World market of capital. Challenges of real estate investment. Look from outside.

1. World market of capital. Challenges of real estate investment. Look from outside. Introductory Commentsby Professor Dr. Dieter Rebitzer

2. Economic Crisis in Russia • Economic activity in Russia collapses at the end of 2008. • The economic downturn has accelerated in the first half of 2009. • Weak global demand, falling commodity prices, and uncertainties combined with tighter credit and rising unemployment constrain both consumption and investment. • Foreign direct investment inflows dropped significantly. Real estate operations are hit most.

3. Economic Outlook and Oil Prices • Russia’s economy is likely to shrink by 8-10 percent in 2009. • Inflation outlook broadly unchanged, while the balance of payments position is likely to stabilize if oil prices remain over USD 50 per barrel. Dr Thomas Beyerle DEGI mbH, Frankfurt/M.

4. Oil Price

5. Impact on the Poor and the Middle Class • The social indicators are expected to continue deteriorating. Real incomes are likely to fall further and the number of unemployed is expected to reach up to 15 percent by year-end. • The economic contraction in 2009 will result in additional increase in the number of poor and shrinking of the middle class.

6. Recovery will take time • Looking into medium term, with the current growth profile and a rebound starting in 2010, real GDP levels will reach pre-crisis in 2013. • Oil prize drop and Capital Outflows much deeper in 2008 • Comparing Recovery Paths1998-99 vs. 2009-09

7. Economic and Social Outlook • The impact of the crisis on the long-term development objectivesin Russia: Impact of the crisis 2008 2013 ? 2020

8. SWOT Analysis Russia Strengths Weaknesses • 10 yearsofstable GDP growth • Stabledevelopment in theregions, multi-polar structureofcitysystem • Reserve and National Welfare Funds, Currency Reserves, Natural Resouces • High quality, but lowcostoflabour • Economy und publicbudgetdependsstrongly on naturalresources • Lack ofsupporttothemiddleclassas a keyfactorofeconomicrestructuringanddiversifedgrowthprocesses • Bureaucracyandcorruption Opportunities Threats • Attractivemarketsandgrowth potential • DiversificationoftheRussianeconomyneed investmentgoods after crisis • Middleclassneedconsumergoods after crisis • Investors needsuitableproducts after crisis • Boom regions: i.e. Sotchi, Primorje • Exogenicshocksdependency (worldmarketdeterminespricesofoil, steel) • Slow implementationofregulatoryframeworkand legal reforms • Negative impactofcrisis on financeofbothcompaniesandindividuals • Protectionismas a responsetothecrisis (tariffs)

9. Major Infrastructure Projects • Railroads, Motorways, Bridges, Hydroelectric Power Stations, Mining Source: gtai

10. Global Downturn Source: Aberdeen Property Investors, Global Market Outlook, 06/2009

11. Late Recovery in Russia Source: Aberdeen Property Investors, Global Market Outlook, 06/2009

12. Office Market Moscow Source: CB Richard Ellis

13. Market Entry conditions High risk market entry conditions Russia High risk Safe Verysafe

14. SWOT Analysis Moscow / St. Petersburg Strengths Weaknesses • mostimportanteconomicalcentres • GDP growthpoles • increasingincome - lowtaxes • highreturns in European comparison • highrentlevel in officeandretailsector • purchaseoflandbyforeignerspossible • relativelysmallofficespaceinventory (lack ofliquidity) • lackingproductavailabilityofofficeandretailspaceof international standard (Class A and B, shoppingcentres) • lowtransparency, lack ofdataavailability • corruption Opportunities Threats • positive economicaldevelopment • furthermaturationofthemarkets • diversification potential forinvestors • buildingofofficesandshoppingcentresof international standard • retail-relevant pent-updemandoftheRussianpeople • legal andfiscalconditions • legal certaintyforforeigners • more legal restrictionsofthe City ofMoscow • decreasinglevelofrents • lackingmarketmaturity