Russian Federation: Real Estate Finance In Russia

Last Updated: 28 April 2009
Article by Yury Tuktarov

Article by Yury Tuktarov, Alexander Nadrnitov and Dmitry Sobolev


During the last decade, Russia has had great success at attracting investment into its domestic real estate market. It is estimated that in excess of us $11 billion has been invested in the Russian real estate sector from 2006 through to the end of HI, 2008. Despite the global credit crisis witnessed in 2008 and continuing at the time of writing, investments into Russian real estate continue to grow with investments totalling around US $4.5 billion in HI, 2008, which represents a 246% increase compared to HI, 20071. However, the credit crisis has also impacted real estate financing in Russia (as it has done elsewhere across the globe) with lenders reducing their exposure to the real estate sector. As a result, it has become more difficult and expensive to attract real estate financing and the market participants have had to be more creative in raising required debt and funds. In addition, the credit crisis has facilitated the process of consolidation of real estate market players. Weak companies have been forced to sell either their equity stakes or their real estate holdings. Despite this development, some real estate companies are still managing to raise money by stock issuances2, and foreign investments real estate funds remain active in the Russian market3.

This Chapter will consider the typical issues and challenges connected with the financing and development of real estate in Russia, before considering real estate financing structures and investment funds active in the real estate lending and capital markets.


Real estate funding in Russia is usually split into stages. The most difficult part of a real estate financing is to attract initial funding for a project to buy a land plot, develop project documentation and arrange for the connection of utilities lines. After obtaining a permit for construction, it is much easier to attract money from potential investors. Banks typically provide loans of up to 70% of the cost of a project. The rest is usually provided by way of equity (or loans from companies affiliated with the developer) or by sales of stakes in projects or holding companies.

Real estate title

Since 1998, rights to real estate in Russia have been subject to registration in the Unified State Register of Rights to Immovable Property and Transactions Therewith (the 'Register'). The Register is maintained by a state authority - the RF Federal Registration Service (the 'Registration Service'), Following the sale of real estate, title passes to the purchaser upon (i) the conclusion of a sale agreement; (ii) the signing of the conveyance deed by.the seller and the purchaser; and (iii) registration of the title conveyance with the Register. Under Russian law, title conveyance must be registered within one month from the day of filing documents with the Registration Service although registration, in certain cases, may be postponed for up to three additional months.

Following the conclusion of the sale agreement and acquisition of the real estate, a buyer is faced with several risks. Such risks include the risk that the seller may refuse to proceed with the conveyance procedure (eg signing the conveyance deed and/or forwarding the application for title registration) or that the seller may make a sale agreement with another party, who takes priority if it succeeds in filing the application for title registration with the Register prior to the buyer. Thus, there is an 'uncertain' period from the conclusion of the relevant sale agreement up to filing the application for title registration.

Comfort to a lender

When acquiring real estate, the core issue for a lender is whether evidence can be provided that the owner has title to the property. At first, the Register provides any person, upon application, information identifying the real estate in an extract. Such Register extract will contain information about all encumbrances on the real estate (including any mortgages) and a lender can generally rely on such extract.

Furthermore, although Russian law does not provide for mandatory state registration of ongoing or pending real estate litigation, such information may be submitted to the Registration Service by any related party and registered in the Register. However, whilst state registration is the only; evidence of the existence of a registered right, it does not itself constitute title to immovable property and may be challenged in court. Any successful challenge will result in adverse consequences to the borrower's title to sum asset. Consequently, it is common to instruct lawyers to conduct legal due diligence to check the title in addition to relying on an extract from the Register.


1 Profitable Russia, Vedomosti newspaper, No 132 of 18 July 2008.

2 As an illustration, Open Investments sold circa US $500 million shares in June 2008, though most of the shares were reportedly sold amongst its existing shareholders.

3 German fund KanAtn Grund purchased from Otkryrie-Real Estate the office part of the unfinished Paveletskaya complex for US $900 million in March 2008. British fund RP Capital Group purchased the Silver City business centre for US $350 million in April 2008.

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Originally published as the Russian chapter of a publication by LexisNexis with support of K&L Gates LLP

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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