Year 2022 came as a major challenge for the primary housing market. There was the weakening ruble, the sharp rise and gradual decrease in the key rate, the roaring demand for new housing in March and the sharp drop in sales between April and June, along with new mortgage offers seeking to stimulate demand. What has come as a result of these changes and how will they affect sales this year?
Mortgage market
In January 2022, the Russian mortgage market reached record numbers, with RUB 327 bln ($4.66 bln) issued in mortgages over the month. Overall, 2021 was a historic year for the Russian mortgage industry, with the total worth of issued mortgages standing at RUB 5.7 tln ($81 bln).
The value of mortgage deals peaked in March 2022, followed by a sharp drop in April and May as a result of the key rate increased drastically by the Central Bank to 20%. But as soon as June came, the demand started to recover. Between July and September 2022, the number of mortgage deals on the Moscow and St. Petersburg markets grew 11% compared to April-June 2022.
The recovered demand was mainly due to gradually decreasing the key rate and subsequently mortgage rates, along with new subsidized mortgage programs from real estate developers at 0.1% offered in May 2022. As of September 2022, subsidized loans amounted to 90% of all issued mortgages.
Mortgage programs
The subsidized 0.1% mortgage deals offered by real estate developers served as the main driver of demand for primary housing. With the close-to-zero rate, borrowers can pay the lowest possible monthly fee, provided that the property is 20% higher in price at this rate and they choose a longer payback period. Largely due to these factors, the average mortgage term increased from 15 to 20 years. In September 2022, Central Bank Governor Elvira Nabiullina announced that the regulatory body intends to toughen control over loans issued under bank-developer partnership programs.
Should the developer-subsidized mortgage program be suspended, the demand for primary housing is very likely to drop as subsidized mortgages are currently among the top sales drivers on the primary real estate market. For buyers, it means higher monthly payments and upcharges. However, it should be taken into account that the properties sold under the subsidized program are usually 35–40% more expensive.
Reduced-rate mortgages for IT professionals (5% per annum) is another one of this year’s innovations. According to the program conditions, the applicant’s employer must be accredited with the Russian Ministry of Digital Development while the applicant must have the employment record with this company of at least 3 months and a monthly salary of at least RUB 150,000 ($2,100) before tax for cities with over 1 million people and at least RUB 100,000 ($1,000) for cities with under 1 million people. The applicant must be aged 22 to 44. The down payment under the program must be at least 15%. However, as of October 2022, the reduced-rate mortgages for IT professionals amounted to only 1% of all concessional mortgages.
Another important change is that mortgage programs with zero down payments have been discontinued.
On the other hand, it should be noted that certain requirements have been relaxed. For example, banks offering standard mortgage programs have lowered required down payments from 20% to 15%.
Personal loan and insurance
The share of borrowers using personal loans as down payments has increased. At the same time, customers who sign mortgage deals requiring no down payment usually have the funds to cover it but they still want to have a financial safety net.
If during the Covid pandemic, banks tried to persuade borrowers that they needed a life and health insurance, in 2022, customers were pushed to buy a loss of work insurance.
Cost of apartments in new buildings
People continue to actively move to the two capitals and the regions with cheaper square meters, to invest in real estate and preserve the value of their money. In Moscow, was an increased demand for two-room apartments (15% hike). St. Petersburg saw a different trend: more people were buying studio apartments while the share of one-room apartments being sold was steadily high. According to TrendAgent, one-room apartments are most popular in Krasnodar. In Novosibirsk, the offers are more equally spread across the market.
Apartment features
The higher cost of finishing materials prompted more interest in finished apartments. In the past year, the number of white-box offers in St. Petersburg has increased 1.25% and the number of unfinished apartments 3.6%. The number of white-box offers in Moscow has grown 5%. This type of finish is also the most popular in other Russian regions.
More developers offer apartments with bigger or panoramic windows. Rostov-on-Don accounts for the lowest share of more prestigious glazing. Novosibirsk is a leading region when it comes to window size. Due to a significant amount of business and elite housing offers on the market, Moscow accounts for the highest percentage of panoramic windows. More sophisticated options can be found in St. Petersburg – particularly, bay windows and bathrooms with windows.
To summarize, we have noted a positive dynamic in sales. In 2022, TrendAgent recorded a 33% hike in apartment sales in its five regions of presence (in the number of properties) compared to 2021. Substantially ahead of the market in general, this growth is primarily the result of efforts to launch exclusive and co-exclusive contracts with construction companies across all regions. Real estate developers choose TrendAgent as a partner to deal their commercial offers. What they get in exchange is maximum focus on promoting the offer via the agent’s channel, a higher share of agent-created demand and an integrated trading channel with guaranteed sales performance.
By Maria Ivanova, TrendAgent Sales Director