The reason is that the issuance of mortgage loans, which has already slowed down, will additionally sink, because developers and banks will not be able to subsidize them to an acceptable level for the consumer
The market of new buildings in Russia is waiting for a serious drop after the next increase in the key rate. Such estimates come from development companies. However, there are also more balanced forecasts for the market. Here is the opinion of Valery Vinogradov, Vice President of the Association of Realtors of St. Petersburg and the Leningrad Region:
Valery Vinogradov, Vice President of the Association of Realtors of St. Petersburg and the Leningrad Region, “Any increase in the key rate while reducing the limits on preferential mortgage programs has a negative impact on the real estate market. But, on the other hand, everyone understood that if not today, then at the next meeting of the Central Bank the rate would be raised. If we talk about the secondary market, the rate has already been prohibitive. The fact that banks will now raise it by another 1-1.5 percentage points will not change the global market situation. Therefore, the market will stagnate, and most customers will decide to transfer money to the bank for deposits or, if we are talking about real estate, invest in profitable real estate. Residential real estate will stagnate in the near future until there are enough preferential mortgage programs and until the key rate goes down to a level acceptable to the market. I think only a small part of developers will directly reduce prices for real estate under construction. I think that there will be a bunch of all kinds of preferential and all kinds of preferences, which will not be a direct, but an indirect reduction in prices for consumers. Well, indirect, let’s say three meters for free. Or, if you pay more than the initial payment at once, then the price is reduced for you. And a low mortgage rate for the duration of construction will take place.”
Since the beginning of the cycle of rate increases from the Central Bank, developers have been able to partially adapt by subsidizing mortgage programs. Victoria Grigorieva, General Director of BEST-Novostroy, comments on the situation.:
Victoria Grigorieva, CEO of BEST-Novostroy, “I will not say that this is unexpected, everyone was preparing for this. Probably, this is already a tragic story, because with the increase in the key rate, deposits became victims, for which rates have already begun to rise in principle, even before the key rate was raised, and there is a certain outflow from real estate. The second is the protective mortgage lending rates, and the mortgage between you and me was 60%, or even 75% of all transactions. Therefore, yes, of course, it will have a certain negative plume, it will definitely affect demand. Plus, against the background of an increase in the key rate, literally the last week they have been actively announcing the end of limits on family mortgages, and the situation looks somewhat deplorable already today. And, on the other hand, there is another aspect, after all, what is happening now in the real estate market – this does not concern one or two developers, this is not some local, parochial topic, but this is a global problem of the whole industry — this is the construction industry, which we have a very large the economic sector. Therefore, we expect that some regulatory tools will be made that will help at least stay afloat. A lot of developers are now switching to installments, and with the help of installments it is possible to maintain quite good sales rates. I won’t say that it completely removes the fall, but it still helps to maintain it at the proper level.”
Currently, there are many mortgage offers on the market with a preferential rate of up to 10% for the period of house construction or with a rate of up to 13% for the entire loan period. However, even 18% was the threshold level for developers, and 19% is already a barrier level, says Alexander Khrustalev, head of NDV Group:
Alexander Khrustalev, head of NDV Group, “The rate of 19% is above the waterline, after 12-13% it was hard. Therefore, today this is a protective rate, it is clear that now the Central Bank is “drying up” developers, developers and trying to put the construction industry in general a little bit into the framework, because it is developing at an exorbitant pace, large construction sites, a lot of purchases. People take out and take out mortgages, and, in general, they took out a fairly cheap mortgage, cheaper than the market. We expect that they will stop “drying” starting, probably, from the end of November-December next year, and we expect that the government will introduce, perhaps, the concept of a “fair mortgage”, for example, for teachers, for the military, for security forces, and for someone else. That is, they will develop a targeted mortgage, thereby subsidizing the market. If this is not done, the market will fall. If developers fall, banks will fall. There is inertia until about January-February — this is the edge, but the fact that developers are experiencing liquidity problems is for sure. Because you can imagine, yes, what amounts are being given to banks now. Banks benefit from this, for them it is a feast, but developers review their profits and margins on a monthly basis. No one can stop the construction, if this is a neighborhood that this company has been building for ten years, they have nowhere to go. Construction is underway, apartments have been sold to people, future meters have been sold to them, they need to be built, the state will support them. In the end, the beneficiary is again the bank behind the developer, and the state is behind the bank, because basically 99% of the financing comes from state-owned banks. Accordingly, the state is the ultimate beneficiary, which may find itself with a large number of unfulfilled obligations, and it will have to complete the construction.”
The central bank has already noted that it may raise the key rate again in October, at the next meeting.
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