The demand for new buildings will fall by 25% after the completion of the preferential mortgage After the completion of the mortgage program with state support, the demand in the market of new buildings may decrease for some time. But radical changes in the structure of the housing market are not expected, according to experts interviewed by RBC-Real Estate
On July 1, 2024, one of the most popular preferential state programs in Russia in the market of new buildings is coming to an end — a mortgage with state support for primary housing at 8% per annum. We asked the experts how the demand in the new building market will change after that and whether it is possible for it to flow into other segments of the housing market.
Demand for new buildings will decrease
After the end of the state-backed mortgage program, a decrease in demand is expected in the new construction market. Its effect since 2020 has led to an overheating of the housing market. According to the Bank of Russia, in the first quarter, the indicator of overheating of the primary housing market in Russia reached 15%, and for secondary housing this indicator was 1%. The regulator explains such a noticeable gap in value between new buildings and secondary housing by the fact that developers include bank commissions in prices for housing under construction.
Others are also talking about the hype in the primary market. According to Incom-Real Estate, in May 2024, demand in the Moscow new construction market increased by 7.5% compared to April, and also exceeded May last year by 54%. Experts explain the activity of buyers by the impending completion of preferential mortgages, many seek to apply for a loan at the current rates. Because of this, there is a high demand in the market.
According to experts interviewed by the editorial offices of RBC-Real Estate, the completion of the mortgage program with state support at 8% on July 1 will lead to a cooling of demand for some time, since many of those who planned to buy a home in the second half of the year are entering into transactions right now.
The demand for new buildings will inevitably subside after the end of the preferential mortgage. It is difficult to say exactly how much, but not less than 25%, and in some projects it may fall by 50%, according to the head of the analytical center “Real Estate market Indicators IRN.RU ” Oleg Repchenko. According to the expert, it is important to understand that this is not a catastrophic drop in demand, followed by a collapse, but simply the return of the new building market from abnormal prices and demand to normal.
“The drop in demand in the primary market will help cool the overheating that has been created largely due to preferential mortgages. After all, because of him, the owners had a large number of overpriced housing. Buyers believed that they were profitable to purchase apartments, but primary housing was becoming more expensive at such a pace that offset the low interest rate on a preferential mortgage. Buyers fell into the trap of staying with overpriced housing,” says Oleg Repchenko.
Valery Kochetkov, director of the “New Buildings” direction of Incom-Real Estate, predicts a drop in demand by 15-20%. The expert believes that demand will fall in the first three to four weeks, but by mid-August it will generally recover.
“Developers’ marketers are not asleep and are working on programs to maintain demand after July 1. Installments from six months to two years are already being actively offered, with the possibility of switching to a mortgage in the future. Perhaps there will be programs where the developer will be ready to compensate for part of the mortgage interest rate. I think that in July we will see a lot of different offers,” Kochetkov believes.
Yulia Bocharnikova, Executive Director of Etagi, predicts a 20-30% decrease in demand. According to her, now the primary housing market in Russia is faced with “a huge amount of outstripping demand.” Many buyers are trying to get loans for the purchase of an apartment under the still existing conditions of a preferential mortgage.
The head of “CYANOGEN.Analysts” Alexey Popov also believes that after July 1, demand will decrease for some time. According to the expert, this is due not only to objective factors (an increase in the cost of mortgage servicing and the absence of a decrease in housing prices), but also to the information background. For some buyers, a lot of news about the cancellation of some preferential programs is perceived as the cancellation, at least for a while, of the very idea of acquiring it, Popov says.
A fatal decrease in demand after the curtailment of preferential mortgages should not be expected, especially in Moscow, adds Ruslan Syrtsov, Managing director of Metrium. According to the expert, even the mortgage cancellation coming at the end of the year looks more painful for IT specialists, but still not critical, because many representatives of this industry have already issued a loan. But the family mortgage remains, which serves as the main driver of consumer activity — today it accounts for more than 40% of transactions, says Syrtsov.
For more information about preferential mortgage programs that will continue to operate after July 1, read the article “Which preferential mortgage programs will remain available to Russians in 2024”
Part of the demand will flow to the secondary market
Photo: Denis Kabelev / Shutterstock / FOTODOM
Experts believe that after the completion of the preferential mortgage, competition between the primary and secondary markets will increase for some time, but there will be no mass outflow of buyers to the ready-made housing market.
The secondary market has undeniable advantages. You do not have to wait for the completion of construction or make expensive repairs just so that you can live in the apartment. In addition, it is always possible to negotiate a discount with the owner of an apartment on the secondary market, says Oleg Repchenko. The expert also notes that new buildings are more expensive than secondary housing, their popularity in the market has grown in recent years largely due to artificially low interest rates on preferential mortgages. And now the housing market will return to normal, predicts Repchenko.
After the subsidized mortgage on new buildings ceases to exist in its current form, it will be easier for the secondary market. Demand will increase because secondary housing is more affordable, and a huge price bubble has inflated in the segment of new buildings, agrees Sergey Shloma, director of the Secondary Market direction of Incom-Real Estate. According to the expert, many potential buyers will pay attention to the ready-made housing market, especially in the first time after the end of the mortgage with state support.
The secondary market is not able to become a full-fledged alternative to the primary one even after the completion of the preferential mortgage program. The fact is that family mortgages and IT mortgages remain on the market of new buildings, and regional mortgage programs – Arctic and Far Eastern — continue to operate in the Far East, says Irina Dobrokhotova, founder of Best-Novostroy. But there are no programs on the secondary market that support the buyer. Mortgages are valid only at market rates — at the moment it is about 18% — and for the vast majority of buyers it is very expensive, says the expert.
Ruslan Syrtsov notes that developers have a wide range of marketing tools that make the purchase of primary housing more attractive. And most modern buyers consider new buildings to be more liquid than secondary housing. Therefore, a mass outflow of buyers to the secondary market is not expected, the expert believes.
Buyers will postpone transactions and will rent housing
Photo: Holly Stratton / Unsplash
Analysts believe that the cancellation of preferential mortgages for new buildings and high rates will force buyers to postpone transactions until the market situation improves. Some of them will continue to rent housing.
Demand in the rental market is being dispersed by those who could not get mortgage approval or decided to postpone the purchase of real estate, says Yulia Bocharnikova. Rental availability may decrease further in the summer. But this situation will be temporary, the rental market will not become an alternative to the market of new buildings, the expert believes.
Inkom-Real Estate calculated that when buying a studio apartment worth 9.5 million rubles, the monthly payment will be approximately 102.5 thousand rubles, and 1.23 million rubles will be received per year. When renting a studio apartment for 50 thousand rubles per month, the tenant pays 600 thousand rubles per year. It turns out that you can save some money for your own apartment or for a down payment on a mortgage. But at the same time, do not forget that part of the money will be spent on daily expenses, medicine, food and other expenses.
It is premature to talk about the early transition of potential buyers to the rental market. Everything here depends on mortgage rates, Oleg Repchenko believes. According to the expert, the protective mortgage rate in the Russian market is 10-12%. Now housing loans, if you do not take into account preferential programs, start from 17-18% per annum. In this scenario, renting an apartment becomes more profitable. But this does not mean that now all those who are going to buy housing with a mortgage are reorienting to rent. Objectively, the situation can be assessed no earlier than in six months or a year, says Repchenko.
According to other experts, the rental market will not be able to become an alternative to preferential mortgages, and a mass outflow of buyers to this market segment is also not predicted. Even though renting is now cheaper than servicing a mortgage loan.
If renting an apartment were significantly cheaper than an apartment for a mortgage, then one would expect a significant flow of buyers of new buildings, Irina Dobrokhotova believes. However, the expert recalls that over the past year and a half, rental housing rates, especially in Moscow and large cities, have increased markedly. And it is easier for many buyers to take out a mortgage loan for an apartment in a new building for a longer period and pay for their housing than to pay for the rent of an apartment without the prospect that it will become property, Irina Dobrokhotova believes.
According to Ruslan Syrtsov, rent can only be considered as a temporary alternative to purchasing primary housing with a mortgage. The high cost of renting housing and its possible growth after the end of the mortgage program with state support, according to the expert, will motivate many to apply for a mortgage loan. Despite the fact that in the future the availability of housing loans will not seriously decrease, the authorities are already proposing to introduce various targeted programs to replace the curtailed preferential mortgage. For example, for medical workers or employees of the military-industrial complex, the expert summarizes.
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