Thursday, February 01, 2007

Real estate prices in two of the four zones designated for legal gambling,
set to come into existence in mid-2009, have seen a spectacular rise since
the beginning of the year. Under a new anti-gambling law, which received
President Vladimir Putin's official approval Dec. 31, gambling in Russia
will be restricted to four zones from July 1, 2009. Elsewhere in the
country, gambling will become illegal. The positioning of the zones -- the
Baltic exclave of Kaliningrad, the Primorye region, the Siberian Altai
region and the southern Krasnodar-Rostov area -- raised eyebrows when it was
first announced in December. Besides the Primorye region, which already
attracts a large number of gamblers from nearby China, the economic logic
behind the selection of the other zones seemed unclear. Investors, however,
now appear keen to get on board the potential gaming boom, which has caused
real estate prices to skyrocket. One of the intended zones, a 1,000-hectare
site by the Sea of Azov, on the border between the southern regions of
Rostov and Krasnodar, has seen real estate prices shoot up tenfold in recent
weeks, Vedomosti reported Thursday. This is despite the fact that civil
servants will only settle on the exact parameters of the zone in early
February. Private businesses are expected to invest up to $2.5 billion by
2010, with the government putting in $500 million for initial
infrastructure, Krasnodar Deputy Governor Alexander Remezkova said in a
statement published on the region's official web site. The reports of a
meteoric price rise in the Krasnodar-Rostov zone followed similar news from
Altai, where another of the gambling zones will be situated. With investors
from all over Russia looking to buy up land for potential hotel
redevelopment, prices have quadrupled in the village of Solonovka, on the
edge of the intended zone, Rossiiskaya Gazeta reported Jan. 11. Former
inhabitants have even begun returning to reclaim any land they once owned,
local news agency Amic reported. Describing the proposed site as little more
than a cluster of typical Russian villages, Alexander Smirnov, director of
the Altai-based Tourist Agency Plot, expressed incredulity at the expected
rate of change. "Its difficult to imagine that this will become a Russian
Las Vegas, but that's what they've said will happen," Smirnov said. "You
know what Russians are like -- they'll spend today and wait to see what
happens tomorrow."
Officials in Kaliningrad and the Primorye region could not be contacted for
similar figures Friday.

Some analysts, however, are skeptical about the accuracy of such high growth
rates and questioned the wisdom of any speculative investment in the
proposed zones.

"We are getting interest from various hotel chains in the Russian regions
but no particular interest expressed in the proposed gambling zones," said
Konstantin Demetriou, national director at the capital markets department of
Jones Lang La Salle.

With presidential elections scheduled before the law's implementation,
Demetriou questioned whether the gambling law would ever come into effect
and who would risk investing in the areas at such an early stage.

"It is far too early to talk about a possible surge in prices, and I
seriously doubt that the figures are as dramatic as claimed", said Oleg
Repchenko, director of the analytical department at IRN.ru, a web site that
tracks the market.

Lavrenty Gubin, spokesman for Storm International, one of the country's
biggest gaming companies, which runs the Super Slots chain and several
Moscow casinos, said his company had no intention of venturing into the
gambling zones before carrying out marketing research.

Also, although foreign gaming giants are backed by the necessary financial
resources, they will not be prepared to risk investing in the zones without
guarantees that the gambling law will come into effect and with the limited
infrastructure in place, Gubin said.

"This is Russia, and anything could happen. It is obvious that these zones
are not going to start functioning in 2 1/2 years," he said.

However, supporters of the gambling law see it as a way to wrest control of
the industry from the criminal elements that controlled it during the '90s.

Uprooting the gaming industry piecemeal and relocating it to remote
locations, with the state able to determine how any new operating contracts
are divvied up, will give the industry a clean start, proponents of the move
argue.