Abstract

Property prices in Russia are going up, and the prospects look promising, but how stable is the situation in general, and political in particular?

Introduction

I want to continue my discussion of the current trends on the Russian (especially Moscow) property market. I would like to raise the subject of stability. It is very symbolic to talk about it today - on the 15th anniversary of the failed coup, attempted by exUSSR leaders. It reminds us that Russian Federation (as it is officially called) and its government in the present form is still a very young structure.

No booze? You must be kidding!

Now you are about to read something, which would go against all you have probably heard about Russia - Russians are about to stop drinking. This is not an April's Fool joke, but a result of a recent development in alcohol licensing. Essentially, the government wants to change the way spirits are being sold in the country, by centralizing the control even more. The change would require considerable investment on the side of the retailers. Many of them cannot afford it or are unwilling to comply, hoping that the people will press the rulers to revert the new legislation. In the meanwhile, the shelves in the wine and beverage aisles are empty and restaurants are allowing customers to bring their own drinks. More details can be found here.

So, what does this recent development tell us? We see, that the government is prepared to interfere with legislation of something quite important to large portions of population and to cause stagnation overnight. This should be seen as a clear indication, that other areas can experience similar unexpected and totally destructive legislation in the future - for example the property and housing sector.

Chinese experience

To give an example of what a state intervention can to to a booming property market, let's have a look at China. By no means am I trying to claim that Russia and China are similar countries - on the contrary, they are very different, despite the fact that they shared a common ideology in the past. Non the less, there is one thing they have in common - the control of the state over economical issues is huge. In both countries it is exploited differently and for different reasons, but still the government can do a lot in the markets, which would be unthinkable of in the US or most of the Europe.

As a specific example, which suits our needs we can take Shanghai. The city is one of the fastest growing Chinese industrial zones, and until recently it enjoyed very fast pace of property price rises, and demonstrated all symptoms of a bubble. At a certain point in time, the Chinese government decided, that it wanted the market to cool down, so a row of measures was introduced, mainly tax and money-landing related. As a result, prices dropped as low as by 30%, and activity on the market has almost ground to hold. More details about the story - here.

Conclusion

So, if one state used its powers to move property market considerably, another state with similar powers, applied in the past without hesitation, might do it as well.