The Central Bank believes that the domestic market is close to overheating. Housing prices have skyrocketed again. The main reason for the rise in prices for apartments is the preferential mortgage program. The high level of loan approval, against the background of a lack of growth in household incomes, led to massive default by borrowers of financial obligations to banks. Experts said what awaits the real estate market in the future.
The price bubble is seriously threatening the Russian real estate market, according to the Central Bank. Its essence, according to the bankers, is that people who, for the most part, have faced falling incomes, do not have enough of their own savings per square meter. Therefore, they are forced to take mortgage loans for a large amount, and then they are not able to pay off on them – low incomes do not allow. As a result, the Bank of Russia recorded signs of overheating in the real estate market: the growth rate in the country in the primary housing market in the second quarter in annual terms was 20.6%, in Moscow – 24%, in St. Petersburg – 26%. Earlier, we will remind, President Putin instructed the FAS to deal with housing prices. What is fraught with overheating in the real estate market, “MK” asked the experts.
Artem Deev, Head of Analytical Department, AMarkets: “Signs of a price bubble are a sharp rise in the value of real estate, which has occurred due to several reasons. Firstly, the rush last year due to low mortgage rates caused an increase in housing prices, and secondly, the trend continued this year due to the growth of developers’ costs. The rapid increase in prices for metals and other building materials, as well as the lack of labor force for migrants increased the costs of developers, who had to raise the price per square meter.
Following new buildings, the secondary housing market is also becoming more expensive. “Overheating” means that this level of prices will become a limiting factor for sales in the market – citizens will simply refuse to buy real estate, as prices rise too much. This threatens with a reduction in mortgage lending in the country, a decrease in developers’ profits and a general decline in real estate sales. If this happens, difficulties with profits and revenues will begin for enterprises that provide the construction industry – manufacturers of building materials, carriers, suppliers of metals, household appliances, finishing materials …
To reduce the rate of price growth, the state needs steps to reduce the costs of producers (lowering the fiscal burden, for example), as well as create conditions to reduce the cost of building materials, many of which this year have increased in price by 50-100%. “
Andrey Bogdanov, Director for Alternative Investments, Alfa Capital Management Company: “The dynamics of growth in the cost of housing is assessed by the Central Bank as overestimated, since the real purchasing power of the population to purchase square meters (that is, the ability to buy them without a mortgage loan) tends to go down. At the same time, the preservation of very soft lending conditions – the rate, the term, the down payment – increases the so-called “affordability of housing on a mortgage”. Thus, the prices that could have formed without “simplified” lending should have been estimated to be lower than the actual ones.
The biggest concern is the purchase of housing for oneself, but on soft lending terms. In the absence of income growth, this increases the risk of the population’s inability to service mortgages in the future, especially loans taken with a very low down payment. The Central Bank is worried about the build-up of credit risk already at the systemic level, the massive default on mortgage loan obligations is a threat to the entire banking system and its ability to play its role in providing the money supply to the economy.
The Bank of Russia is already taking measures to tighten lending conditions, including forming additional requirements for banks that accept an increased credit risk in mortgages. The government should stimulate the growth of incomes of the population through the recovery of the economy as a whole in order to align the ability of a citizen to take out a mortgage loan with the ability to further service it. That is, the demand for housing should be justified, first of all, by the real purchasing power, and not by the possibility of lending. In this sense, the desire to extend the preferential mortgage throughout the country and for a long time is more harm than good. “
Alexey Krichevsky, real estate market expert at the Academy of Finance and Investment Management: “In fact, the overheating of the market was predictable even at the start of the preferential mortgage program and the rise in housing prices during the hard lockdown. With a frenzied demand for mortgages that fell in price, supply began to rise in price at exactly the same abnormal rate. A 25% increase in prices for the year is an anomaly, it is not normal in the context of the entire city, and not in individual locations where the transport or environmental situation has dramatically improved. And even more so in the absence of growth in real incomes of the population. Accordingly, now the Central Bank is reaping the benefits of the preferential mortgage lending program for new buildings and low rates – a quarter of apartments on the market are sold with encumbrances, and at least every eighth apartment is for sale due to the inability of borrowers to service the loan further.
Developers explained the rise in the cost of apartments for new buildings by a mass of factors – from the increase in the cost of labor to the rise in prices for nails. In fact, this is a simple desire to skim more “cream”. This was reflected in the financial statements of the leading construction companies, where profit growth ranged from 30% to 100% in the first half of the year, moreover, a relatively prosperous year, not 2020, but a prosperous one.
The market is now beginning to cool itself, albeit with the help of an increase in mortgage rates after another controversial increase in the key rate of the Central Bank. Real estate prices in the capital region are gradually starting to decline, since May they have already lost about 1.5%. Further global economic shocks are quite possible, which will automatically collapse demand and very seriously adjust the cost of supply. “
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