China Zhong Jin Yin Di City Development, a state-owned real estate company, plans to explore the Russian property market, which it believes has huge potential and can deliver a high return on investment.

The company signed a strategic cooperation framework agreement with Sistema JSFC, the largest conglomerate in Russia, on July 22, paving the way for its entry into the market.

The two companies will work together in the international property development market, especially in China and Russia. There will also be collaboration in finance, technology, the Internet and other sectors.

China Zhong Jin Yin Di City Development is the only wholly owned subsidiary of the Beijing Gold Exchange Center, which is mainly controlled by the People's Bank of China for real estate development and urban operations.

"We want to enter the Russian property market because of the huge market demand there. The gross profit margin is also much higher than in China, where the industry average hovers around 15 percent," says Zhang Pengfei, Chairman of China Zhong Jin Yin Di City Development. He did not say what the expected investment return in Russia would be, but that the expected investment return of the company's project in Mongolia could hit 70 percent.

Zhang says China Zhong Jin Yin Di City Development targets local residents, whereas other Chinese developers focus on Chinese buyers when they expand overseas.

"We found that the housing demand in Russia largely exceeded the supply, thus providing lots of business opportunities for us," says Zhang.

According to Felix Evtushenkov, first vice-president of Sistema JSFC, the company developed 2 million square meters of housing last year, but it still cannot meet the market demand.

"I think it is just a temporary phenomenon. China's stock market has suffered from a slump recently and the exchange rate with the ruble is now stable," says Sergey Sanakoev, chairman of the Russian-Chinese Center for Trade and Economic Cooperation.

Since the dissolution of the Soviet Union, house prices in Moscow are 77 times higher than they were in 1992. They were once the second highest in the world, but now many houses are dilapidated and need repair, a problem that also requires plenty of money.

According to the Russian Union of Engineers (RSI), the stock of housing in poor condition rose between 1990 and 2010. From 1990 to 2010, Russia's housing stock increased by 31 percent, while the stock of old houses and those in poor condition rose by 309 percent. The stock of housing in poor condition of cities with more than 100,000 inhabitants increased to 25.4 million square meters as of 2010, representing 1.6 percent of the housing stock in those locations. A 2012 report from PMR Research, a market intelligence company that specializes in Central and Eastern European countries, says a government estimated cost of refurbishing the existing housing stock was 3.5 trillion rubles ($93 billion), and an additional 6 trillion rubles ($160.2 billion) for repairing the infrastructure.

"Russia has not been a popular destination for Chinese property investors because Russia gives them no advantage in terms of education and immigration," says Guo Yi, marketing director of Yahao Real Estate Selling & Consulting Solution Agency.

"With the falling exchange rate, high interest rate and less foreign capital, it is now a good time to invest in the Russian property market," says Darren Xia, head of property consultancy at JLL's International Capital Group in China. "Market research needs to be conducted carefully before the investment. Although the Russian property market is relatively developed, it is not as transparent as that in the UK or US."

Chinese overseas property investment reached $16.5 billion in 2014, a 46 percent increase compared with the year before. Property markets outside Asia, such as Europe, have attracted more investment, according to a JLL report.

At the start of 2015, the Russian developer Directsia SOT invited Chinese construction companies to participate in their new projects, with a total investment of $5 billion in the southern Russian city of Krasnodar.

China State Construction is also planning to build residential property, with a total area of 200,000 square meters, in the coastal region of Russia.

Tian Siqi contributed to the story.

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