Buying property in Russia

Buying property in Moscow

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Evans Property Services offers a useful guide to buying property in Moscow.

The Moscow real estate market has a relatively short history. In the Soviet era, all properties were state owned and people only had the right to “use” them. Apartments were distributed based on one’s place of work, and options for moving were limited. In 1990, after the fall of the Soviet government, the Moscow real estate market emerged and Muscovites were able to privatise and subsequently sell and buy properties for the first time. Today, Moscow real estate is booming and offers many exciting opportunities and high returns for lifestyle and on investments purchases.

Finding a property in Moscow
A great deal of information on properties for sale, although scattered and often outdated, is listed in public sources or available online and in different publications.

Selecting the property and organising a viewing, as well as determining which options are more or less attractive, requires experience. A real estate agent will be able to present you with the most complete and current information on all properties available on the market, including the ones that are not publicly listed. Choosing a property is the easiest part of the process, doing due diligence and structuring a safe transaction are much more challenging. You should use a real estate broker or a lawyer with real estate experience to represent your interests during your transaction.

Checking a property’s history
The real estate laws have changed several times over the past 15 years. These changes necessitate the careful research of property history because, in some instances, your ownership rights may be challenged by previous owners or people formally registered in the apartment. Usually such risks can be eliminated if determined before the real estate transaction.

Photo Flickr © Eldar
Moscow canal

Costs of buying Russian property
It is the norm in Moscow for a buyer to cover all closing expenses, including notary fees , state registration fees and bank expenses. Also, if you use a real estate agent to find your property and/or negotiate your deal, you will be charged a brokerage fee. The brokerage fee is usually calculated as a percentage of the sale price ranging from 6 percent for cheaper properties to 3 percent for more expensive properties.

The buyer's brokerage fee includes the property search, property and seller background check, review of the ownership documents history and the “rights of use” check, arranging the deal closing, and the supervision of the final property transfer to the new buyer. The seller's brokerage fee covers property evaluation and appraisal, property marketing (using multiple advertising venues to reach maximum potential buyers), arranging property viewings, negotiating with potential clients, preparing the complete set of necessary documents for the transaction, arranging the deal closing, and supervising the final property transfer.

In Russia, a seller is not required by law to sell his or her property at or below the listed price. The current market conditions, with limited property supply and high demand, often push the property prices above their initial listing.

Bank fees
Although the majority of real estate transactions are made in cash, sale-purchase transactions always take place in a bank. Here, the bank’s safety deposit boxes replace an escrow account to guarantee buyers and sellers that the payment is made upon the final ownership transfer. In this case, the full cash amount is deposited in a safety deposit box and the bank must release the money to the seller upon presentation of the complete package of registered documents under the buyer’s name.

Tax on buying and selling property in Moscow
Buyers do not pay taxes when purchasing a property, and property taxes on owning a property are still minimal. However, when buying, one should consider the implications of the ownership structure for a future potential sale.
If the seller is a tax resident of Russia in the year of sale, he or she pays capital gains tax of 13%. If a tax resident owns a property for 3 calendar years or longer, he or she is tax exempt and no tax payment is due upon sale.  No tax exemptions, however, are available for non-residents and the tax rate for them is 30% of the sale proceeds , i.e. on the difference between the purchase and the sale price. The tax rate for tax residents (those, who spend more than 183 days per year Russia) is 13 percent, while for others it is 30 percent.

Russian property

 Low angle view of building, Moscow, Russia

However, there are generous tax exemptions available. If the seller owns a property for more than three years, the seller is exempt from all taxes. The exemptions, however, are only valid for tax residents.

Depositary agreements
Most real estate deals in Moscow extend over a period of five weeks to several months. Any real estate transaction in Moscow requires the collection of a set of current documents from various state institutions and the buyer may need to secure finances or the seller may need to secure an alternative residence. As a result, there is a need for a preliminary agreement between the buyer and the seller. Preliminary or depositary agreements describe all of the terms and conditions of the future deal and outline the list of the necessary documents to be provided by the seller and buyer.

Upon the signing of a preliminary agreement, a buyer pays the seller a deposit (usually in cash) to take the property off the market during the time it takes for all the required documents to be assembled and the closing to be prepared. The amount of the deposit does not usually represent a certain percentage of the property price, but is a round number that both parties find acceptable. According to the Civil Code of the Russian Federation there are two types of deposits: advance payment (Avans) and a proper deposit (Zadatok). Please make sure that you use an experienced and reliable agent or an experienced real estate lawyer to draft a depositary or preliminary agreement and perform the due diligence on the property.

The law does not require notarisation of the sale-purchase agreement, however, it is  often recommended in some cases. It is equivalent to buying title insurance, since in Russia, a public notary is liable for checking all the property documents, ensuring the legality of the deal and bearing financial responsibility in case of any mistakes. Notary fees vary depending on the sale price of the apartment and range from 0.7 percent for more expensive properties to 1.5 percent for less expensive ones.

The closing procedure
If the payment for the apartment is made in cash, the full amount is deposited in a safety deposit box. Depositing the funds often involves bank officials checking the bills for authenticity. After this procedure is completed, the parties proceed to sign the sale-purchase agreement, which is then submitted for state registration.  On the property transfer date, the parties need to sign an Acceptance Act, which certifies that the apartment is transferred to the buyer in the agreed upon condition. The signing usually takes place at the bank, in an office of a realtor or in a notary office.

Registration of the sale-purchase agreement with the Federal Registration Service for Moscow makes the transfer of property rights official by recording the details in the state registrar. There are several offices around Moscow where the agreement can be registered. The registration can be arranged by a notary or by a realtor. It usually takes 30 calendar days for the department to complete the registration. If you are using a mortgage to finance the property, expedited registration is available.

Foreign individual and corporate ownership of properties
Both foreign individuals and corporations can purchase real estate in Moscow. The process of the deal and its registration is the same as for locals. However, the registration of the deal in the name of a foreign company is significantly more expensive than that in the name of an individual. Also, foreign company ownership makes it much more difficult to manage relationships with the city; it is often difficult or impossible to arrange for utilities and telephone services.

Evans Property Services / Expatica

Evans is a full-service real estate company that can help you with leasing, purchasing and selling property in Moscow.

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