Image 20160321 30949 11oa1q5

The geopolitics of real estate: how Russia learned the political value of property

The geopolitics of real estate: how Russia learned the political value of property

Oscar W. Rasson/Flickr, CC BY

Over the past three decades, real estate has gained a new significance on the world stage. Many states have relaxed laws to open up national property markets to international buyers. This has not only intensified international business activities, but also offered states a new way of pursuing their global political ambitions. In particular, Russia – perhaps better known for its use of “hard” tactics such as military interventions – has proven to be an adroit user of this “soft” power tool.

In Russia, real estate emerged as a marketable good in the early 1990s, when large-scale privatisation transferred ownership titles from the state to tenants. Initially, because of the political and economic turmoil involved in Russia’s transition from a one-party state to democratic republic, there was little international interest in the country’s property market.

But all this changed in the early 2000s. The election of Vladimir Putin as president, together with institutional reforms that increased transparency and rising oil prices, worked to initiate a period of political stability and economic growth. Foreign investors and capital flocked to Russia to tap into the markets there.

At the same time, Russian investors and state institutions also invested in and built real estate abroad; primarily in former members of the Soviet Union, but also as far afield as Namibia.

These two processes – driven by foreign actors in Russia and by Russians abroad – created a complex network of relationships and dependencies, which continue to affect the way international relations are negotiated today.

Doing business

The importance of real estate is particularly visible in the opposition between Russia and the rest of Europe over Ukraine. Foreign companies in Russia that own fixed assets such as offices, factories and retail facilities are obviously interested in the economic and political stability of the state. And their interests can directly affect negotiations between international powers.

Merkel - bowing under pressure? Maxense Peniguet/Flickr, CC BY

For example, German retailer Metro – which owns large shopping centres in Russia – actively opposed the sanctions imposed on Russia in 2014, arguing that such measures would hurt their business.

It is believed in the business community that this kind of pressure has played a big role in preventing Germany’s Merkel government from supporting tougher measures against Russia. Foreign business with stakes in Russia often act like indirect and informal lobby groups, representing Russia’s interests in their native nations.

Leverage in London

The investments of Russians abroad has also shaped the state’s approach to international politics. For example, Russian investment in residential real estate in cities like London is very popular, and gives the Russian state a certain influence in these places.

The strong presence of Russian wealth in London – worth £27 billion or 0.5% of international assets in the city – is considered by some to be a factor in Britain’s stance towards Russia.

This was demonstrated by a confidential report – photographed in 2014 – which suggested that Britain should not support the EU’s trade sanctions against Russia or close London’s financial centre to Russian citizens. Although the EU’s sanctions were still implemented, Britain’s initial reluctance to support them can at least partly be attributed to the presence of Russian capital in London.

Show of strength

The power of real estate can be symbolic, as well as financial – as shown by the international expansion of the Russian Orthodox church. Since the 2000s, the church has purchased numerous properties around the world.

High profile members of the Russian political elite – including Putin himself – have linked the expansion of the Russian Orthodox Church to the project of the “Russian World”. This is the idea that Russian civilisation is a community which spans beyond the country’s current territorial borders.

This has been interpreted by some experts as an attempt by the Russian administration to “gain hold over Russian émigré communities”. For example, French officials have been criticised for smoothing the way for a new Russian Orthodox church in the centre of Paris, declaring it to be a “symbol of Russian power”.

All hail. kvoloshin/Flickr, CC BY-NC-ND

Russia has also sought to project its power through mega-projects such as sport stadia, urban regeneration schemes and new infrastructure. For example, developments in Sochi for the 2014 Winter Olympics were overwhelmingly realised by companies that were either government controlled or financially dependent on state-owned banks. By deploying the state’s resources in this way, Russia sought to highlight its power and ability to get things done.

Word of warning

But while real estate has offered another way for Russia to pursue its national interests abroad, it has also created new vulnerabilities, which competing states can exploit. For example, the EU and US have restricted Russia’s access to some of its properties abroad, to pressure Russia over Ukraine.

The heavy presence of Russian capital and real estate interests in Ukraine itself is another source of vulnerability: since 2014, Ukrainian radicals have regularly attacked branches of Russian retail banks.

The outflow of Russian capital abroad also presents the country with a serious problem: that is, the erosion of tax revenues, investments and – perhaps most importantly – an educated workforce.

So, real estate abroad is more than just an economic process: it has become a “soft” power tool for states to influence each other, adding a new layer of complexity to international politics.