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Investment Former Soviet Union: Investors look for eastern promise

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  • Investment Former Soviet Union: Investors look for eastern promise

    INVESTMENT FORMER SOVIET UNION: Investors look for eastern promise

    The Independent - United Kingdom
    May 25, 2005

    Chris Partridge


    Britain's army of property investors has swept eastward through Europe
    over the last decade, from Spain to the Black Sea.

    The former Warsaw Pact countries are now crawling with Brits looking
    for bargains. And now they are reconnoitering the old Evil Empire
    itself " the countries that used to make up the USSR. But will they
    finally meet their match?

    Russia itself is still the economic dynamo of the region and is
    already attracting investors, especially to the booming Moscow
    market. But new interest is focusing on the newly independent states,
    especially the Ukraine. Experts are advising caution, however. The
    states of the former Soviet Union are still evolving their legal and
    political systems, and investment is very risky.

    John Miller, of surveyors and property consultants Thomas and Adamson,
    has been operating in the Ukraine for 10 years, from the capital
    Kiev. 'Here wehad a country with a population of 50 million, a
    landmass larger than France and a marketplace in which little or no
    development had taken place. We could see that this place had to
    happen,' he says.

    Thomas and Adamson have worked on offices, hotels and residential
    developments in the Ukraine, neighbouring Moldova and Russia
    itself. The main obstacle to development is officialdom, which still
    seems to operate in the traditional Stalinist manner.

    'There is a huge amount of bureacracy, but the longer you are over
    there the better you understand it,' Miller says.

    It can also be difficult to borrow money, another hangover from Soviet
    times. 'Whereas our economy is based on debt, they buy with cash or
    on a five-year mortgage,' Miller explains. 'Money tends to be hidden
    in a biscuit tin under the bed because they operated in the black
    economy for so long.'

    In Kiev itself, a huge rebuilding and modernisation programme has
    brought on a property boom.

    'Kiev has a huge residential market with flats going for fairly
    inflated prices, currently about pounds 100 a square foot. That is
    high by Ukrainian standards but you won't get much in the UK under
    pounds 250 a square foot,'Miller points out.

    Unfortunately, British investors may have already missed the Kiev
    opportunity. 'Someone I know bought a flat last year and has seen a 60
    per cent increase in value already, but values will peak soon,' Miller
    says.

    The other area of interest to British investors is the Crimea, famous
    not only for the charge of the Light Brigade but as the favoured
    holiday destination of the Soviet żlite. Now its pretty Black Sea
    coastline is slowly gaining attention.

    'In the Crimea we are seeing a reasonable amount of development but
    nothing like the standard of European holiday destinations,' Miller
    says.

    Outside the Ukraine, the risks of property investment rise
    substantially. Belarus is currently ruled by the dictatorial
    Alyaksandr Lukashenka, who has just changed the law to allow him to
    continue in power. Belarus is definitely a no-go area until true
    democracy returns.

    Moldova, the tiny, strife-ridden republic sandwiched between the
    Ukraine and Romania, has a surpisingly advanced legal system, but
    another feature of Soviet times has been retained " the kickback.

    'In practice a lot of things are ahead of the Ukraine but they are
    more dogged with corruption,' Miller says. 'One project we were
    involved in was delayed for years because the relevant administrator
    was in jail and couldn't decide the matter until he got out.' The
    situation gets worse the further away yougo, according to Laura Brank
    of law firm Chadbourne & Parke, who covers all the old USSR from her
    base in Moscow. The areas that are next in line for investor attention
    are Armenia and Georgia, despite their current political turmoil and
    internal violence.

    'Armenia and Georgia are very pretty and eventually these countries
    should attract people, and skiing in the Caucasus is already getting
    popular,' Brank says. 'Georgia has a young and impressive new
    president and if he succeeds the country could be a good place to
    invest.'

    Further away, the Asian republics known collectively as 'the Stans'
    are moving towards Western-style legal systems, at least in theory.

    'The legal systems are developing nicely in the Stans and the laws are
    a bit more Westernised due to extensive Western influence, but this
    does not necessarily translate into practice,' Brank says. 'You can
    buy an apartmentbut cannot buy the underlying land even though you are
    supposed to be able to.'

    The Stans aren't even very pretty, consisting mainly of windswept,
    treeless steppes. For most property investors, they are a step too far
    indeed.

    Thomas and Adamson, 020-7659 0448

    Chadbourne & Parke, Kyiv, +380 (44) 230 2534
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