The firing of Moscow Mayor Yury Luzhkov will create new opportunities for real estate developers in the capital as Luzkhov’s wife, billionaire Yelena Baturina, and other established builders lose influence at city hall.
ZAO Inteco, Baturina’s closely held firm, and companies such as PIK Group may have projects frozen while a new administration takes over, said Dmitry Khalin, head of strategic consulting at real estate agency IntermarkSavills in Moscow. PIK’s London-listed shares have fallen 6 percent since Luzhkov was ousted Sept. 28, their biggest three-day drop in six weeks.
“The faces at the table may change, but I’m not convinced the rules will,” said James Beadle, a U.K.-based consultant for investors in Russia. “Luzhkov has been very good at protecting his own people. Will the person who replaces him be more open or still inclined to protect insiders? That’s an open question.”
Moscow, which has $30 billion in annual housing sales and the second-highest prime office rents in Europe, is recovering from last year’s property crash, with home prices up 18 percent from their September 2009 lows. President Dmitry Medvedev fired Luzhkov after state TV accused him of corruption and favoritism toward his wife. Luzhkov, 73, denies the accusations.
PIK has “substantial exposure” to Moscow real estate, including plots of land scheduled for development, and “may be affected by the uncertainty over the future regulation of the market,” said Andrey Kuznetsov, a strategist at Troika Dialog in Moscow.
Dmitry Ivliev, a spokesman for Moscow-based PIK, declined to comment.
Companies that may benefit include St. Petersburg-based LSR Group, said Chris Weafer, chief strategist at UralSib Capital in Moscow. London-traded Sistema-Hals and Don-Stroi’s residential property unit, both controlled by state-run VTB Group, are also well-placed, according to real estate analysts.
“You have to look at which companies are close to the federal government; they will get the privileges,” said Sergei Zharkov, an analyst from Moscow-based property research group, IRN. A new mayor “will have a big effect, especially on the use of influence and the opportunities this grants market players.”
LSR, controlled by Andrey Molchanov, son of St. Petersburg Vice-Governor Yuri Molchanov, a former colleague of Prime Minister Vladimir Putin’s at Leningrad State University, has risen 13 percent to $8.50 since Sept. 28 in London. Sistema-Hals gained 1.2 percent to 819 rubles yesterday in Moscow trading.
Yulia Sokolova, a spokeswoman for LSR, said the Russian capital, which today accounts for 3.5 percent of LSR’s property holdings, is a focus for the future.
“With a new mayor comes the prospect of new people in senior positions,” Weafer said. “That offers newcomers, such as LSR Group, a better opportunity to get approvals, etc., and form relationships that can help smooth their business growth.”
Baturina earned more than $1 billion last year, according Luzhkov’s 2009 financial disclosure filed in May. She owns property including a 445 square-meter (4,800 square-foot) apartment in Russia and a 321 square-meter house in Austria.
Forbes magazine ranks Baturina, 47, as the world’s third-richest woman, with a fortune of $2.9 billion.
Boris Nemtsov, a former deputy prime minister and opposition politician, published a report last year in which he suggested Inteco received favorable treatment in acquiring land from city hall, as well as securing building permits and exemptions from paying for connection to municipal utilities.
Inteco and Baturina sued Nemtsov for defamation. A Moscow appeals court on July 19 rejected complaints related to assertions that Inteco got preferential treatment in real estate development, while ordering Nemtsov to retract other comments. Both sides have appealed.
Baturina has denied getting special treatment from the city. Luzhkov said Sept. 13 that he had never given a preference to Inteco and that Baturina would be “even richer” if she hadn’t been his wife.
“As long as I don’t break the law, I have the right to do what I do,” Baturina said in a Sept. 20 interview in The New Times, a Moscow-based magazine. “I have no idea what preferential treatment I’m supposedly getting.”
Billionaire Alexander Lebedev, a Luzhkov critic, said the couple’s main asset was the power “to permit or deny permission” for projects in Moscow.
“The end will come for the business activities of the Baturina clan,” Lebedev said Sept. 15.
VEB, Russia’s development bank, isn’t in a position to proceed with a $2.5 billion project to build housing in the regions with Inteco, Chairman Vladimir Dmitriev said Sept. 29, according to state-run news service RIA Novosti.
Inteco spokesman Gennady Terebkov requested e-mailed questions when asked for comment for this article, then didn’t respond.
Acting Mayor Vladimir Resin, who oversaw city construction projects as Luzhkov’s deputy, declined to comment when asked at a Sept. 29 news conference whether policy would change.
Luzhkov’s administration wasn’t “accommodating” for business in the way he managed the construction market, said Evgeny Nadorshin, head of economic and strategic research at real estate broker Jones Lang LaSalle in Moscow.
His departure may “provide new opportunities, not only for existing companies, but newcomers, although private investors will have to compete with state-connected interests to be the first to grab these opportunities,” Nadorshin said.