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Russian roulette?
The reserves, located in remote and climatically hostile locations are expensive to extract and much of the revenue is used to service debt to foreign creditors and also pre-Soviet debt to the IMF and Paris Club, which makes debt repayment account for one third of Russian GDP.
The third reason Russia's property sector is booming is because there is no subprime threat in Russia; cash is king. Russians hold faith far more in bricks and mortar than its underdeveloped banking system.
As a result there are very few mortgages and also an underdeveloped tax system, (which although labelled underdeveloped is one of the most desirable tax systems across the globe, behind the UAE, with a flat level of income tax at 13%) Therefore, if you have the cash buying is simple
It means that Russia is relatively insulated from global knock-on effects such as the current credit crisis hitting Western Europe.
Morgan Stanley has recently invested in a number of major Russian developers, commenting that "given a deteriorating outlook for some CEE and SE Europe markets, we view the Russian property market as offering better near-term growth and yield prospects".
So how have the above factors manifested themselves in the market? Central Moscow has seen jaw dropping returns; a one-bedroom flat worth US$9,785 in 1998 is now worth US$1.95m.
Citywide the average price per sq ft is US$1,467 rising to US$9,800 per sq m in prime city centre and adding almost another US$7,828 on top of that if you are looking at new build.
In fact, the premium locations in Moscow far outstrip any of those in London's Mayfair where prices in Old Arbat, Patriarch's Ponds or Plaschikha can top US$23,400 per sq m.
Earlier this year, Ostogenka, (Moscow's equivalent of Belgravia) nicknamed "the Golden Mile" saw a 300 sq m penthouse sell for US$8.8m.
Moscow's suburbs are not missing out on the action either. Gated communities offering safety and services, even with their own hospitals, have appeared, such as Pokrovsky Hills, North West of the capital.
Rentals in the capital are also thriving with prices hitting US$29,400 per month in the city centre.
Average rental prices for a two-bedroom apartment with underground parking (an absolute necessity in Moscow) start at US$6,850 per month while on the outskirts, prices are much more mainstream at US$1,467 per month.
These skyward prices are not relegated to the capital. St Petersburg's prices have doubled, however, they remain more sober than Moscow's.
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