There has been a turnaround in the housing market

The boom in the Russian residential real estate market appears to be coming to an end. The state has set a course to curtail preferential mortgages, which, from a measure of social support, have turned into one of the locomotives accelerating inflation. Today, only completely desperate citizens take out mortgages at market, barrier rates. According to experts, as soon as the government cancels mortgage benefits, “squares” will begin to become cheaper, first in the primary market, and then in the secondary market.

According to the general director of the World of Apartments portal Pavel Lutsenko, since the beginning of 2023, new buildings in the Russian Federation have risen in price by 15% – up to 126 thousand rubles. for 1 sq. m. The cost of “square meters” increased the most in Makhachkala (+107%), Magnitogorsk (+46%), Nizhny Tagil (+43%), Chelyabinsk (+39%) and Murmansk (+35%). 1 “square” in the secondary market of the Russian Federation over the past 12 months has increased in price by 14%, to 109 thousand rubles. (see table). Resale prices increased the most in the past year in Chelyabinsk (+43%), Magnitogorsk (+40%), Nizhny Tagil (+34%), Novokuznetsk (+32%) and Vladikavkaz (+30%). In Moscow, prices for new buildings rose to 349 thousand rubles per 1 sq. m. m, on the secondary market – up to 327 thousand rubles. In St. Petersburg, apartments have risen in price by 8% in primary housing and by 2% in secondary housing.

“Resale real estate in Russian cities grew evenly in the first three quarters, 2–3% per quarter, but in the fourth there was a jump to 6%. This happened due to an increase in mortgage rates: buyers tried to have time to take out loans on the old terms, and sellers, taking advantage of the excitement, began to raise prices,” Lutsenko explained.

As Sergei Zaitsev, sales director of the Etazhi company, told MK, the Russian real estate market this year has once again experienced a zone of turbulence in demand and high volatility in consumer preferences. The beginning of the year, in his words, was marked by the restriction of near-zero mortgage rates from developers and the flow of buyers from the primary to the secondary housing market, as well as a sharp increase in demand for land plots due to the expansion of preferential lending opportunities for the construction of houses, incl. on your own. From January to July of this year, in the total volume of mortgage transactions, secondary housing occupied from 62.6% to 66.9%, new buildings – from 28.4% to 31.1%, suburban real estate – from 4.8% to 7.9 %. After the first increase in the key rate of the Central Bank this year (at the end of July – Ed.), the real estate market began to transform. Already in August, 40.1% of mortgage transactions occurred in the primary market, and in November they completely increased to 53.3%; the secondary market, on the contrary, has lost ground – in November, the secondary market occupied only 38.2% of all mortgage transactions, and suburban real estate – 8.5%.

Now demand in the market is gradually cooling. As Zaitsev explained, on the one hand, the availability of mortgage loans for finished housing has sharply decreased, on the other hand, there was a significant outpacing demand in late summer and early autumn, when, due to the risks of changes in lending conditions, many people accelerated their decision to improve their housing conditions. The market is gradually slowing down, and in January the seasonal factor will also be added to this.

“In the last two or three years, a price bubble has inflated in the housing market, largely “thanks” to preferential mortgages; apartments have increased in price by 1.5–2 times. Refusal of large-scale subsidies (if it takes place) will balance the market and allow the resulting bubble to gradually dissolve,” said Oleg Repchenko, head of the AC “Real Estate Market Indicators IRN.RU”. Against the backdrop of a market barrier mortgage, the demand for housing will decline as soon as all mortgage applications pre-approved at the “old” rates end, the analyst is sure. According to him, now the minimum mortgage rates fluctuate in the range of 15.6–16.4% for large banks, and after the latest increase in the key rate to 16% they will become even higher, which will cripple sales.

In the new buildings market, purchasing activity was also negatively affected by the increase in the down payment on preferential mortgages from 15% to 20% in September and the introduction of protective surcharges on risk coefficients for mortgages with a low down payment and for heavily over-leveraged borrowers from October 1.

“The reduced demand will put pressure on prices, especially in the secondary market, where no benefits apply and there are only expensive market mortgages: in order to sell at least something in this reality, private sellers will have to curb their appetites and reconsider the price tags,” Repchenko is sure. — And with a high degree of probability, in 2024, against the background of protective mortgage rates and sagging demand, apartments on the secondary market may fall in price by 10% or more. But not right away: private sellers usually need several months to get used to the new reality. Therefore, a reversal of the price trend can be expected closer to spring.

It is no secret that the cost of housing in new buildings depends on government support. Massive mortgage subsidies for everyone keep prices high. “But after the shutdown of the state program on July 1, 2024, prices can also be expected to decline in the primary market. Most likely, instead of directly revising the cost of apartments in price lists, developers, as usual, will significantly increase the size of the discount,” Repchenko noted.

The Ministry of Finance of the Russian Federation has already submitted to the government a draft resolution with changes to the conditions for issuing preferential mortgages, which increase the targeting of such programs and reduce the risks of overheating in the housing lending market. As Ekaterina Berezhnova, chief analyst at Miel Group of Companies, told MK, in particular, it is proposed to reduce the maximum loan amount under preferential programs for Moscow, St. Petersburg, the Moscow and Leningrad regions to 6 million rubles. In addition, the Ministry of Finance proposed to increase the minimum down payment again, now to 30%, and also to once again reduce by 0.5 percentage points the maximum amount of subsidies received by banks lending under these state programs. Already, some banks have raised the down payment amount to 30%, although the Central Bank team has not yet arrived.

The situation on the real estate market in 2024 will depend on the duration of the high key rate, believes Sergei Zaitsev. If the Central Bank begins to gradually reduce the key rate in the first quarter, then nothing critical will happen in such a short period. If high rates continue in the second quarter, then demand in the housing market will cool significantly. Zaitsev does not expect any sharp price changes. In the primary market, project financing holds back from falling prices, while owners in the secondary market are guided by the price of new housing. At the same time, sales options with a large discount are possible on the secondary market in cases where the owners are interested in the urgent sale of their properties.

Lutsenko also does not see any prerequisites for a reduction in prices in 2024. Firstly, due to rising inflation. Secondly, due to the fact that the regular market competes well with the primary market in terms of prices.

In the current conditions, Zaitsev advises potential apartment buyers to primarily focus on the liquidity of the selected property. He reminds that any real estate is an investment. Therefore, even if you plan to live in it for the rest of your life, you need to choose it so that in the event of an urgent sale it can be sold for no less than the price for which it was purchased. It is also important to soberly assess the debt burden and prospects for loan repayment. “There is no universal advice for home buyers. Everything is individual and depends on the specific life situation. In any case, you always need to monitor the market well, look for good deals with a good discount and don’t be shy about bargaining,” concluded Oleg Repchenko.