By Eugene Vorotnikov
The real estate brokerage industry is still a relatively new phenomenon for Russia. During Soviet times there were no registered real estate agents and brokers in the country, due to a ban on buying and selling real estate properties.
The only legitimate way to exchange an apartment or to improve living conditions for Soviet citizens was an appeal to The Bureau of Exchange of Living Floor Space, which dealt mainly with the exchange of residential apartments. Real estate agencies and residential brokers were officially banned by the state.
Since the collapse of the Soviet Union, lots of real estate agencies have been established in Russia, with most of the brokers focussing on the secondary residential real estate market. Currently more than 70 per cent of transactions in Moscow’s resale market (the largest in Russia) are completed with the participation of residential agents.
A gathering of real estate professionals in Russia. Agents do not need a license, and there are no specialized educational facilities to train salespeople.
Most of the Russian real estate companies specialize in the residential market. As a rule, most of them are small companies that employ about 10 agents. Such firms operate in most cities of Russia.
There are also companies that, in addition to typical broker activities, are involved in the construction of residential complexes. They invest money in home building and focus on other types of investment activities.
One reason why real estate brokers in Russia have been successful is because of their ability not only to find good options for their clients, but to collect all the necessary transactional documents in a relatively short time.
The procedure of buying or selling a house in Russia remains highly bureaucratic. After signing an agreement with the client, the real estate agent becomes fully responsible for the completion of the deal. High levels of bureaucracy and corruption often lead to a significant delay in closings. Most of the brokers have the right “connections” with regulatory authorities to help them accelerate completion of the transactions.
The first private real estate agencies were established in Russia in the early 1990s. By 2009 in Moscow, the number of agencies reached 2,000 companies. Among Russia’s biggest real estate companies are Moscow-based Mian, Miel, Inkom and others. In addition to broker services, most of them are involved in property development activities, through the implementation of multi-million dollar investment projects in the country’s construction and real estate industry.
For instance, Inkom agency specializes in the construction of cottage villages on a credit basis, selling homes directly to its customers. Miel is a co-investor in the construction of apartment complexes in Moscow and in some foreign countries, in particular in Latvia.
The average Moscow real estate agent makes $60,000 to $70,000 (US) annually.
In 1993 the Russian Guild of Realtors was founded, and by 2009 it was comprised of 59 regional guilds and organizations throughout Russia.
In contrast to the U.S. and Canada, an MLS type of system is not widely used in Russia, although it has already been introduced in some regions of the country.
There’s still a lack of trust among the agents and brokers. They are reluctant to share information about their customers with competitors.
Most of the Russian agents prefer to search for customers and properties through the use of professional databases and real estate agency websites, as well as special newspapers that publish private ads for buying/selling apartments. After finding an attractive option, the broker contacts the client in order to negotiate conditions of possible co-operation, as well as the amount of his commission fees.
According to GdeEtotDom, Russia’s analytical real estate portal, the average annual income of Moscow real estate agents is estimated at $60,000 to $70,000(US). About 20 per cent of agents earn more than $70,000 a year. The incomes of real estate professionals in the Russian province is much lower.
As a rule, a typical Russian agent with good experience is able to complete from two to six transactions per month. The minimum commission fee is 1.5 per cent of the cost of the apartment. The average fee of an experienced agent is not less than three per cent of the purchase price, while in the elite segment the commission is even higher.
Until 2000, Russian real estate practitioners were obliged to obtain a license for their activities. The cost of a license for a real estate agency ranged from $5,000 to $10,000, while firms provided guarantees for the state to pay for special training for their employees. In 2002, the need for licensing was abolished, which resulted in a decline of the skill level of Russian salespeople.
Now Russian real estate agencies often hire people who do not have any skills, experience or even minimal knowledge of the current legislation in the field of real estate, with the result that customers suffer both moral and material damage. The situation is aggravated by the fact that currently there are no specialized educational institutions in Russia (except for short-term courses), that efficiently train future salespeople.
The global recession negatively affected the demand for real estate broker services in Russia, with many agencies being forced to leave the market or to go to the related sectors. According to analysts at Doki Agency, another of Russia’s largest real estate firms, last year the total revenue of Moscow agents and brokers reached 7.2 billion rubles ($210 million US), which is 42 per cent less than in 2008.
The total number of transactions in Moscow in 2009 reached 55,674. Of these, 46 per cent were handled by the largest real estate agencies.
More than half of real estate transactions were conducted with the participation of independent brokers who took some of the market away from real estate agencies. Doki Agency CEO Leonid Menshikov says this was because of a fall in demand for real estate and fewer transactions for new and high-end housing.
Still, since the beginning of this year, the Russian real estate market is steadily growing and the largest real estate agencies have already reached pre-crisis indicators.
Lyudmila Zaitseva, president of Russia’s Regional Guild of Realtors, says, “Currently, the Russian real estate business is recovering from the crisis, with an ever-growing number of transactions. I believe that the worst is already behind it, and today the prospects of the market are bright.”
The Russian residential real estate market is steadily developing, thanks to ongoing construction of new housing and the increase of the number of construction firms.
Since the early 2000s, the Russian government has worked to solve the problem of the country’s decaying housing stock, through the implementation of a number of federal programs aimed at improving the living conditions of citizens and stimulating growth in demand for real estate – and at the same time, for the services of real estate brokers.
Based in Moscow, Eugene Vorotnikov is a former real estate broker. He is now an international writer for property and real estate magazines.
