The share of installment transactions in new buildings in Moscow now varies from 10% to 30%. Last year, the share of such transactions was significantly lower. The increase in installment transactions was the developers’ response to tightened mortgage requirements
Against the background of stricter mortgage requirements, developers began to offer installments to buyers of new buildings more often. Today, the share of such an offer in the capital’s housing market exceeds 40%. According to the forecasts of experts interviewed by the editorial board of RBC-Real Estate, the share of installment offers and the share of transactions under these programs will continue to grow in 2024.
What are the reasons for the popularity of installments and whether it can replace a mortgage — we are working with experts and developers.
The share of installment transactions has increased
In late February — early March, the share of installment transactions in the Moscow market of new buildings (excluding the elite segment) accounted for from 10% to 30%, a year ago the figure was significantly lower, according to data from experts interviewed by RBC-Real Estate. For example, according to the estimates of the real estate company Metrium, now the share of purchases of apartments in new buildings by installments exceeds 10%. A year earlier, there were about half as many such transactions. “Such dynamics is due to a serious tightening of the conditions for granting preferential mortgages. In fact, many customers have shifted to another marketing tool,” explained Ruslan Syrtsov, Managing Director of Metrium.
A noticeable increase in the number of installment transactions is also observed by the experts of NDV Supermarket of Real Estate. According to their data, in February, installments accounted for about 15% of the total volume of transactions with Moscow new buildings. Compared to last year, the indicator increased by 10 percentage points, said Tatyana Podkidysheva, Executive Director of NDV Supermarket of Real Estate.
This year, installment payments have become a popular tool for buying apartments in new buildings in Moscow, Valery Kochetkov, director of the New Buildings department at Incom-Real Estate, confirmed. “In February of this year, the number of installment transactions increased by 60% year-on-year and by 40% compared to December 2023. In the primary market of Moscow, installment purchases account for 30% of the total,” Valery Kochetkov cited the figures. Many people want to book an interesting lot now, and in a couple of years to get a mortgage, the expert explained.
In late February — early March, the share of installment transactions in the Moscow market of new buildings (excluding the elite segment) accounted for from 10% to 30%, a year ago the figure was several times lower (Photo: Shutterstock)
Managing Partner bnMAP.pro Irina Dobrokhotova, founder of Best-Novostroy, also notes an increase in the share of installment transactions, but mainly in projects where payment conditions can compete with mortgages. For example, there are projects where installments for the initial payment are possible and it must be paid before the completion of construction. “It is advantageous if the buildings are at the initial stage of construction (for example, construction ends in 2026-2027). In this case, the buyer can pay quite large amounts without interest, which are usually charged on a loan,” Irina Dobrokhotova explained.
Indirectly, a decrease in the share of mortgage transactions may indicate an increase in installment sales, said the head of CIAN. Analysts” Alexey Popov. For example, in January, the share of mortgage transactions decreased in most large new construction markets in Russia. In Moscow, it decreased by 8 percentage points, in the Moscow Region — by 3 percentage points, in the Leningrad Region — by 4 percentage points, Alexey Popov cited statistics. “Part of this reduction could have come just for programs using installments,” the expert admitted.
At the same time, in the second half of 2023, the share of installment transactions in new buildings was about 2%. “This financial instrument was not as interesting to both developers (for whom such a deal was more expensive than a mortgage) and buyers (who had a wide range of preferential programs),” Alexey Popov explained.
Opinion of developers
Developers are also recording an increase in interest in installments in 2024. According to the Federal Grid Company, the level of installment transactions in February of this year amounted to 34% of total sales. “We recorded a similar indicator in 2022, when there were attractive conditions for installments. In fact, we returned to the structure of the sales conditions of that period. If we compare with last year, mortgage instruments were stronger in 2023,” explained Ksenia Tsaplina, Director of the Department of Analytics and Sales Planning at FGC Group.
In the projects of the A101 Group, there is no significant change in the share of installments in sales — it remains stable at 5-8%, said Vladimir Kolesnikov, Deputy Commercial Director of the A101 Group. “Changes in demand for installments, it seems, can be noticeable among those developers who promote this tool by reducing or completely eliminating the margin for the temporary value of money,” Vladimir Kolesnikov believes.
The choice has become wider
The increase in installment transactions was the developers’ response to tightened mortgage requirements. As a result, they have increased the supply of apartments that can be bought using such a mechanism. “With the changes in the terms of preferential programs, developers began to offer various installment schemes more often: interest-free and interest-free. Interest-free installments can be arranged in 53 projects of Old Moscow. Its share is 38.1%. Paid installments with a share of 41.8% are represented in 58 projects,” said the executive director of NDV Real Estate Supermarket.
Offers for free and paid installments can be submitted within the framework of the same project. It all depends on the amount of the initial payment and the deadline, the expert clarified. “Various installment options are provided, as a rule, with an initial payment of 10% or more. According to some terms of the installment plan, the value of the lot may be higher, and the discount may not apply if it was provided,” Tatyana Podkidysheva added.
According to Metrium estimates, the share of projects with installments increased from 25% to 40% over the year. The term for granting installments ranges from one month to ten years, and the most popular options range from six months to two years. “Interest-free installments are especially common, which, in fact, imply a discount. Paid ones are less common,” Ruslan Syrtsov noted.
According to him, for developers, installments are as convenient a marketing tool as a mortgage. This option is beneficial for buyers, as it does not imply a significant increase in the cost of the apartment. “But this option is only suitable for wealthy buyers who are able to repay the debt in a short time,” added the managing director of Metrium.
Against the background of stricter mortgage requirements, developers began to offer installments to buyers of new buildings more often. Today, the share of such an offer exceeds 40% (Photo: Shutterstock)
Types of installments
There are two types of installments in the market of new buildings:
Will the installment plan replace the mortgage
The share of installments when buying apartments in new buildings in Moscow in 2024 will continue to grow due to the changed conditions in the mortgage market, experts predict. According to them, installments are becoming a good alternative when buying an apartment against the background of rising mortgage rates and tightening conditions for granting loans under preferential programs. By the end of 2024, the share of installments in the total volume of transactions in Moscow will account for about 18-25% of transactions, depending on the class,” believes the executive director of NDV Real Estate Supermarket.
Interest in installments, as well as in other financial instruments that do not cause an increase in the price of an apartment, will grow against the background of tightening preferential mortgages and high rates on market programs, Irina Dobrokhotova agrees.
But installments will not be able to become a full-fledged replacement for mortgages, experts are sure. Such programs can be considered as an alternative to a loan for customers hoping for early repayment of loans, Ruslan Syrtsov believes. “For most buyers, this tool is still inconvenient, despite its main advantage — the absence of significant overpayment. Therefore, the popularity of installments will remain at an elevated level for a relatively short time — until the Central Bank’s key rate is lowered,” the expert believes.
Installment programs will not be able to completely replace mortgages, Alexey Popov agrees. “For developers, such sales are more expensive (and worsen the financial performance of the project). For buyers, this significantly limits the choice (not everyone provides installments) and imposes strict restrictions on the payment period,” the expert explained.
The developers themselves also do not believe that installments can become a full-fledged alternative to housing loans. “Developers are severely limited in the use of installments in terms of project financing and the need to maintain the level of coverage on escrow accounts in order to keep the project financing rate,” explained the director of the Department of Analytics and Sales Planning of FGC Group.
Installment programs can quite effectively solve the local tasks of the developer in terms of supporting sales volumes, but they are not able to fully replace mortgage lending, added the Deputy Commercial Director of A101 Group of Companies.
Within the framework of the financial model of the project agreed with the bank, the developer is obliged to comply with the covenants on the rate of filling of escrow accounts. Installment sales, on the contrary, slow down their filling, the expert explained. “Therefore, the developer always has several options — to intensify the installment plan programs or to stay in a more conservative scenario,” the representative of the developer concluded.
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