When demand falls, prices follow suit. It’s a central economic principle that also applies to Moscow’s housing market, with one exception: a small district that is home to increasingly annoyed German diplomats and expatriates.
A dark green metal gate in view of multiple surveillance cameras shields the estate known as the “German Village” from the bustle of the Russian capital’s Vernadskovo Prospekt. For a long time this district, owned by the German government, had a German baker that made home deliveries, along with a mock rustic German pub called “Deutsches Eck” or “German Corner,” where expats, teachers and diplomats met to wash down their Nuremberg sausages with German beer.
But this Teutonic idyll, a quiet island cut off from the harsher realities of Moscow life, is under threat.
Elsewhere in the city, rents are falling because of the economic crisis sparked by Western sanctions and the slump in oil prices. But in the German Village, rents are set to increase even though most tenants already pay around twice as much in euro terms as the Russians living in the surrounding, rather upmarket areas. The landlord, the German government in this case, is steadfastly resisting increasingly desperate calls from tenants to lower the rents, and is resorting to some rather absurd arguments to defy the logic of the Moscow rental market.
“I’m looking for newly-built properties with similar or better facilities.”
Frank Schauff sits in his apartment every evening poring over ads for apartments in the neighborhood, printing them out and neatly filing them in a black ring-binder.
“I’m looking for newly-built properties with similar or better facilities,” he said. Some apartments outside the enclave even have gilded faucets. Russian rents beyond the green fence currently average €13.50, or $15.50 per square meter excluding electricity. He pays €21.50 including electricity and heating, a total of €3,867 per month for 180 square meters. “When the contract was signed in mid-2011 that was the market price,” he said. But since Russia annexed Crimea and the oil price went into a free-fall, the ruble is now worth only half as much against the euro.
But Mr. Schauff has better things to do in the evenings than stuff binders with paper. He’s the managing director of an association of companies, and helps European firms that are often driven to desperation by Russian bureaucracy. But he’s finding Germany’s civil service equally hard to fathom, and said he would have credited it with a better grasp of market economics.
Yet the landlord appears dissatisfied even with the current rents. According to the German government’s official rental contract arrangements, the rent rises 20 percent every three years. Last year the government suspended the “adjustment,” but at the start of this year it demanded an increase of €772.25 per month.
Mr. Schauff took legal action against the German Institute for Federal Real Estate, the agency that manages German government property, but the case was dismissed. His lawyer had the impression that the German judges who reviewed the case showed little interest in the inner workings of the Moscow real estate market. He appealed and the second case will soon begin.
Some 60 tenants petitioned to have the rents lowered. The response came three months later. They were informed that the site offered an “extremely high residential value” due to its facilities, its proximity to the German school and high safety standards. Hence a cut in the rent was “not warranted at present.”
For a long time, the German Village was a veritable goldmine for the Bonn-based real estate agency. It has 380 apartments and is by far the biggest piece of government-owned real estate outside Germany. Until three years ago, there were virtually no vacancies, and people who wanted to move there had to join a waiting list. Then in 2015, 118 people cancelled their contracts, and 18 percent of the apartments are now vacant. But the agency has no intention of cutting its euro-denominated rents. Instead, it said it was at pains to make the site even more attractive through “ongoing investment in the building stock.”
Some of the tenants beg to differ, pointing out the prefabricated construction style, old-fashioned kitchens and “disastrous” bathrooms.
André Scholz, an auditor who has lived in Moscow for the past 13 years and initiated the petition, said only the proximity to the German school and kindergarten was preventing more tenants from moving away.
Residents said the German Village has deteriorated in recent years. The butcher went bust, and the baker also disappeared.
The “Deutsches Eck” seeks to offer the atmosphere of a German country pub, with added flat screens that pull in the punters whenever a big soccer match is being screened. In the non-smoking room, a Russian man clad in a Bavarian felt hat was tucking into his food. In the smoking room Hubert Willms was enjoying a cigarette in front of an aquarium containing a grumpy-looking carp.
Mr. Willms ordered a glass of coke and poured a vodka into it. But he didn’t look happy. Life used to be better for the self-employed builder who for the last 27 years has been erecting trade fair stalls for German agencies exhibiting in Russia. He used to spend months in Russia each year, but now it’s only weeks. Force of habit led him to book a hotel from in the German Village. But he said: “You don’t get value for money at all anymore here.”
There wasn’t much anybody could do about it. “It all belongs to the German government which is being stubborn,” he said, going on to complain about President Vladimir Putin, corruption and the poverty in Russia.
The pub will soon shut down too. The leaseholder is said to have handed in his notice, no doubt because of the rent. And so the German Village is dying a slow death as German bureaucratic intransigence takes its toll.
This story first appeared in WirtschaftsWoche. To contact the author: email@example.com