Russian authorities may expand the mortgage support program to the secondary market
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The authorities began to discuss in detail the idea of extending preferential mortgage support programs from the primary to the secondary housing market. The decision to expand the program will be made after June 1 based on market analysis. The appearance of benefits in the secondary market can solve the problem of “overstocking” the population with housing, but will inevitably lead to an increase in real estate prices, experts say.
The issue of extending preferential mortgages to the secondary housing market is being discussed, said Alexei Zabotkin, deputy chairman of the Central Bank. “It makes sense to discuss the distribution of permanent programs to the secondary market, like a family mortgage, which will be valid for quite a long time and is more targeted,” he specified. Now all preferential mortgage state programs apply only to housing under construction, with the exception of the Far Eastern mortgage.
The discussion on the need to expand measures to support mortgage lending for the purchase of secondary housing was launched in April by President Vladimir Putin. At a meeting with the head of the Dom.RF state corporation Vitaly Mutko, he pointed out that the introduction of benefits for the purchase of housing in the secondary market could have a positive impact on the industry. “Certain imbalances are also beginning to appear in the real estate market: there is a so-called overstocking, which in the future may lead to a reduction in “construction”,” Mr. Putin argued.
Vladimir Putin, President of the Russian Federation, 11 April:
“There is a so-called overstocking in the real estate market, which can lead to a reduction in construction.”
A week ago, the president ordered the government, together with the Central Bank, “to monitor the situation in the mortgage lending market.” According to Vitaly Mutko, proposals for changes to state mortgage programs will be made after June 1, before that “some analysis of what is happening on the market” will have to be carried out.
But in addition to demand, benefits lead to price distortions in the real estate market. “Preferential mortgages for new buildings have greatly influenced the cost of the primary property,” Mr. Zabotkin noted. He expressed concern that the extension of benefits to the secondary market could “result more in rising prices than in increasing the affordability of housing.” The gap in prices in the primary and secondary housing markets, according to the Central Bank, in the first quarter of 2023 amounted to 40%. At the same time, the effect of the program to subsidize the loan rate, launched in 2020 as an anti-crisis measure, “already by 2021 against the backdrop of rising prices … was exhausted,” they say.
Despite preferential programs, the share of secondary housing in the mortgage portfolio is traditionally higher than new buildings, according to Sberbank. As of April 1, they specified, the shares were 66.1% and 30.1%, respectively.
“In 2023, the secondary market remains the main segment of mortgage loans,” confirms Irina Babina, chief analyst at Rosbank Dom. % versus 5.8%.
If programs with a subsidized rate are extended to secondary housing, rates will become more attractive, market participants say. VTB believes that it is advisable to extend preferential mortgages to secondary housing “in regions where construction is not actively carried out.”
The introduction of a preferential program for secondary housing will certainly increase interest in this segment, but it may spur price growth, believes Yegor Lopatin, deputy director of the group of ratings of financial institutions of the NKR agency. “There will be no benefit to the economy from extending incentives to the secondary market, individual economic agents, including banks, realtors, for example, will benefit,” Evgeny Nadorshin, chief economist at PF Capital, believes. “In addition, the idea may provoke a general increase in real estate prices in million cities.
At the same time, according to the expert, an attempt to stimulate the secondary market in this way may be associated with the risk of an “explosion of the formed bubble.”
Many, Mr. Nadorshin explains, bought expensive apartments on the primary market, which, having passed into the secondary category, turned out to be significantly cheaper: such assets “become toxic for both the client and the bank.”
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