a guarantee of peace of mind and reliability of investments. Also, housing in Turkey can be resold, but if it was purchased under an investment program, then only after three years.

Which countries should I pay attention to

In the next two years, the Middle East will continue to gain popularity among investors due to the active development of infrastructure, economy and business opportunities. Here, the focus of investors' attention is focused on the UAE. The Emirates entered the world ranking of the most attractive markets for investors Kearney's FDI Confidence Index (FDICI). In the next two to three years, the UAE can attract a large amount of investment, in particular, due to the growth in the number of ambitious projects, such as the city of the future A zero-carbon masdar powered by alternative energy sources.

CBRE analysts expect the Emirates' GDP to grow by 2.4% in 2023, as well as the growth of the non-carbon sector by 3.8%. The increasing level of employment in the office market leads to an increase in rental rates: in classes Prime, Grade A, Grade B and Grade C — by 13--28%. And the main direction of investment in the UAE is Dubai, where 40.7% more lease agreements were concluded in the first quarter of 2023 than in the first quarter of 2022.

In addition to Dubai, we recommend taking a closer look at Abu Dhabi. According to our analysis, now more than 80% of the UAE's capital is concentrated here and huge opportunities are opening up for the relocation of innovative companies. Since 2019, foreigners can also buy property in Abu Dhabi, so now the number of transactions in the emirate is growing. The net profit of the leading developer, Aldar Properties, in the first quarter of 2023 increased by 22% compared to the same period in 2022, to $227.6 million.

Another promising direction in the Middle East is Oman. There is loyal legislation for investors, there is a possibility of 100% ownership of real estate for foreigners, and the economy and political situation are relatively stable. For the purchase of real estate (from 250,000 Omani rials or from 56 million rubles) you can get a resident visa for 5-10 years for the whole family, including minor children. In addition, Oman has abolished double taxation with Russia, which is important primarily for the transfer of business, but also the potential interest in real estate investments may increase.

It is also worth periodically studying the news of Saudi Arabia: the state is aimed at increasing the population and it is possible that it will soon allow foreigners to purchase real estate. Then Saudi Arabia may even become more popular than the Emirates.

The demand for European real estate among Russians will not go to zero, despite all the difficulties, it is still possible to buy it. In particular, in Portugal, Italy, Spain, Greece. But given the mass of restrictions and risks from the EU, real estate in the Middle East, Turkey and Asia will attract more Russian buyers. Moreover, the prospects, especially in the UAE, are quite good.