Market Imbalances in Russia Spark Warnings About Mortgage Risks
Days before experts cited RIA Novosti warnings about overheating in the Russian real estate market, regions faced a surge in preferential mortgage programs. Analysts note a wide gap between prices for new builds and existing homes, and a growing mismatch between rent costs and market values. This misalignment pushes the return on a property investment out of reach for many buyers. In many cases, new apartments fetch inflated prices, and after moving to the secondary market they can drop by as much as 30 percent. With price disparities widening, borrowers face higher risk: if they need to sell, they may not secure a fair price to fully repay their loans. Some fear this dynamic could threaten banking stability and potentially trigger a broader crisis in Russia. Experts also point out that rising prices make renting more financially sensible than taking on a mortgage for many households.
The Central Bank of the Russian Federation has flagged signs of overheating in the mortgage sector, according to Governor Elvira Nabiullina at an international banking forum. Mortgage volumes have risen sharply, and regulators worry about loan quality and the overall housing market. She also highlighted the persistent price gap between primary and secondary residences.
“This Could Be the Start of a Crisis”
In the residential market, there is a noticeable price gap for apartments of the same quality, even within the same project. Buyers using subsidized mortgages pay 30 to 40 percent more for the same apartment without subsidies, complicating the financial picture for households and lenders alike, according to Valery Emelyanov, a market analyst with BCS World of Investments.
Emelyanov explains that selling a mortgaged unit at market value, with a sizable discount, could leave the owner unable to cover the remaining loan, potentially wiping out down payments and leaving a borrower in dire straits. He notes that discounts of about 30 percent could exhaust the 20 percent down payment on a new construction, with earlier payments directed toward contractor and bank returns on the project.
Historically, renting has been more cost effective than financing a home in Russia, and the situation is worsening with the broader spread of non-recourse loans. A typical one-bedroom in Moscow rented today costs around 40,000 rubles monthly, down from about 90,000 rubles before the latest rate moves. If purchased on credit, monthly payments have surged to roughly 130,000 rubles, underscoring a severe market distortion, Emelyanov notes.
Analysts from Cian report that in Kazan and St. Petersburg, mortgage payments often exceed rent by more than double in many large cities. In megalopolises with populations over 12 million, the rent-to-mortgage gap ranges from 47 to 91 percent. The head of Cian, Alexey Popov, says buyers opt for credit purchases not for advantage but for perceived reliability.
Emelyanov argues that the only feasible remedy is lowering prices, especially in the primary market, or allowing household incomes to catch up through inflation. Banks may need to auction off unsold apartments, which could force a sharp price correction. He warns that the crisis could begin in the real estate sector under these pressures.
“Protective Rates”
Market tracker Sravni.ru notes that almost all banks raised mortgage rates after the central bank increased rates to 8.5 percent in July, then to 12 and 13 percent in August and September. Prime mortgage rates rose by about 0.4 percentage points on average, with IT mortgages around 4.8 percent, family loans near 5.8 percent, and state-backed loans around 7.8 percent. Secondary market mortgage rates climbed to about 14.3 percent on average, according to the market’s press service.
Emelyanov describes these levels as a protective measure. He also cautions that further rate hikes by the central bank aimed at curbing a strong dollar could push mortgage prices higher. Debtors across the board would be affected by continued tightening, he adds.
Popov notes that moving rates from 10 percent to 15 percent per year would raise monthly payments by about 41 percent under standard terms, especially when the down payment is 25 percent and the loan runs 25 years. He stresses that borrowers often planned to refinance if rates shifted, which may complicate the current landscape. Maria Ermilova, associate professor at a university in Moscow, says higher rates have cooled the market but do not indicate a crisis yet. She adds that while past loans are being repaid, heavy debts on recent mortgages remain a concern, and that the demand gap between primary and secondary markets has persisted for some time.
In late 2023, a surge in mortgage demand occurred as the ruble weakened, rates rose, and public debate intensified, prompting many Russians to pursue loans before further rate hikes. The effect was an uptick in borrowing activity despite the higher costs.
What Happens Next
Emelyanov suggests new-build prices can only stay elevated with continued state subsidies. If financing from the ministry of finance and government support is withdrawn, banks could lose access to public funds and a price pyramid may form, making outlays for new apartments unaffordable for most buyers. Popov anticipates further pressure on secondary-market loans if the central bank lifts rates again, predicting only modest tightening at first.
He adds that recent central bank actions are aimed at phasing out extra discounts tied to subsidized programs, such as loans offered at 7.5 percent instead of 8 percent. The trajectory of rates will depend on how social assistance programs evolve. Popov predicts a short-term price rise for primary homes, driven by strong demand from recent months, while secondary home prices could fall 8 to 12 percent in the near term.
Roman Syrtsov, head of Metrium, predicts continued price growth for new buildings through inflation alignment, with a softer path for secondary housing as the market adjusts. Vladimir Shchekin, who leads the RDD housing cluster in New Moscow, notes that some buyers may pivot to new builds as rates stay low, while rent costs rise in response to higher demand.