Borrowers are drawn to the land
Mark Twain's call «buy land — they're not making it anymore» is relevant for Russians again. Most citizens buy plots for individual housing construction (IHC) in order to save money. However, there are also many who enter into transactions for the construction of a private home, including with the help of specialized suburban mortgages. On what terms are loans issued for the purchase of land plots today?
In the first half of the year, banks in the Russian Federation issued loans for the construction of individual houses in the amount of over 380 billion rubles. The average size of one loan for suburban real estate at the end of June was about 5.5 million rubles. Moscow and the Moscow region are by far the leaders in terms of the volume of loans issued. The top 5 regions also include Tatarstan, Krasnodar Krai, St. Petersburg and the Leningrad Region.
“In the first half of the year, demand for mortgages on private homes reached its peak. Against the backdrop of expensive loans for urban real estate, a third of borrowers preferred to build houses themselves. The curtailment of preferential programs will obviously cool this market, but the trend of moving out of town can no longer be stopped,” said Sergey Babin, Head of the Mortgage Lending Department at VTB.
The predominant share in this segment of the mortgage market is occupied by transactions under preferential state programs. Thus, according to Dom.RF, in the first half of 2024, they accounted for 99.7% of all issues in this sector, and the bulk were preferential and family mortgages. «Borrowers mainly took out mortgages for individual housing construction, and over the year its share in the suburban real estate sector increased from 31% to 63%,» Inna Soldatenkova, head of expert analytics at Banki.ru, told MK. In her opinion, this distribution of demand is explained by lower rates under state programs. For comparison, the average rate on market mortgages for individual housing construction and finished houses as of August 2 is 19.33% per annum, and the average total cost of the loan is 21.34% per annum.
“At the same time, for the remaining targeted preferential programs, the average rate is 4.95% per annum, and the average APR is 7.57% per annum. At the moment, these include family and IT mortgages with a rate of up to 6% per annum, rural mortgages — up to 3%, Far Eastern and Arctic mortgages — up to 2%,” the analyst noted.
“We see that land for individual housing construction is more often than other types of housing purchased for the purpose of saving money and further resale, — said the managing director of secondary and suburban real estate at Avito Real Estate. Sergey Eremkin. — The reason, among other things, is the more affordable cost of plots — Such options are of interest to buyers who do not have enough funds to purchase an apartment, but have the opportunity to buy land and subsequently build a house on it.”
A mortgage on a land plot should not be confused with a mortgage loan for individual housing construction. Since the subject of the collateral in this niche product is not the built house, but the plot itself. Construction of a private house on it is possible only with the permission of the bank. Usually, bankers agree to such a clause in the contract when construction is permitted on the plot, it has undergone the surveying procedure and has established boundaries, a road leads to it, along which you can drive without interference at any time of the year. In addition, utility networks and communications must be laid near the plot, and the land must not belong to nature conservation or reserve zones.
In addition to the standard package of documents, when approving a mortgage, a cadastral plan of the land plot, a certificate of the absence of construction sites on the plot and an appraiser's report will also be required.
Currently, only seven Russian banks issue mortgages for land plots. Among them are the four largest credit institutions in the country with state participation. The conditions for all of them are significantly different. At present, interest rates on loans for the purchase of land plots start from 17.45% to 21.9% per annum. The initial payment ranges from 20% to 30%, and the maximum loan amount is from 10 million to 100 million rubles. The age of the borrower is from 21 to 75 years. The maximum loan term is 30 years.
It is more profitable to take a loan for the maximum term. This will reduce the size of the monthly annuity payment and help to repay the loan faster. We will add that today you can refinance a mortgage only for a land plot with a house. That is, first you will need to build a house and only then you can choose a bank to refinance the mortgage.
According to Soldatenkova, in the second half of the year, preferential programs will continue to support demand for suburban mortgages. At the current level of market rates, most people cannot take out such a mortgage. In addition, traditionally this segment of suburban real estate has been considered more risky for banks, and the approval rate there has always been lower than in the «urban» segment. The analyst does not expect significant changes in the conditions of banks for suburban mortgages: rates for market programs are already close to their prohibitive levels, and for preferential ones, they are limited by the state.
However, interest in land mortgages will probably remain with private investors. According to Eremkin, land plots for individual housing construction are among their priorities. Today, 25% of Russians who prefer to invest in real estate are ready to buy them in order to save money. For comparison, new buildings and suburban real estate (cottages, townhouses, etc.) have lower indicators; only 16% and 17% of private investors, respectively, are ready to invest in them. The lowest indicator (12%) is for secondary real estate. We will add that 17% of surveyed private investors plan to earn money in the future by reselling land that is constantly growing in price. So, Mark Twain was right.
The main thing is to successfully choose a liquid product in a promising location. Then the investment will pay off even with the help of a market mortgage for individual housing construction. Of course, if the loan amount is small. For those who plan to build a house for themselves, it is better to take out a mortgage on a land plot under a preferential program. In the Moscow region, we recommend paying attention to seven clusters of individual housing construction, which the regional government is developing with the help of specialized developers.