As the ruble is weakening and Russians are unable to invest in foreign currency, many are seeking ways to preserve their savings. One option to consider is investing in real estate. Residential and commercial properties continue to be in demand and bring profit. What should potential buyers take into account and what types of properties are a better investment on the swiftly changing market?
Changes and challenges
In late February, the Central Bank raised the key rate to 20%, pushing the actual interest rate to 24%. In a slight improvement, the Central Bank recently decided to lower the key rate to 17% and banks currently offer interest rates around 16–18%.
The government is trying to support the construction industry by subsidizing mortgages. Moscow and St. Petersburg residents can take out up to 12 million rubles and residents of other regions up to 6 million to buy equity-based housing under construction, both at the rate of 12%. It is reasonable to expect lower demand due to high interest rates and real estate prices. New parents have higher chances of buying a home in a new building thanks to the family mortgage plan, available to families with at least one child born after 2018 or parents of children with disabilities.
Investment with mortgage leverage is still working and will continue to work. Family mortgages will be most popular as it is currently the only affordable option. Investment with mortgage leverage is attractive as buyers can make a 15–20% down payment without investing the entire amount – even considering that lower investment brings a good ROI. In other words, buyers still win percentage-wise.
Investment for passive income
Investing for the purpose of receiving passive income is a trend right now. Any person with money to buy real estate wants to earn passive income. Choosing the right property requires knowledge of and ability to analyze the market. Realtors who can help find gems are highly sought after.
Daily and short-term rent usually brings the highest profit. The owner can hire a management company or a private manager to manage the property, then sit back and collect revenue. Many properties entered the market in March due to mass relocation abroad, the rent dropping as a result. Summer is the high season for daily rent. The situation is expected to stabilize and domestic tourism is to grow along with the prices.
More about suites
Suites showed a significant drop in sales in March. Real estate developers rushed to offer instalment plans and subsidized mortgages. There is still opportunity to invest in suites before another substantial price hike.
Suites are commercial property. The owner will not be able to register as a permanent resident and utility bills will be higher. In Moscow, people buy suites to live in while in St. Petersburg, suites are primarily used for passive income. The cost is suites’ main advantage. They are cheaper than apartments in the same location while rent can be higher. The difference can reach 20–30% both ways.
Should we expect prices to drop?
Real estate developers are increasingly offering subsidized mortgages to make monthly payments more comfortable for buyers. Subsidizing means that the developers pay commission to banks for offering concessional interest rates. The commission is almost always included in the price of the property.
Due to high inflation, construction materials, their delivery as well as workforce are becoming more expensive. There are simply no reasons for real estate prices to go down.
Do not forget about the concept of supply and demand. For example, the supply in St. Petersburg is very low, which can push prices to go higher, especially on properties within the city.
About 50% of buyers take out a mortgage to buy real estate. The mortgages are secured by the properties themselves; therefore, developers would not be able to let the market fall and lower the prices of the properties pledged as security. The construction industry will receive support from the government in the form of funding and concessional terms for construction and sales. It has been reported that buyers will also benefit from subsidies and new concessional mortgage plans.
By Arina Nikolayeva, investment consultant, realtor and founder of a real estate agency