October 22, 2008 / 3:23 PM / 10 years ago

Russians spurn crisis to splurge on luxury flats

MOSCOW (Reuters) - Banks may not be lending and global recession threatens but the Russian developer building Europe’s tallest skyscraper sees a reason for confidence: Russians have not lost their appetite for flaunting their wealth.

A set table is seen in a private members' club on the 59th floor of the Federation Tower complex in Moscow October 21, 2008. REUTERS/Denis Sinyakov

The developer behind Moscow’s Federation Complex believes that, crisis or no crisis, rich Russians will pay for the cachet of owning one of the project’s apartments designed by Giorgio Armani and costing in excess of $5 million.

“It’s a lifestyle thing,” said Dmitry Lutsenko, a board member of Mirax Group, the company that is building the complex of twin towers on the banks of the Moskva river.

“It is quite obvious that people still have money in the world, and they want to buy nice things. They want to buy unique things. And I think this section of the market will be least affected by the crisis.”

Russia has not been immune from the turbulence on global markets. Stocks listed in Moscow lost 70 percent of their value since May — worse than comparable economies — and several billionaire businessmen have watched their assets shrivel.

But Russia’s super-rich, the type the Federation Complex wants to attract, appear unusually resilient to the global crisis.

There are a lot of them: the Russian edition of Forbes magazine says there are 110 entrepreneurs worth at least $1 billion, and a study commissioned by Mirax showed Russia has 200,000 families with an annual income over $1 million.

And they still appear ready to spend money on items that enhance their status. “We studied the situation with the sale of luxury items, for example expensive cars, to analyze buyers’ behavior at a time of crisis,” said Lutsenko.

“This is a segment of the market which is not so vulnerable to competition,” he said, sitting in a chic private members’ club on the 59th floor of one of the two towers as a construction worker dangled on a rope outside the window.

When finished, the taller tower will have 93 storeys and stand 1,470 ft tall, including its spire. By comparison, the Eiffel Tower in Paris is 324 meters (1,065 feet) high, with its flagpole.

The private members’ club will soon be dismantled to make way for four apartments created by Italian fashion designer Armani, which will be sold at auction. “They could fetch anything,” said Lutsenko.

Ordinary apartments are more modest and will carry an average price tag of between $4 million and $5 million. Office space and a hotel will take up the rest of the complex.


Asked if the project would be completed, Lutsenko said: “We have no doubts whatsoever.”

Mirax, one of the biggest players in the construction boom that has transformed Moscow’s skyline over the past few years, has not escaped the crisis unscathed.

It says it has total debts of $800 million and of this $265 million is due to be repaid before April next year. Refinancing is not an option for now. “The banks are not giving any loans to any developers at all,” said Lutsenko.

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The company said last month it was freezing all projects that were still on the drawing board, and it has been trying to improve its cash flow by collecting debts from clients and persuading contractors to lower their costs.

The company says the market for its apartments and office space has grown tougher. Nevertheless Lutsenko said sales in September were a record $200 million and he forecast sales in October of $150-160 million.

Analysts are also bullish about the company’s business model. “We do not expect cancellations to be widespread, as Mirax’s projects are high-end and command premiums,” investment bank Renaissance Capital wrote in a research note.

Editing by Richard Williams

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