At the end of June, the head of state held a meeting of the Presidium of the State Council, dedicated to the draft of Construction Industry and Housing Development Strategy until 2030 with a forecast until 2035. According to President, the Russian construction complex has colossal potential as a powerful locomotive of the economy and it is necessary to implement it through implementation of effective financial and investment instruments and expanding space for business initiatives of developers. The whole set of specific tasks and approaches to their implementation were formulated in the presented strategic document. And what is happening now with the housing market? Artem Kalabin, General Director of “First Construction Trust” told about these and many other issues to Invest-Foresight.
Wait or act?
– In what state, according to your estimates, is the Russian real estate market?
– To date, the market has ended its active growth phase, and for the first time since the end of 2019, in May last year, a decrease in the average price of square meter was recorded. At the same time, in March – April, the volume of sold apartments decreased significantly by most developers. Those who could buy apartments themselves, so that their money has not depreciated, did it last year, when the real estate showed significant growth. Now not very active sales are anyway supported mainly by subsidized mortgages.
Interrelation is direct: the lower the credit rate, the lower the monthly payment and more consumer activity. At the same time, developers began to give discounts and reduce their profits. The regulator’s June cut in the key rate to February values of 9.5% has not yet helped builders very much in boosting sales because the market mortgage rate of 11-12% is still excessive for most Russians. For example, people who already have an apartment and desire to increase the living space at its expense, now they are in no hurry to sell it, to buy a new bigger one, adding “expensive” credit funds.
The second reason is that decrease in purchasing power and unstable situation of recent months forces people to postpone decision-making on mortgages.
– Will the cost of housing continue to rise or is it expected to decline?
– Look, on average in the market, prices for residential real estate according to the results of last year grew by a total of about 50%. In March – April 2022 due to the growth of the key rate and a certain nervousness in the market, there was a significant reduction in sales volumes from all developers, significant discounts appeared. In May after rate cut and stabilization the situation began to recover. The value of the property will depend as much as possible on the quality of the project, the reputation of the developer and availability of mortgage programs.
Quality projects will continue to grow moderately in price, despite the general stagnation. The easiest will be comfort class projects, business class being the most difficult: its share was maximum, and this sector contained many non-outstanding projects. Yes, summer is traditionally the lowest season in the field of development, so you can expect a certain price stabilization through the fall. But there are definitely no prerequisites for a significant reduction in prices. And then discounts will be applied to stimulate sales, to lure buyers somehow. The total discount value depends on project readiness and market situation.
Without unnecessary “tinsel”
– Is there a typical portrait of the buyer?
– At the moment, real estate is actively bought by those who do not need to sell secondary housing, but at the same time you need your corner, as they say, here and now. These are mostly young couples, both with and without children, who want to move out from the parents, or those who have accumulated finally the full amount for the purchase. Using the example of our project – the residential complex “Three Quarters” in Razvilka in the Moscow region – I can say that now two-room apartments are sold the best, and their buyers are, again, family people.
I also note that many market players are counting on what they can realize soon, as well as on deferred demand among those potential buyers, which will withdraw money from deposits, the deadlines for which will expire, and invest them in real estate.
– What happens with the filling of the development product?
– All previous years, the Russian residential real estate market developed in the premialization vector, adding excess values and options even where they were not too much needed. This was done in order to upgrade the class of the object and its cost. Expensive infrastructure, premium foreign materials and equipment, complex facades, unique ideology, defiant branding – all of which accompanied many business class projects.
Now a large number of gloss attributes will have to be abandoned, that, however, does not mean at all to build poorly and cheaply. Rather, it’s about rollback of the product to the level of reasonable basic parameters of a particular class. Maximum efficiency and practical use of floor area will become one of the main principles of working with space. For some time the market will move to the construction of high-quality optimized housing without extra “tinsel.”
The buyer in the current situation is definitely not ready to overpay for projects with an inflated price tag and poor infrastructure. When the developer offers optimal value for money plus flexible shopping conditions, everything is fine with sales. Therefore, developers are now more attentive and careful about lodging, filling projects, and also positioning them. This process requires a very precise and subtle setting, especially in conditions of high dynamism and constantly changing conditions. Hence, perhaps, a certain pause in entering the market of new residential complexes. Among the factors affecting pricing in general, in addition to the early full transition to escrow accounts, one can also single out “recent” difficulties associated with the search for new suppliers of building materials, significantly complicating and increasing the cost of logistics.
Home, sweet home
– Artem, what is happening now in the suburban real estate market?
– Economy and rationality are becoming important consumer habits that are reflected in demand in the field of suburban real estate. So, in the Moscow region, a certain trend is clearly visible: the less the area of the building, the higher the demand for it. Almost the same situation with storeys: one-two-storey houses are best sold, the worst are buildings from three to four floors and above. This is explained quite by savings on construction, finishing works or subsequent repairs and by low operating costs. And the accelerated deadlines of the construction matters, especially against the backdrop of constant growth of building materials’ cost.
We also do not forget that now people are most actively looking for an option on the principle “buy and move in.” They are no longer ready to invent the house project, to engage in procurement of building materials, search and control of builders, etc. Secondly, their expectations from recreational surroundings are no longer reduced to traditional “forest, river, and fresh air.” Modern people accustomed to vacations abroad, we need ski slopes, water sports, other activities.
Third, the conditions for remote work are being considered closely. Another trend in suburban development is expansion of the entire village infrastructure, which can provide year-round accommodation with the usual set of city services. According to our estimates, today, the most popular country house square is 140-170 sq. m, and many developers have interesting projects of one-storey houses of just such a square.
– Is it not for these reasons that innovative modular house building is actively winning back its niche in the “country”?
– In fairness, I must say that in this way the objects were built back in USSR, but this was not widespread then due to different causes. The “revived” experience of modular construction is already available in modern Russia. Our company is now also guided by this trend – we are developing a whole “cottage village” for 1112 households with our own developed infrastructure in the Dmitrov district of the Moscow region.
We came to such decision, evaluating all the advantages of this technology, which consists in the rapid construction of such objects. The output is capital buildings with full equipment made at the plant, where modules already have built-in all utilities (electrical, sewerage and water supply, ventilation, etc.), plumbing and heating systems. The degree of readiness of the modules is 90-95%, that reduces construction time at least twice. To build, or rather to assemble, the house is possible in almost a month. At the same time, modular houses do not mean identical ones. The module does not have any typical dimensions, which means buildings and their structures can be square, round, whatever. There is only height limitation.