Having your own apartment is becoming increasingly expensive
For most Russians, an apartment is a luxury, since the cost of square meters is incommensurate with their income level. And if previously a mortgage helped improve living conditions, now this type of loan is becoming unavailable. The Central Bank has tightened the rules for issuing mortgages. In addition, the validity period of preferential mortgage programs is coming to an end. What future awaits the Russian mortgage market? Will banks continue to approve loans en masse? Is it profitable to take out a housing loan now or is it better to rent an apartment? The founder of the Russian Guild of Realtors Konstantin Aprelev, independent real estate expert, author of the economic telegram channel Alexey Krichevsky and managing partner of the real estate brokerage agency DOLGOV PRO Alexander Kukarin spoke about this during an online conference.
: — The main reason these programs are attractive is that there are no restrictions on the category of people who can be borrowers. Anyone can take out a mortgage at a reduced rate. The second point — This is something that the developers have “re-invented” a little. the possibility of providing apartments in new buildings and, by inflating the price, lowered the mortgage interest rate to almost zero. Naturally, this also affected consumers. It is psychologically important for a person not to pay interest on a mortgage loan, but to pay, say, a figure that is immediately understandable to him by taking out a home loan. Well, thirdly — This is what the developer constantly says about one thing: construction prices are significantly lower than the market, and when the project is delivered, the cost of finished apartments will be significantly higher. These three factors are probably what influence the population’s perception of mortgages.
: — The main advantage of these programs — a reduced rate, which allows you to take out a mortgage at a fairly low interest rate. Plus, there are mortgages with state support and family mortgages. They have limits on amounts (up to 12 million rubles), which means they mainly apply to the mass segment, that is, to the comfort class. Accordingly, it was possible to conclude a large number of transactions in this segment.
: — Overheating in the mortgage market happened, in my opinion, quite a long time ago — two years ago, if not more. It was assumed that preferential mortgages for new buildings would work for six months or a year. As a result, it still works. Because of this, prices are rising. For this reason, the main thought of consumers who are thinking about purchasing real estate is — not “how much does the apartment cost?”, but “will I be able to afford the mortgage payment?”
: — I think it's lobbying. I don't see any other economic reasons. The profitability of developers has skyrocketed. Naturally, it will be very difficult for them to part with such a fatty piece of the pie. That’s why they are trying by all means, using custom research, to prove that the market will collapse if preferential mortgages are cancelled. With these moaning and hysterics, developers are simply trying to manipulate public opinion.
— I don’t think that the banks will be too harsh. and refuse everyone. There are other restrictive instruments. For example, increasing the down payment. It recently rose to 20%, and everything is heading towards the fact that from January 1 it will increase to 30%. Thus, the elimination of uncreditworthy citizens began. Consumers really need to have cash available for a down payment.
: — The functioning of the bank depends on the quantity and volume of funds issued. And perhaps the main channel here — mortgage loans. Therefore, neither top managers nor ordinary managers are interested in sharply reducing the volume of mortgage issuance. In turn, the Central Bank, by introducing restrictions, tries to minimize risks. Increase in down payment — it is a classic risk mitigation tool, even in resilient housing markets. If you look at the experience of North America and Europe, then there is a first payment — 30% and not a penny less. Let's remember what happened in the USA in 2007–2008. The government sought to make the purchase of housing more affordable for low-income people and practiced artificially limiting the growth of mortgage rates. This led to an oversupply of housing, the market collapsed, and then a full-fledged financial crisis began, which became global. Now in Russia there is approximately the same trend, but at a slightly different level. A short-term program to subsidize the primary market was adopted by the government during the pandemic, and, in my opinion, after Covid the program should have been stopped. It was because of its extension that we received an almost 50% increase in prices on the market. Now it would be interesting to keep the subsidies, but for certain categories of citizens. And second: if we are talking about a mortgage at all, then it should be issued exclusively for finished housing.
— Yes, your mortgage payment has doubled or more. The calculations here are very simple. At current rates for «secondary» if the cost of an apartment is 10 million rubles, with a down payment of 20%, the payment will be 120 thousand. Renting such an apartment in Moscow will cost 40 thousand. In the regions this ratio will be slightly less — just twice.
— You need to understand that the difference in cost between the “primary” and «secondary» somewhere 40–50%. And in a new building, it is necessary to include the cost of repairs, if they are needed, and the waiting period until the house is built, and the registration period. It is also worth considering that if the owner wants to suddenly sell the apartment, then he will sell the secondary housing, that is, he will automatically lose 20-30% of this value. Now a huge number of people are waiting and renting. Because of this, the number of offers on the rental market is falling. Yes, a historical low is also being recorded here. In the summer, supply fell by about one and a half times or more. And it remains approximately the same now. People are renting because they understand that it is more profitable now. You can wait a couple of years, look at what will happen to the key rate, what will happen to the market in general, and based on this make a further decision.
— Well, you shouldn’t say categorically that she will lose exactly 30%. Here you need to understand: if a person buys housing at the excavation stage, then, regardless of the external situation, the apartment will in any case increase in rubles. And it will be possible to sell it with an increase of about 20% to the purchase price.
— There are different answers to this question, depending on what you ultimately want to achieve. If this is an investment purchase, then I probably wouldn’t take out a mortgage now at a fairly high rate and without understanding how much the apartment will cost in the future. If you are buying an apartment in a new building in order to solve your housing issues, then you need to understand how long it will take for this housing to be put into operation. In any case, the decision is up to the person himself: either spend less per month, but rent housing, or spend more monthly, but live in his own apartment.
— It will definitely not be like in the USA in 2008. The situation in Russia is now completely different. But will the preferential program continue? This is the trillion dollar question! The budget for 2024 includes 450 billion rubles to subsidize mortgage loans. Despite the fact that this year there were 150 billion. It turns out that preferential mortgages should continue. The question is what programs will be included in it. Now IT and Far Eastern mortgages are starting to work. There are preferential programs for new territories. They could introduce preferential programs for teachers, for military-industrial complex workers… Will preferential mortgages for new buildings, which have been in effect since 2020, remain? We will find out the answer after July 1, because then it expires.
— First of all, we need to build some kind of long-term partnerships with developers. Subsidize both developers and buyers, thus helping the poor and advantaged categories of the population.
: — We need to reduce the difference between the primary market and the secondary market. It’s strange to me that almost all subsidized programs, even those aimed at certain categories of citizens, apply only to new buildings. We encourage people with little income to invest money in expensive square meters and wait many years to move into this apartment, while also paying for rent on the market. Why don't we basically put both markets on equal footing in terms of mortgages? And to do this, it is necessary to provide a mortgage not from the moment when the developer enters the market with his project and sells virtual square meters, but when the object is completed and put into operation. We need to stop selling virtual houses and start selling a real product. Then we will avoid problems with the quality of construction and delays in the commissioning of facilities.
: — Indeed, you can consider the option of taking out a loan after the house is put into operation. This is what they do in developed markets. There's an advance — 10–15%, which is affordable for people. In this case, the cost of the advance is fixed. That is, if we rent an apartment at the excavation stage for a conditional 5 million, then we pay half a million in advance and then take 4.5 million on credit. If we take an apartment on the last floors, it will cost approximately 8 million. We make a down payment of 10% and, therefore, we will pay 7 million 200 thousand.
— It is being discussed here, on the MK site. But the main thing is that it rises in principle. China now, by the way, has the same problems as we do. Only they solve them much more harshly. There is a huge amount of unsold housing that is simply being demolished. Why? In this way they increase their GDP: they demolish it themselves, and they build it themselves.
: — Now the developer does not receive money from shareholders. He builds on loan funds, which he takes at interest. The Central Bank rate increases, and accordingly, these percentages also increase. The only mechanism to reduce this rate — reporting to the bank on the filling of escrow accounts. The buyer of the apartment puts the money into an escrow account, and the developer can take it back only when he fulfills the conditions specified in advance in the contract. Accordingly, if during construction these accounts are not filled, then the rate will be included in the price of the apartment. At the end we will get expensive ready-made lots and return to where we started: again we will need to come up with preferential programs. In fact, now a person has a choice: buy ready-made housing or invest in a foundation pit. If we sell only finished housing, then the investment attractiveness of real estate will disappear.
— They will go down. Another option is also possible: developers will reduce the possible volume of lots for sale as much as possible and will put on the market 5-10% of the opportunities that they have in order to somehow slow down the fall in the price tag. But this is uninteresting and unprofitable for them. With this situation, 80% of their apartments will remain unsold. You will still have to reduce prices. In principle, this is already visible. By and large, now housing is being purchased only with a preferential mortgage. Therefore, everyone is tense because it may soon be covered up.
: — If we talk about new buildings, then, in essence, the developer is between a rock and a hard place. On the one hand, he needs to make prices attractive so that people can buy these apartments. On the other hand, construction costs are rising. The developer is not able to simply cut 20% off the price of all apartments. Therefore, the cost will change, but not much. If we talk about the secondary market, it is now cheaper to rent an apartment than to buy.
: — I think that price growth will slow down in both the primary and secondary markets in most regions of Russia. Using the funds already received, the developers will calmly hold out until the end of the year, without changing the terms of sale of the apartments. And Russians have quite a few tools left for saving money: deposits, a limited range of securities and real estate. I think people will still invest in real estate. Therefore, we do not expect a downward correction in prices until the end of the year.
— The real estate market, due to its colossal scale, is very slow. As for prices for 2024 for new buildings — Both growth within 5% and a fall are possible. The cost of «secondary» may fall by 5–7% due to falling demand. For now, it is more profitable to deal with rent.