The global real estate market is “broken”. Over the past ten years, prices per square meter in many countries have increased by half to two or three times, and over the past year America showed a record growth of almost 20% in dollars, Russia – by 20% in rubles, and the trend is not changing.
What is happening to the square meter, and when will it all end?
The cost of housing in many countries around the world has risen by at least one and a half times over the past ten years.
Average wages over the same period did not grow as markedly as meters: for example, in Israel for ten years real estate rose in price by 345%, and wages increased only by 17.5%, in Switzerland real estate rose in price by 165.5%, and wages grew by 2.4%, in Germany real estate rose in price by 162%, and wages increased by 14.2%.
Now there is a real “property chasm” between generations of baby boomers and generation Z: the former own real estate, while the latter simply can’t afford to buy.
And here is what has happened over these ten years with the cost of real estate in Russia, or more precisely, in its main indicator city – Moscow:
The graph shows the growth in the cost per square meter in the capital over the past 20 years, but let’s look at the last ten years and see an increase of 84.6%. At the same time, the average salary has increased, according to Rosstat, by 158%. Sounds good, but the graph of real income, hich the population of Russia had in recent years, is not at all like an ascending straight line:
It’s all about the ever-increasing inflation and the depreciation of the ruble.
The upshot is that real estate is getting more expensive, real income is growing disproportionately, and new meters are becoming less and less affordable.
The pandemic as a growth factor.
During the pandemic, the growth of real estate prices worldwide has only accelerated, and the pace continues.
During the second quarter of 2021, more than 33% of the world’s real estate markets showed growth of 10% or more, and the pace began with the introduction of widespread lockdowns, that is, from the third quarter of 2020.
However, it is reported that the main reasons for this were low mortgage rates combined with insufficient supply. According to Knight Frank, during the second quarter of 2021 in 55 countries housing prices rose by an average of 9.2%, with Turkey, New Zealand and the United States in the top three during this period. And Russia is in tenth place.
Today the ruble is depreciating, inflation is going up, and food prices are going up. The Central Bank summarizes that since the pandemic began, housing in Russia has risen in price by 39%. It would seem that the conditions for low-interest mortgages have been cut, the number of supply is growing, and developers are commissioning new meters – everything should cause a decrease in demand. But this is not the case, and prices continue to creep up.
The reason for this is inflation and the desire of people to save their savings from depreciation (by investing in real estate). Inflation is the reason why real estate prices are going up all over the world. It is growing in America, Germany and Russia. Because of this, stock markets are expecting a correction, and analyst Jeremy Grantham, who predicted the dot-com bubble burst in 2000, says that today the market situation is even “crazier.
Apartments in Moscow are going up in price, but losing space
According to Realiste, from January to November 2021 the price per square meter in Moscow rose 21.6%. At the same time, the price of an apartment added 9.5% on average. And our analysts noticed an interesting trend: the area of an average sold apartment for this time decreased by 10%, and in some areas – by 30%.
This is due to the fact that developers have begun to declare a lower floor area for standard apartments, and owners have begun to split housing in order to sell easier and get more profits.
The table below shows data from AI Realiste, showing how to reduce the average area sold in Moscow duplexes in different areas for the ten months of 2021.
This means that, for example, in the area of Taganskaya Square, the average two-bedroom sold in December 2020 was about 62 square meters, and now it is 32.5 square meters. In Kitay-gorod, the average two-bedroom decreased from 46 square meters to 26 square meters, and in the Gorki Leninskie area – from 72.5 square meters to 46.4 square meters.
What will happen to the global real estate market?
Mortgage rates are expected to grow worldwide, and banks are planning to tighten their lending terms. All this should adjust the market by a small percentage points, reduce demand, increase supply and be the basis for a slight decline in prices.
But the world experts agree that housing will not become more affordable. The slowdown will not cause the market to roll back, and the level of average wages will not grow in proportion to the market. Thus, the market will slow down, but will not go back up, which means that it is not worth waiting for the pre-crisis value of real estate to drop.
It is also worth noting that the rich will buy real estate, which means that there will be a movement of money from current accounts and savings accounts into real estate. At the same time, the bulk of the people will buy more slowly. That is why the business class and high-end real estate will go up in price faster than the standard class.
Nevertheless, according to Realiste, November will be the peak in terms of prices per square meter. December will traditionally be the highest number of transactions of the year, despite the level of prices. The understanding that “it won’t be like before” will gradually come to everyone, and those who wish to buy real estate will buy it on the terms they have now. This will be helped by the fact that developers will make the conditions of purchase more interesting in anticipation of the holidays.
As a result, according to our data, the total price increase per square meter in 2021 will be about 22-24%, and the average home will decrease by 20%.
At the end of the year, sales are expected to increase, but prices will remain at the same high level. Under these conditions, there will inevitably be an increase in mortgage lending and, consequently, an increase in mortgage lending to the population.
The short answer is that if you have large sums on deposit, it is better to move that capital into real estate. It is not a good idea to keep money “in the money,” as inflation is very high right now. However, if you have no savings, you should not take out a mortgage.