The growth in metal prices and the expected increase in the key rate of the Central Bank may correct the vectors of the construction business in Russia.
2022 began with another rise in prices in the global metallurgical markets. Analysts in mid-January noted a jump in prices for iron ore, which had already broken through the mark of $126 per ton at auction. According to the most optimistic forecasts, iron ore could rise in price by 20% this year, which automatically means a new rise in the price of rebar and other building materials.
“The share of steel and alloys in the cost of housing can be 15% or more, depending on the type of construction projects,” says Nikolay Kudlay, head of the SKR construction company. – An increase in the severance tax rate has already led to an increase in shortfall in income from metallurgists, which they can compensate for by another jump in prices for their products in the domestic market. Even if the Ministry of Industry and Trade manages to regulate the policy of traders, the current situation in the metallurgical market will still contribute to a new rise in construction costs. Therefore, it will be extremely difficult to win back housing prices in new buildings.”
According to Mykola Kudlai, prices in the primary housing market have already approached the upper level of purchasing power. Another factor that plays into the decline in demand may be the increase in the key rate of the Bank of Russia by 25-50 basis points expected by many experts in February.
“Given that inflation is not slowing down and its decline should definitely not be expected before spring, the opinion that the key rate may rise to 10% is becoming louder, which, of course, will entail an increase in the cost of bank money for borrowers.
Mortgages in this scenario will add at least 0.4%, and single-digit rates will only be found on preferential lending programs,” says Alexei Krichevsky, an expert on the real estate market at the Academy of Finance and Investment Management.
The fall in demand for housing is cautiously predicted by the Central Bank of Russia. According to Elmira Nabiullina, the peak of real estate price growth in Russia is over.
“There is no need to rush to take a mortgage loan now, we have passed this peak in real estate prices somewhere now. I think they will not grow at such a pace. We must not succumb to rush emotional behavior, we must look carefully at the situation,” Elmira Nabiullina emphasized.
According to experts, in 2022 the volume of mortgage lending will decrease by 20-30%. According to the National Credit Ratings, the volume of mortgages issued in 2021 amounted to 5.5-5.6 trillion rubles. against 4.4 trillion rubles. a year earlier.
Many experts believe that developers will generally have to look for new lines of business in order to avoid production downtime. Mykola Kudlay suggests that the fall in demand for expensive apartments in new buildings may form new trends in construction.
“With the prevailing high level of prices for building materials and a decrease in the purchasing power of the population, it is unlikely that anyone will want to work at a loss. In other words, developers will stop racing to build commercial housing, which no one will buy in the near future, but will begin to interact more effectively with municipal authorities and will turn their attention to the need to build sports clusters, recreation areas, creative spaces for young people,” says Nikolai Kudlay. “The period of construction fever in Russia has come to an end. It’s time for a balanced approach in construction aimed at improving the quality of life, the growth of recreational opportunities for people and greening the urban environment,” the expert stressed.
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