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Feature Story September 8, 2006
Slaves Of The Sadovoe Koltso
By Jake Rudnitsky Browse author Email

Renters beware! Moscow's landlords are finally starting to wake up to the fact that the capital's real estate market is going berserk.

When Alan moved to Moscow last October, he made a deal with the devil. He might have thought she was a babushka at the time, but by now he knows better. The owner of the apartment was the grandmother of a good friend and, if he would share the place for the few days a month that she was in Moscow, he'd get the apartment at a way-below-market rate. The location at Krasnye Vorota couldn't be beat, and he decided what the hell. It was a sweet deal for a guy who makes a living teaching English and Russian and otherwise couldn't afford to live in the center. People have done worse for a $500 monthly rent.

Everything worked out fine for the first couple of months -- he and the babushka had a close relationship, helped by the fact that their lives didn't intersect too often. But then she had to go and die on him. "I was getting a friend's rate at the beginning," he told me. "And then she died."

To say the babushka died doesn't mean that she left him. Anyone who's ever been in an old Russian's apartment knows exactly what the level of remont in Alan's place was: zero. Everything from the red carpets on the wall to the dozens of little bluish teacups scattered around scream "survived the Great Patriotic War." The toilet fixtures date back to the early Brezhnev era. When digging around in a desperate attempt to find storage space, he uncovered everything from a stockpile of three-quarters empty shampoo bottles, bristlebare toothbrushes and expired medicine to three vintage Soviet irons and a collection of mass-produced icons. A scavenger would've had trouble finding something of value.

The babushka, who was more of a packrat than most, had even held onto all her husband's things after he died five years ago. And it's not like they were squired away in a skaf somewhere. Every time Alan took a dump, he found himself staring at a worn polyester suit of the husband's that was hung on the bathroom door. Every drawer contained some memento of the dead couple, housing a collection of ties from the 60s or canned meat dating back to Perestroika. "My girlfriend's moved in and she's been reduced to living out of a collection of plastic bags we keep under the table," Alan said. That's how little room there is.

At least the babushka's daughter kept the so-called "friend's rate" with him for a bit, with the understanding that family members could sleep in the kitchen whenever they were in town. It got so that a constant stream of third cousins (the word for which, in Russian, is the same as brothers and sisters) were parading through the apartment. It was so bad that Alan didn't mind when they decided to jack up the rent, since it meant he could have his apartment to himself.

At the beginning of the summer, after he'd already paid for the next month's rent, a newly hired apartment manager told him he hadn't paid enough. This woman, who herself is on the wrong side of 70, jacked up the rent by nearly 50%. The added cost didn't mean that he was free to purge the apartment of its mothballs, though. "The family's been by a few times and every time I naively expect them to toss all the junk," he said. "But, what am I going to say? Take your dead mother's stuff and shove it?"

Since the owners are friends who are supposedly giving him a deal, he can't even bolt the door when the crazed apartment manager rings the buzzer around three times a month. If her intruding wasn't bad enough, the old hag goes out of her way every time she sees Alan to say how the place is still under priced. "I'm pretty sure that they're just waiting to save up enough to remont the place and kick me out," he said. They've already installed new windows, and eviction can't be far behind.

When he does get kicked out, he'll become the perfect microcosm of the transformation that Moscow's rental market is undergoing. Renting here used to be about personal relationships and getting good deals from acquaintances, but it's now moving unavoidably towards the much crueler logic of the market. And when that transformation is complete, it's low-budget expats who stand the most to lose.

* * *

While Alan's story might be extreme, rising rents is something you hear talk about all around town. Rents are going up, properties are getting renovated, and expats are getting nervous. Those of us at the bottom of the pay scale are confronted with the possibility that staying in Moscow might mean moving to an apartment five trolley stops away from Babushkinskaya.

But it's not just the English teachers and copy editors that are sweating. One equity trader with an apartment near Ostozhenko told me that his landlord recently announced that his rent was jumping by 90%, from $1000 to $1900. That happened after more than two years without an increase. Location aside, the apartment's in a typical 9-story Soviet panelka. It's got a decent remont, but by no means evro-standard.

Another trader, Tim Wiswel from UFG, also got threatened with a 50% price increase. With his lease set to expire in a month, his landlord told him his 60 sq. meter place on Kutuzovsky was going up to $1500 a month. "There's not much to the story," he said. "And I did have pretty cheap rent for three years."

Every year the landlord had tried to raise the rent and Tim called his bluff. Only this time, he wasn't bluffing. Tim's since moved to a new pad that he found through an agency. "I'm paying a bit more, but it's a nicer place," he said. "Of course, now that I've been here a week, I'm starting to see just how cosmetic the renovation really was."

That's one area where the rental market's not conforming to the market. Russians are masters of the Potemkin remont that looks good at first, until you notice that the poorly glued-on plastic paneling is covering structural rot. And it seems doubtful that higher rents will eliminate the risk of ending up with some psycho khoziaka that rifles through your boxers drawer when you're at work. Those are both reasons expats tend to stick with a place once they've found one to their liking. But the real reason expats are so sedentary is that for a long time rent prices seemed stable.

It used to seem like everyone who'd been in Russia long enough had a great deal on their apartments. The longer they'd been around, the lower the rent, as rents went only up when someone moved out. This was especially the case for those willing to put up with living in Soviet apartments. The realtor's mantra "location, location, location" just didn't apply to life in Moscow. Until now.

According to Maxim Mokeyev of Evans Property Services, rental rates are up 30% this year alone. In other words, Tim and Alan's increases aren't even unusual. "Theoretically, you can still find a small place inside the Garden Ring for $1500-$2000," he said. "The real premium's getting paid by people looking for bigger places."

Part of the problem is that so few people rent. The market's small enough to get totally distorted. Or at least it used to be. It was always amazing the difference between getting an apartment from an agency or via acquaintances. If you were referred to your landlord by a friend, you'd not only save on the realtor fee, but get much more bang for your buck. But with the wave of rent hikes sweeping the city, that's about to change.

When rents go up, it's expats that get screwed, as expats are still by far the most likely to rent. And since every Russian OAO looking for a London IPO needs a few Westerners on the board for window dressing, prices for premium places are going through the roof. "There's a surge in expatriate executive personnel," Mokeyev said. "High-end places over 110 meters are going for $15,000 a month."

Of course, at those prices, it's always the corporation that's forking the cash over. But at smaller operations, like the eXile, employees are starting to feel the pinch.

Yasha lives out by Alekseevskaya in another vintage Soviet place, complete with floorboards painted shit brown and the collected works of Lenin. He too moved into an apartment vacated by a recently deceased babushka. Her grave was so fresh that he had to wait a few weeks before moving in order to allow the traditional 40 days to elapse. His old contract just expired, when he got the unpleasant news. Even though he's only been there for six months and the windows open up onto a superhighway, the landlord is looking to jack the price up from $700 to $900. That's almost a 30% increase in just six months.

That's why all you poor eX-holes better watch out. There's been enough attention in the media about Moscow's real estate boom that even the most sovok landlord's starting to dream of cashing in. I've heard another theory -- by another expat that was recently victimized by a hike in his rent -- that landlords are simply passing on the costs of inflation to their tenants. But that's not enough to account for the 30% rises, because even though prices on everything from sugar to gas are surging, the consumer price index is only up 7.1% this year.

On the other hand, at least rents haven't been keeping pace with the price of buying real estate. While Mokeyev says they're somewhat linked, in that it becomes less attractive to rent when you can make such sick money selling, the two markets are quite distinct. While rental rates rising 30% in a year sucks, it's nothing like the horror stories people tell about trying to buy places. Tim told me about one of his friends who made a bid on Friday and, when he arrived with the cash on Monday, the price had gone up 30%. Buying real estate in Moscow really is as expensive as anywhere on earth, whereas rents haven't made it there yet.

Instead, what's probably happening is that rents are going up as part of an overall asset price boom. The real question expats are going to have to ask themselves is, if prices keep soaring like this, is it worth staying? So long as asset prices keep booming and the easy money keeps circulating, the answer will probably be "yes." But as the laws of the market already showed in the last crazy boom from 1996-8, what goes up must come down. And the higher it rises, the harder the crash.

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