With Moscow rent prices pushing those in London and New York, more and more apartment owners are choosing to move out of town for a life funded by the high rent on their properties. Real estate agencies say one in 20 Muscovites live off the rent made on their apartments, and of this number one in 10 do not work.

Moscow’s real estate market differs significantly from markets in other major cities in that the majority of its landlords obtained their apartments for free during the Soviet era and often also own a dacha (country house) where they can live cheaply while they rent out their city apartments. This is particularly common among pensioners, who would otherwise struggle to live off the low state pension and have no particular reason to live in the city center. The income made on downtown Moscow rent is generally enough to convert basic summer dachas into homes for all-year round use.

Going to Goa

For others, renting out a Moscow apartment is a perfect way to fund an extended holiday or a beach lifestyle in warmer climes. “Many Muscovites who can work remotely leave the country for India or Thailand, where low prices mean they can buy whatever they want,” said Georgy Dzagurov, general director at Penny Lane Realty.

Mikhail, 35, who runs a small business in Moscow, inherited a two-room apartment in downtown Moscow from a relative, which he rents out while he splits his time between his second Moscow apartment and a beach hut in Goa. “I usually rent a bamboo hut somewhere on the beach for just 200-400 rubles [$7 - $14] per day and rent a scooter to travel around,” Mikhail said. “Since the prices in Goa are so low I can stay there for a month or more.” One real estate agency said that it had a contract with an elderly Russian lady who has swapped her apartment in Moscow’s Sokol neighborhood for a life in an Indian religious community.

Real estate agencies can provide management services for around 5-10 percent of monthly rent to landlords who chose to live remotely. “The entrusted administration service means landlords only receive the rent on their property, while the agency finds tenants, pays the bills and generally maintains order in the apartment,” said Anna Levitova, managing partner at Evans Property.

Unofficial payments

Part of the reason why renting Moscow apartments is such a lucrative business is that most dealings in the city’s real estate market are done under the table to avoid the 13 percent income tax rate. According to official statistics, only 15,500 landlords are legally registered in Moscow, a city of well over 10 million people. “It’s almost impossible to count how many people actually rent out properties, as many of them avoid paying taxes,” said Vadim Lamin, managing partner at Spencer real estate agency.

Even landlords who work through an agency can avoid paying taxes, as payments are made through a separate body. But experts say the business is risky as landlords have no back up if tenants refuse to pay their rent. “What should a pensioner do if her tenants stop paying their rent?” said Andrei Kovalyov, president of the EcoOffice real estate company. “She can’t even call the police since there is no rental agreement and the tenants can report her for tax evasion.”

Good investment

For those without the good fortune of having inherited an apartment for free, buying an apartment as an investment can also be a good move. Although payback periods in the city are relatively long at around 15-25 years, investing in property is considered a stable investment in Russia, especially in times of economic uncertainty. “Buying an apartment to rent out can be a very good way to ensure a steady income ahead of retirement,” said Elena Zemtsova, managing partner at the Delta Estate agency.

“On investing in real estate landlords get an interest rate of around 4-5 percent annually, which is not dependent on currency exchange rates.” The most lucrative investments are in areas where purchase prices are low relative to rent levels, such as Frunzenskaya or Zamoskvorechiye. Properties in the areas have capitalization rates of around 7.2 percent and the payback period is just under 14 years.

Source: The Moscow News