The housing market has collapsed — why aren’t apartment prices falling?

The housing market has collapsed — why aren’t apartment prices falling?

Рынок жилья обвалился — почему же не падают цены на квартиры

Photo: Eric Romanenko/TASS

Collapse of housing construction in Russia— alas, is a fait accompli. Rosstat even gives a specific figure: 20%. Today, every third developer is at risk of becoming unprofitable.

The Russian construction market was put into a stupor by the cancellation of the preferential mortgage program and the increase in the Central Bank’s interest rate to the maximum. According to the results of December 2024, the volume of housing construction in Russia’s prices fell by 19% year-on-year, this is also Rosstat data. The decline in housing construction last year increased from month to month. In the first weeks of January this year, it reached 78-80%.

The lack of available loans has also brought down the sales of developers: for example, in the Moscow region, they sold a quarter fewer apartments in new buildings in 2024 than a year earlier.

Several factors have made housing construction, in fact, one of the most unprofitable industries: in addition to the abolition of preferential mortgages and an increase in the key interest rate, other circumstances also played a role.

Here is the cost of building materials, which, as it suddenly turned out, turned out to be entirely imported, and even the departure of migrants, who simply found it unprofitable to work in Russia because of the collapse of the ruble. There were few Russians who could find workers willing to pay meager salaries, live in cabins, and receive “rough wages.”

Over the past year, construction volumes decreased by 2.4%, which is generally not much. But it must be borne in mind that this result was achieved in the first half of the year, when the key interest rate was different, inflation was not so high, and preferential mortgages were still poorly functioning.

But since July, when in Russia’s preferential mortgage program for new buildings has ceased to operate, and banks have increased mortgage rates to levels that the economy has not seen since the early 2000s, and housing has simply stopped being bought. As a result, the issuance of a mortgage in Russia fell by almost 40% by the end of 2024, and in December the decline reached 73% in terms of the number of loans.

And how can you get a mortgage if 20% of the key interest rate is only the starting point from which banks base their credit and financial policies? Russians have stopped buying apartments and prefer savings in banks to square meters.

We asked Yulia Bituza, a real estate expert, to comment on the situation.

— Banks have introduced so-called “floating rates”. That is, they accept a mortgage application at 20%, and sell an apartment at 29-30%. My fellow citizens thought about it, and instead of buying apartments, they took the money to banks and put it on deposits. In height, so to speak. The head of the Central Bank, Elvira Nabiullina, rubbed her hands together: money in the bank is a profit for the state. Well, the developers will somehow get out. But they didn’t get out.

“SP”: How much is it really possible to buy an apartment in Moscow now?

— A couple of years ago, a decent two-bedroom apartment in Moscow could be bought for about 8 million rubles. Currently, the treshka is worth about 16 million on the secondary market. As for new buildings, the developer uses tricks here.

The documents, for example, indicate that this is an E-3 apartment, but in fact it is an apartment with an area of 65 square meters, which looks like a two-bedroom apartment. It will cost about 22 million rubles. A full-fledged three-bedroom apartment with 4 or more windows in the capital can be bought today at a price of 28-30 million rubles.

“SP”: The massive transition of developers to floating—rate loans is, after all, a real threat to the construction industry, which has not known problems since the financial crisis of 2008. How will the market change after all these changes?

– 2025 may be a difficult year for developers, if not fateful. A number of developers of both commercial and residential real estate are at risk of losing some of their projects or leaving the market altogether. In the event of bankruptcy of housing developers, equity holders may also suffer: the refund of funds from escrow accounts compensates them for nominal losses, but not the actual costs in rubles.

SP”: Gloomy predictions about the fate of developers have reached the government. As a result, in November last year, Deputy Prime Minister Marat Khusnullin, who oversees the construction industry, said that “some developers have calculated their economy poorly” and they probably “simply will not cope with the task.” But he promised that the authorities would do everything possible to prevent the bankruptcy of construction companies.

— Many developers have certainly suffered. But note: the construction sites are not worth it. The logical question is: why? Is the government helping? No, it’s something else.

Those who build houses now took out loans a few years ago, when they were issued at 8%. The construction industry is designed in such a way that it implements projects slowly: from the moment of taking out a loan to laying the foundation, enough time passes while the project is being finalized by engineers, while approvals are being passed in various instances.

But how developers will get out of it now, to be honest, I can’t even imagine.

“SP”: But the question is not only to build a house, the apartments in it must also be sold. How do developers act in order to realize the built housing and earn income?

— Most of them are now hiding and waiting for a reduction in the key rate. Well, those who have already built houses have nowhere to go. They go to various discounts, promotions, and provide bonuses. Recently, they have been offering to pay for the apartment in installments.

But at the same time, it is impossible to reduce prices for new buildings, this is the law of development: if an apartment is sold cheaper, it means that it will cease to be a means of investing capital.

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