Not cheaper, but smaller. What will happen to the housing market in Russia

Rising apartments and sales boom

After the imposition of sanctions against Russia and the collapsed ruble, a rush demand began in many industries. Together with sugar, personal hygiene items and household appliances, Russians rushed to buy apartments. And if in the first three cases the cause was panic and fear of empty shelves, then in the case of real estate, people sought to save their savings.

According to Cyan. Analysts”, in March the number of transactions almost overtook the record December 2020: 8.3 thousand equity participation agreements (DDU) in Moscow and the region.

But already in April, demand began to fall. In the Moscow region, it collapsed by 48% compared to the previous month. There are similar figures for Russia: high demand in March, and then a 56% decline in April. The same trend was observed in May.

In April, compared to March, the demand for apartments in the Moscow region fell by 48%.

Andrey Solovyov, regional director of the urban real estate department of the consulting company Knight Frank Russia, argues that in the elite real estate segment, transactions occur only when necessary: ​​there are no clients who are eyeing, planning, for the most part they do not intend to waste time and are resolute in their choice:

“Many clients choose the classic strategies of behavior - “hit”, “freeze” or “run”. The former want to buy apartments 30-40% below the declared value; the second ones freeze their orders until the subsequent circumstances on the market are clarified; still others fear that the situation will be too unstable, and seek to sell or buy as soon as possible, close all pressing issues and leave the market.”

In the current conditions, the most active buyers are the most compact and inexpensive apartments: odnushki and studios. The footage has become smaller in recent months, which is typical for crises. According to Cyan. Analysts”, in Moscow, the average area of ​​residential premises sold decreased by 5 sq. m compared to last year - from 52 to 47 sq. m. At the same time, apartments with decoration are in demand - the Russians do not have extra money for repairs, including due to the increase in the cost of finishing materials.

The main reason for buying small-sized apartments is everything that people have enough savings for. Those who put off buying an apartment realized that there might not be a better time. So they took what they could afford. And those who kept funds in bank deposits or in the form of cash, hastened to invest their money in at least some kind of real estate before they depreciated.

The main reason for buying small-sized apartments is everything that people have enough savings for.

Savings, indeed, began to depreciate rapidly. At the same time, housing prices crept up. Head of "Cyan. Analysts” Alexey Popov notes that the average supply prices in Moscow and the Moscow region are now 8% higher than at the beginning of the year: 265 thousand rubles in the Moscow region and 321 thousand rubles in Moscow.

However, such sharp jumps in prices, as in February-March, are no longer there, says Popov:

“In April and May, price growth gradually slowed down. In June, not all developers carried out indexation, timed to coincide with the beginning of the month. New projects began to enter the market with more accurate pricing.”

Nevertheless, it is not worth waiting for price reduction even in the long term. To make such decisions, developers who build on project financing using escrow accounts (a special bank account in which money is kept until certain circumstances are met - ed. note) need to obtain approval from creditor banks. And that means a lengthy negotiation process. Nobody will go for that.

Co-founder of Mann, Cheremnykh & Partners, real estate profitability management expert Ivan Cheremnykh confirms that there will be no price cuts:

“Now you can expect cheaper prices only for individual lots – and then in the secondary market due to the fact that a particular person urgently needs to get into the money. For example, he wants to leave the country or needs to finance his business, or he has some problems, because of which he is ready to give the profit to the buyer in order to get into liquid money. Developers will not reduce at all. Waiting for real estate prices to go down is ridiculous.”

According to the forecasts of the National Rating Agency, by the end of the year, apartments in Moscow and the Moscow region will rise in price by another 20-30%. Construction costs are also growing, and developers will not work at a loss.

Freeze of new projects and lack of imported materials

The first reaction of developers to the sanctions and the depreciating ruble was the freezing of new projects. Developers have postponed the commissioning of new residential complexes to a later date. According to Kommersant, the crisis prompted 40% of companies to freeze construction throughout Russia indefinitely.

The crisis prompted 40% of companies to freeze construction throughout Russia indefinitely.

According to Andrey Solovyov, now developers with objects at the finishing stage of finishing are in a winning situation - they have already purchased materials, and restrictions have affected only a part of some goods. Most developers have to solve problems with the supply of materials. Companies began to actively establish supply chains through Kazakhstan, China, and Asia.

Ivan Cheremnykh claims that many goods in Russia are no longer available:

“Some materials and engineering solutions are not available to us. For example, what the Spaniards or Italians supplied can be delivered through Kyrgyzstan, Uzbekistan, Kazakhstan, but what the British supplied is impossible, because they are principled in this matter. These are engineering systems, finishing materials and equipment.”

Difficulties with elevator equipment have already arisen in Russia. There is production on the territory of the Russian Federation, but some components are made only in Europe. Developers have begun negotiations with elevator manufacturers, including those from China, Kazakhstan and Belarus.

The problem of shortage of imported materials is especially relevant for developers of luxury housing. According to Solovyov, now clients are cautious about objects, the delivery of which falls on 2025-2026, especially if the projects are sold with a full finish. After all, it will not be easy for developers to obtain the necessary components in the elite real estate segment:

“It's no secret that 30% of the filling of the elite club house is materials from abroad. Now, in the current situation, it is necessary to look for new logistics flows through Asia, and this will cost more. Some developers have already abandoned finishing in their new projects.”

Another problem is the rising cost of housing construction. In 2021 alone, according to various estimates, it has already increased by an average of 20–50%. This became possible due to the unprecedented rise in prices for building materials amid the pandemic - from 35% to 150% for some types of goods. But in 2022, a new record can be expected. According to Natalia Pyrieva, an analyst at the Finam financial group, this spring the cost of building materials increased by an average of 50%, and the cost of construction - by 30%.

The complication of logistics, exchange rate fluctuations, the pricing policy of the manufacturers themselves - all these factors affect pricing. In such conditions, building materials will continue to grow in price, says Andrey Boykov, managing partner of Rusland SP:

“With such data, building materials will continue to grow in price. It is clear that all this affects the final price of a meter. By the end of the year, it may increase either in proportion to the increase in cost, or slightly less.

The key role of the Central Bank

On February 28, the Central Bank raised the key rate from 9.5% to a record 20%. The regulator took this measure to slow down inflation: loans are becoming more expensive, goods, including housing, are less affordable, and demand is declining. Such a high key rate with rising real estate prices has become "protective". In commercial banks, it even increased by more than 10 percentage points - up to 21.5% per annum. Not everyone can afford such an expensive mortgage. Some banks even stopped issuing mortgage loans, waiting for the normalization of the situation.

In March, the Central Bank kept the indicator at a record high level. The result of such a policy of the Central Bank became visible already in April: the mortgage market collapsed by more than 70%.

In April 2022, the mortgage market collapsed by more than 70%.

According to the Bank of Russia, “mortgage loans worth 521 billion rubles were issued in March, and only 162 billion in April. approved at the old rates) and subsidized mortgages (approximately doubled from 210 billion in March to 113 billion).

In April, the Central Bank began easing monetary policy. First, the regulator lowered the rate from 20% to 17%, and then to 14%. In May, the Central Bank lowered it to 11%, and in June to the current 9.5%.

Until the end of March, preferential mortgages were still issued under the old conditions - at a rate of 7% per annum for up to 3 million rubles. From April 1, the rate increased to 12%, and the amount - up to 12 million rubles for the capital regions and 6 million for the rest. However, already in May, banks issued such loans at 9% per annum.

Natalya Pyrieva believes that despite the key rate that has fallen again and preferential offers, there are no grounds for a significant recovery in demand in the coming months:

“Reducing mortgage rates and preferential programs will no longer stimulate a surge in activity in the market, it is necessary to lower prices and comprehensively improve the economic conditions of life for Russians.”

Russians emigrate - rental rates for housing are falling

Since the end of February, many new options have appeared on the long-term rental market. They began to rent housing especially actively in March. This is most typical for Moscow and St. Petersburg - from there the most noticeable flow of emigration is observed. According to Cyan. Analysts”, compared to the winter of 2021-2022, the volume of supply increased by 2.6 times in Moscow and 1.9 times in St. Petersburg.

Even more proposals on the rental market became due to the secondary market apartments put up for sale. Alexey Popov claims that due to panic and price hikes, homeowners decided to postpone the conclusion of contracts:

“In the secondary market, many transactions have been suspended due to the decisions of some sellers “not to sell yet”, since it is not clear what prices are market and fair, and some buyers have decided “not to buy yet”, as mortgage rates have risen.”

The increase in supply forced tenants to cut rates. According to Cyan. Analysts ”, for four months, from mid-February to mid-June, odnushki in Moscow fell in price by 14% (up to 44 thousand rubles), kopeck piece by 19% (up to 72 thousand). Similar indicators in St. Petersburg are minus 13% (up to 27 thousand) and minus 12% (up to 44 thousand), respectively. At the same time, rental rates still remain 10-12% higher than a year ago.

Since the end of April, potential tenants have become more active. According to Popov, those who planned to improve their living conditions entered the market, but were unable to buy an apartment in a new building or on the secondary market due to high mortgage rates.

Since the beginning of the war in Ukraine, short-term rental prices have become highly dependent on logistical constraints. In southern cities with “closed skies”, base rates are slightly reduced, this is especially noticeable for Crimea, where the Simferopol airport is temporarily closed. In Yalta, according to Cyan. Analysts”, the current rental rate is lower than last summer by 9%, in Alushta - by 5%, while in Sochi with a working airport, prices increased by 18%.

“Six months ago, on New Year’s holidays, the activity of tenants was comparable to Sochi and Yalta, now there is a redistribution of demand in favor of Sochi, a city with better transport accessibility among other resorts, the cities of Crimea are no longer among the leaders in demand for daily rent ", says Popov.

Small apartments with falling supply and demand

From mid-March to the end of April, companies took out very little housing. As soon as the situation stabilized minimally, developers hurried to open sales for new properties. As a result, in May in Moscow and the Moscow region, a record number of housing units for the past year and a half was withdrawn: more than 70 buildings with a total area of ​​more than 1.2 million square meters. m.

As a result, a bias has formed in the market: demand from the population is falling, while supply is growing. According to Cyan. Analysts”, if in February 73,000 apartments in the Moscow region were available to buyers, now there are almost 85,000 lots.

According to Ivan Cheremnykh, the developers put up everything they have. In the long run, supply will shrink following falling demand. Many new projects have been frozen - this will affect the future choice of housing.

At the same time, developers face several problems: an increase in the cost of construction and land, obligations to the bank, and an increase in the cost of labor. Developers want to return buyers, but mortgages do not stimulate demand much. If you reduce prices, then this will lead to a decrease in the profitability of the business. In addition, there is a possibility that buyers will want to wait for even bigger discounts.

Andrey Boikov is confident that in the face of falling demand, businesses will begin to fight for customers, for example, through more aggressive marketing and joint programs with banks:

“Undoubtedly, developers will try to restrain price increases by various marketing methods so as not to provoke a further drop in demand, which has fallen to 65% since the beginning of the military operation for almost all developers. Now, when the key rate and conditions for preferential mortgages are being reduced, the situation is gradually improving, but in general, by the end of the year, we expect a decrease in sales by 15%.”

It is highly likely that in order to compensate for the growing construction cost and meet the deadlines and project parameters, developers will reduce quality, giving preference to cheap materials. However, Cheremnykh is sure that “there is nowhere to worsen the standards”, and there is no point in cutting down the quality in premium-segment apartments. In his opinion, the most affordable option with rising real estate prices is to continue to reduce the area of ​​​​apartments, leaving the same set of functionality:

“Look at the Japanese who have niche apartments that are 12 sq. meters and two people live in them. Why? Because real estate is too expensive and it is impossible to organize it. Therefore, the area will decrease.

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