The rise in housing prices in Russia has become one of the main themes of 2020 and 2021 – on a par with the pandemic, which has to do with this growth. Now the preferential state program is almost not working, but housing prices are not going to stop yet. But many experts and officials believe that prices will continue to rise no faster than inflation. We work together with experts on why this is so and whether we can believe such predictions.
What has happened in the market over the past year
The years 2020 and 2021 were atypical for the Russian economy, but the most unexpected dynamics showed the real estate market. Usually this sphere of the economy is the first to suffer from the crisis – but this time the developers came out of the pandemic period in a much more favorable position than they were before it.
Let us remind: before the pandemic, the residential real estate market had not stagnated, but had already passed its peak of growth – for example, in Moscow developers complained about the decline in demand for housing, luring customers by promotions and discounts. In this situation, the introduction of the lockdown could cause serious damage to the business – due to the outflow of migrants, construction companies did not have enough workers, and the rest were sent home to self-isolation. Most importantly, buyers would have been in no hurry to invest in housing, having lost some of their income due to forced downtime.
But the launch of the government program for concessional mortgages changed everything – demand did not just increase, buyers first “swept up” the most affordable and profitable offers, then switched to new projects and “illiquidity”, and developers have launched a maximum of new projects. Naturally, housing prices rose – and rose so much that around the beginning of 2021 negated the entire positive effect of reducing the mortgage rate below 6.5% per annum.
According to oldypak capital lp property 2022 report, real estate prices from April 2020 (the launch of the state program) to date have risen as follows:
As you can see, in Moscow, prices rose from 205.3 thousand rubles per square meter in April 2020 to 284 thousand rubles in September 2021. That is, the price increase was 38.3% – there hasn’t been such a rush in the market for a very long time. Markets in other major cities seem to show approximately the same dynamics.
As always, apartments on the secondary market began to rise in price after the new buildings:
Accordingly, the rise in prices also affected the secondary market – but not as much as new buildings. This is because under the terms of the two largest state mortgage lending programs (State Program-2020 and “family mortgage”), you can only buy housing on credit with a subsidized interest rate in a new building. The increase in prices on the secondary market is due to the fact that some buyers are not considering state programs, and therefore choose between the new buildings and already settled housing.
The rise in real estate prices in Russia has had other consequences – due to the fact that developers have increased construction volumes, the demand for construction materials has increased. That naturally led to an increase in their prices – and for everything from metal to finishing materials.
Meanwhile, the Russian mortgage lending market sets record after record – in 2020, 1.7 million loans were issued for 4.3 trillion rubles, and only for the first nine months of 2021 – 4 trillion rubles.
However, the market is unlikely to be able to hold such figures further.
Mortgage in Russia: rates and government programs
In 2020 and 2021, a major role in the growth of real estate prices was played by mortgages – although the credit is sold and not all housing in the country, it was a preferential state program spurred a rush demand for apartments. Now this program is greatly curtailed, but take credit at a preferential rate in Russia is still possible.
At the moment there are a number of credit programs with support from the state:
state program-2020: after July 1, 2021, the maximum loan amount is limited to 3 million rubles, and the maximum interest rate is increased to 7% per annum. Banks give such loans at a rate of about 5.8-5.9% per annum, but in fact at 3 million you can buy an apartment in a not very big city (or in Moscow, but with a large down payment);
family mortgage: from July 1, 2021, a loan at a rate of 6% per annum and below can be taken by a family in which at least one child was born in 2018 and later. The loan amount is limited to 6 million rubles (in Moscow, St. Petersburg, Moscow and Leningrad regions – 12 million rubles), and under the program you can refinance an old mortgage. In the regions of the Far East mortgage program rate is reduced (for example, in VTB – 4.3% per annum), and you can buy housing from the secondary market;
Far Eastern Mortgage – in the regions of the Far Eastern Federal District you can get a loan at only 2% per annum up to 6 million rubles. It is important that the borrower is under the age of 35 years and was married (husband – also not more than 35 years), or was a single parent of an underage child;
Rural mortgage – it is possible to buy housing worth up to 3-5 million rubles, which is located in the countryside, at an annual interest rate of up to 3%. It is true that the program is now suspended.
There is also a continuing military mortgage program, but it is not about subsidizing the interest rate, but about direct repayment of the loan by the state.
According to oldypak capital lp property 2022 report, the current state mortgage program-2020 is unlikely to have as much impact on the market as before, and the family mortgage program is still fairly limited in that it is issued only to families with children.
But there is another factor that could cool the overheated mortgage market – the policy of the Bank of Russia. The peak of mortgage lending occurred at a time when the key rate was at a historical minimum and amounted to 4.25% per annum. That is, banks were also lowering their prime rates on conventional mortgages – the situation allowed them to do this.
Now the key rate has increased to 7.5% per annum – and, taking into account the winding down of the state program, it will soon begin to rise. Experts predict its growth from the current 7% to 9-9.5% per annum by the end of this year. And considering that Elvira Nabiullina did not rule out the possibility of raising the key rate another 1 percentage point – that is, in 2022 the average mortgage rates could break through the psychological mark of 10% per annum.