The Russian real-estate market swooned after the crisis, with a 77% fall in property deals and the size of those deals falling by 50%. Well, if you were an oligarch, wouldn't you prefer to live next to London's Regent's Park than a leather tannery in Irkutsk?

Local IPO plans for property vehicles were shelved, construction companies went bust and some fundraisings for property flopped. Aberdeen Asset Management didn't raise anything for its mooted fund, although East Capital managed to launch a property fund, and Raven Russia listed on London's Alternative Investment Market.

The capital markets are still equivocating about Russian real estate, and the local commercial lending market needs to grow to be an adequate replacement for any shortfall.

In residential real estate, banks can't charge more than an 11% interest rate on mortgages. It is an under-banked market, and lenders frequently reserve mortgage products for their best clients. Loans are simply not widely available.

"Lake Baikal is larger than Belgium, but the entire Russian mortgage market is smaller than Belgium's," says Glenn Koleeny, partner and heads of M&A at law firm Salans in St Petersburg, who was moderating a panel at the AsianInvestor and FinanceAsia Russia Capital Raising and Investment Summit in Hong Kong last week. We are not sure if he was recommending selling house boats on the lake, but we think we know what he was getting at.

Five-star hotels have suffered badly during the crisis, with occupancy rates dropping to 55% in Moscow and 30% in St Petersburg, even during the city's famous White Nights Festival.

"The opportunity now in Russia is in three-star hotels," says Michael Davidov, an executive director at Euroconsult, another panelist. "Russian entrepreneurs have built big three-star chains quite quickly." It still costs five times as much to build a hotel in Russia than in, say, Bulgaria. That's a factor of the higher price of land and greater construction costs. 

The International Finance Corporation, the private-sector investment arm of the World Bank, hopes to close a deal on a three-star regional hotel chain this week and has a couple more in the pipeline, says Tatiana Bogatyreva, head of the IFC's Central and Eastern Europe portfolio of manufacturing and services. At present, all the IFC's deals are located outside the core Moscow and St Petersburg areas.

One big hitch is getting approvals for projects. "You have to start building and hope to get permits as you go," says Bogatyreva.

Execution is the biggest risk in Russia -- that is, a building not getting built. There are a host of permits that need to be written out. You don't get your ownership certificate until after the building is finished, so persuading an institution to finance a developer is far from easy. It is more simple if land is freehold rather than leasehold, the latter being more common in the biggest cities.

With regard to not receiving an ownership certificate until completion, foreign lenders are less relaxed than local lenders, who have gotten used to the peculiarities of the Russian system.

However, off-plan buyers are concerned. Will the building depicted in the glossy sales brochure actually get completed? That lack of confidence caused people to stop buying. Prospective buyers in Russia are looking a lot more closely at the quality of a project's sponsorship and the financial solidarity of the developer, and are trying to find developments that are nearly finished in order to avoid construction risk.

"We're interested in residential subject to the development of Russia's mortgage laws," says Lee Timmins, the Moscow-based senior vice-president of Hines. "We also favour office and warehouse, retail and distressed property acquisitions in Moscow and St Petersburg." But he doesn't expect grade-A office vacancies to be absorbed in full for another two to three years.