The day before the experts stated RIA Novosti about overheating of the Russian real estate market in a number of regions, including the development of preferential mortgages. According to them, there is a large price difference between new buildings and secondary housing, as well as a disproportion between payments for renting an apartment and its market price. This increases the payback period of the facility. In addition, apartments in buildings under construction are sold at inflated prices and lose up to 30 percent of their value after moving to the secondary market. Due to the disproportionality of prices, borrowers’ risks increase – if necessary, they will not be able to sell real estate at an acceptable price and completely close the loan. According to experts, this could affect the stability of the banking system and even lead to a large-scale banking crisis in Russia. Especially considering the increased risks of second flats not being sold at a loss and not being returned. Experts emphasized that rising house prices make renting more profitable than mortgages.
The Central Bank of the Russian Federation sees signs of overheating in the mortgage market in Russia, Central Bank Governor Elvira Nabiullina said at the International Banking Forum. Mortgages have increased at a rate as high as 30%, he said, and the regulator is concerned about both the quality of loans and their impact on the housing market. Nabiullina also pointed out the price difference between primary and secondary residences.
“This is what the beginning of a crisis might look like”
“In the residential real estate market, an abnormal gap has occurred in the prices of apartments of the same quality, sometimes even in the same project. A person buys an apartment with a concessional mortgage (that is, with a state subsidy), which is 30-40% more expensive than the same apartment, but with the same conditions (without subsidy),” Valery confirmed Emelyanov, an expert on the BCS World of Investments exchange.
The expert explained that if the buyer sells his mortgaged apartment at market conditions, that is, with a 30 percent discount, he will lose his house, be broke and still owe money to the bank. He added that these 30% discounts would consume the entire down payment (20 percent) of a new apartment in a building under construction. Emelyanov stated that all payments made before the sale of the flat will go towards paying the dividends included in the project by the contractors and banks.
According to the expert, historically in Russia rent has always been more profitable than a mortgage. He believes that additional problems are now noted with the mass distribution of non-recourse loans. The expert gave an example. A conventional one-room apartment in Moscow for a rent of 12 million rubles costs about 40 thousand rubles per month, and until recently it cost 90 thousand rubles per month, the same as that obtained with a mortgage on the secondary market (even before the recent increase in interest rates of the Central Bank). Now if you buy it on credit it costs almost 130 thousand rubles. Emelyanov emphasized that the market is very distorted.
According to Cian. According to analysts, mortgage payment in Kazan, St. It is more than twice the cost of renting an apartment in many cities with populations over one million, including St. Petersburg, Moscow and Ufa. In cities of more than 12 million people, this difference is 47-91%.
The head of Cian says that people prefer to buy an apartment, including on credit, not because of advantages, but because of reliability. Analysts” Alexey Popov.
“There is usually only one way out of this situation; lowering apartment prices. First of all, in the primary sector. Or catching up with the growth of household incomes due to inflation,” Emelyanov explained.
The expert did not exclude that banks will have to auction unsold apartments, which will have to greatly reduce housing prices so that at least someone buys them. Emelyanov added that the beginning of the crisis in the real estate sector might look like this.
“Protective rates”
According to financial market Sravni.ru, almost all Russian banks increased mortgage interest rates again after the Central Bank raised interest rates first to 8.5% in July, and then to 12% and 13% in August and September, respectively .
“Prime mortgage interest rates increased an average of 0.4 percentage points after the last increase in the key interest rate. The average rate for IT mortgages is currently 4.8% per annum, for family mortgages – 5.8%, for state-backed mortgages – 7.8%. The average increase in mortgage interest rates in the secondary market is 0.5 percentage points. Average mortgage rates on the secondary market are currently 14.3%, the market’s press service said.
Emelyanov called these rates “already protective.”
“If the Central Bank continues its campaign against the expensive dollar and increases interest rates, the price of mortgage loans will continue to increase. So far, only the Central Bank’s efforts have failed to control the dollar. All debtors, including mortgage debtors, suffer from this,” said Emelyanov.
Popov explained that an increase in the mortgage rate from 10% to 15% per annum is equivalent to a 41% increase in payment under standard conditions, where the down payment is 25% and the loan is given for 25 years. Still, the loans were taken under such conditions, which included plans to refinance the loans in the event of an adjustment in the interest rate, the expert noted.
Associate Professor, Department of Finance for Sustainable Development, Russian University of Economics. GV Plekhanova Maria Ermilova admitted that the increase in interest rates and mortgage prices had already cooled the real estate market to some extent, but did not call the situation critical.
“Previous loans are being repaid. This cannot be said about serious debts on mortgage loans. As for secondary and primary, this gap has existed for a long time. “This did not significantly affect demand,” he commented.
In August and September 2023, there was an increase in demand for mortgages on the market due to the weakening of the ruble, an increase in mortgage interest rates and numerous comments on this issue by deputies, officials and representatives of the Central Bank, confirmed Popov. Russians tried to get loans for housing before the next increase in mortgage interest rates.
What will happen next
According to Emelyanov, prices for new buildings can only be increased and maintained at the current level through state subsidies.
“As soon as the Ministry of Finance and the government of the Russian Federation refuse to finance new purchases (benefits for old purchases cannot be canceled), banks will lose access to budget money and a price pyramid will begin to take shape. Russians will not be able to buy apartments at these prices with their own money,” concluded Emelyanov.
Popov believes that if the Central Bank increases the interest rate at the next meeting, the prices of second-hand housing loans will increase again. He is confident that conditions may only tighten slightly at first.
“The latest decisions of the Central Bank are designed to remove from the market additional discounts on the conditions provided for in the text of subsidized programs, under which banks provide concessional loans at a rate of 7.5 percent, not 8 percent. Further dynamics of interest rates depend on decisions on the way social assistance programs are expanded,” Popov concluded.
Popov predicted that in the short term (two to four weeks) the increase in apartment prices will continue as the market reacts to the strong demand of the last two to three months. He believes a price recession is more likely in the medium term.
“Until the beginning of next year, prices for new buildings will continue to increase at least at the level of inflation, and prices for second homes, on the contrary, will fall by 8-12%,” said general director Roman Syrtsov. Metrium company.
Vladimir Shchekin, developer of the RDD housing cluster in New Moscow, says that some buyers will switch to the new building market due to low rates, and the cost of rent will increase due to increased demand.