• Current valuations and interest rates

Average apartment values in St Petersburg are today just over a third of those in the nearest 1m+ population neighbor Helsinki (€1800/m2 versus €5100/m2), while in 2008 they both hovered around the same price level at €3100/m2. Depressed by still high interest rates (mortgage rates ~10%), a weak ruble, slow economic growth and stagnating real incomes after the boom years in the first decade of the century, we think that the current price levels contain a huge potential future boom.

• Strong rental demand at compelling yields

St Petersburg as one of Europe's largest cities (4^th to 7^th depending on your definitions) follows the same global megatrends as most other big modern cities. Among these are the shifts towards less direct ownership, more pay as you use, and more flexible rental living. Today rental demand for good (= modern well located) apartments in St Petersburg is more solid than ever, vacancies are low and net yields (net of costs but before taxes) of 5-8% are still double compared to those in Helsinki.

• Rental demand

Rental demand growing and shifting towards more modern products and better service means that those who adapt will pull ahead of the pack.

Risks?

No investment advice is complete without a word about the risks. Horror scenarios like big war or across-the-board property confiscations are possible but very unlikely. The most relevant risk factors to consider are, a prolonged general stagnation in which case the wait for the next almost inevitable boom will be long enough to keep the IRR of investments made now at a relatively modest level, and the instability of the ruble, which has historically sometimes caused sudden damage to investment returns when measured in for examples euros.

For a well diversified investment portfolio, smartly selected and professionally managed St Petersburg rental apartments offer a very compelling growth opportunity, with a good current yield, at a moderate level of risk.