As it is widely known, ex-mayor Yuri Luzhkov’s wife, Yelena Baturina, is ranked the 27th richest Russian according to Forbes magazine’s list of billionaires in 2010, with most of her $2.9 billion fortune acquired in her construction company Inteko. Before he was fired, Luzhkov was subject to widespread public criticism for using his position to help Baturina amass her wealth through construction contracts in the Russian capital.

Investors and observers are closely watching developments in the real estate and construction market and any repercussions related to Baturina’s corruption in the real estate sector during her husband’s tenure.

Vladimir Voronin, head of finance and construction company Lider, indicated that figures close to the ex-mayor and his team would be scrutinized and that the prosecutor’s office will look for violations. The new team is likely to go along with this in order to distance themselves from the previous regime.

According to Dmitry Kovalchuk, CEO of Probusiness Development, if the assets of Inteko were investigated in a “clumsy manner,” it would send a negative signal to other investors to curtail business in Moscow, which hardly benefit the new mayor. Igor Bunin, general director of the Center for Political Technologies, believes that a criminal prosecution of Luzhkov is unlikely, as the authorities are not keen to escalate a conflict from which they emerged victoriously.

A sign of what may come is now being played out in the Moscow Arbitrage Court. In mid-September, before the Luzhkov-Medvedev saga spilled onto the public arena, the Court reanimated a claim by the Federal Agency for State Property Management (Rosimushestvo), originally brought and then cancelled in 2004, claming that an Inteko daughter-company illegally came to possess land in the western part of the city originally designated for foreign embassies. The case was scheduled to be heard on October 5, but was postponed until early November.

In the meantime, Inteko maintains that it is not experiencing problems selling real estate or working with business partners.

As the Luzhkov saga unfolded in late September, UniCredit Securities wrote that “the resignation of Yuri Luzhkov, could lead to significant consequences for the Russian real estate market. Potentially it could cause a reset of the real estate market and lower prices.” Artem Tsogoev, partner of the Moscow Central Real Estate Exchange, concurred that the change of power in the city could lead to lowering prices in the next 18-24 months if the new mayor is able to get developers to sell housing for low prices in exchange for a reduction of fees paid to the city authorities for long-term development contracts. Then housing prices in Moscow can be reduced by not more than 10% compared with the current $4,000 per square meter.

On the ministerial level of the federal government, officials have now joined the tirade against Luzhkov and his administration. Speaking at the VTB Capital investment forum on October 5, Minister of Finance Alexei Kudrin claimed that “every one out of four decisions made by Luzhkov as mayor illegal.” The next day, the Audit Chamber of the Russian Federation issued a statement accusing the city administration of inefficient use of funds.

In the meantime, Moscow’s acting mayor Vladimir Resin is burnishing his credentials for the mayoral post. His reigning in control after the chaotic coup at City Hall and his recent membership in  United Russia indicates that he could be palatable to both the Kremlin and Muscovites. While Resin has not flaunted any signs that he is the archetypal “strong leader,” he at least is showing that Moscow will function as normal and will not cause the Kremlin any grief in 2012. Not least important is the Resin’s experience with the regulatory side of real estate during his tenure as vice-mayor and in previous posts.

Possibly related posts:

1. The Last Weeks of Yuri Luzhkov: A Timeline
2. Luzhkov: Vox Populi (part 2)
3. Luzhkov: The Contenders (part 3)
4. Luzhkov: Thus Spake the Commentariat (part 1)
5. CEO of Digital Sky Technologies Builds an Empire

Baturina · Kudrin · Luzhkov · Moscow

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