“The market has long been waiting for the elimination of the huge price imbalance between “primary” and “secondary””
Preferential mortgages may acquire additional status – as controversial as they are innovative. A bill has been submitted to the State Duma, the authors of which propose to extend the program to secondary housing and at the same time cut off buyer-investors from it. Only Russians with “relatively small living space” will be entitled to a preferential mortgage. However, the idea, for all its external attractiveness, also has pitfalls. According to experts, not only will it not eliminate the price imbalance between new buildings and secondary housing, but it promises new risks for the real estate sector.
< p>As the initiators and deputies assure in the explanatory note, permission to purchase secondary housing on preferential terms will increase competition in the market and force developers to reduce prices, despite increased demand. Thus, low-income citizens will have a good chance to acquire a larger and more comfortable apartment. A limitation is set for potential borrowers: the total area of their housing should not exceed 36 square meters. m for each tenant (the borrower himself and family members living with him), or – 64 sq. m for a single borrower. At the same time, the preferential mortgage rate should be subsidized to the level of 3%. In addition, as conceived by the authors, the measure will exclude from the program those who plan to buy an apartment (or several) for investment purposes.
Meanwhile, the government gave a negative review to the bill. They believe that the spread of preferential mortgages to the secondary market, as well as a reduction in interest rates for all categories of Russians without a simultaneous increase in the volume of housing stock, will lead to the opposite result. That is, both demand and housing prices will increase. Let us remind you that the current preferential mortgage for new buildings started in the spring of Covid-19 2020 (for now extended until July 2024) and provided for a rate of up to 6.5% (now up to 8%), and did not apply to “secondary housing” and apartments. However, real estate prices then began to grow rapidly, ultimately neutralizing the positive effect of the program. This also happened because in large cities people began to actively invest in housing.
“The bill is, of course, interesting,” says Valery Tumin, director of Russian and CIS markets at fam Properties. – And it could solve the problem of the growing spread (difference in prices. – MK) between new buildings and secondary housing: market mortgages at a high key rate of the Central Bank are becoming less and less accessible, and preferential programs with state support apply only to new housing. At the same time, there are a number of oddities in the mechanics itself.”
Firstly, the document proposes to issue preferential mortgages only to those Russians who have “relatively small living space.” And this is not clear. Current living space standards: 33 sq. m per person and 18 sq. m per person if there are three or more members in the family. The bill proposes to set a limit of 36 square meters. m for each tenant – and this turns out to be a very, very large apartment. For comparison, the average area of a one-room apartment is 37 square meters. m.
Secondly, it is planned to subsidize preferential mortgages up to 3%, instead of the current 6.5%. It is quite obvious, argues Tumin, that this will be an additional burden on the budget. In addition, preferential mortgage programs have recently been adjusted: the down payment on them has been increased. Finally, there is a great risk that unscrupulous borrowers will begin to resort to various tricks in order to fall under this program and thus increase their capital. But the program is intended to improve the living conditions of citizens, and not to enrich them.
“This is a long story. Preferential mortgages in the form in which they were implemented greatly deformed and crushed the housing sector, says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – The bill arose on the basis of the ideas that both deputies and independent experts had previously come up with. But the fact is that it in no way eliminates the imbalance in the real estate market, since it is taken out of the general context of the current situation with preferential mortgages for new buildings. The root of the evil lies precisely in this program itself, which has long lost its incentives and benefits. The overabundance of preferential mechanisms in Russian megacities (to the detriment of the provinces) does not allow solving the problem of eliminating the labor shortage, which is the main issue for the economy today. Accordingly, the current program requires, at a minimum, “geographical” redistribution, a shift to small towns, so that people do not strive to leave there for the capital and other million-plus cities.”
This means that the bill was put forward prematurely, the expert concludes. In addition, it disincentivizes developers and ignores the problem of the huge amount of dilapidated housing in Russia. People living there cannot qualify for a preferential mortgage due to poverty, but they also need to be resettled somewhere. As for the risks of fraud, they exist, but they are unlikely to become widespread. Another thing is unclear: who and how, with the help of what mechanisms, on the basis of what documents will determine the circle of borrowers? We are talking about an additional administrative burden for potential participants in the process – both the state and citizens. What if the apartments were remodeled? How adequately can this be reflected in the current documentation on the state of the housing stock? In general, the bill raises more questions than it answers, Maslennikov argues.
In turn, Polina Gusyatnikova, senior managing partner of the law firm PG Partners, considers the initiative absolutely correct. According to her, the market has long been waiting for the elimination of the huge price imbalance between primary and secondary housing, which is exacerbated by the high key rate of the Central Bank. “Resale” loses significantly, but for many families this is a much more preferable option, since there is no need to wait for the end of construction or make expensive repairs.
“I don’t think this will lead to any fraud,” summarizes Gusyatnikova. – Now all information relating to real estate is absolutely transparent, all data is contained in Rosreestr, and it will not be possible to falsify it. The only option is to get rid of excess living space, that is, transfer it to relatives and the like. But this carries certain risks for the schemers themselves. It’s not a fact that such housing will be returned.”