Decline in Apartment Prices in Russia: Factors and Future Outlook
In recent months, the Russian real estate market has witnessed a gradual decline in the prices of apartments in new buildings. According to data from Avito Real Estate, the average cost per square meter in the primary market decreased by 1% in October compared to June, settling at 163.5 thousand rubles. Additionally, the average price of an apartment in new developments dropped by 2%, reaching 8.4 million rubles. This decline can be attributed primarily to a cooling demand following the end of the mass preferential mortgage program on July 1, which had previously allowed citizens to secure loans for new apartments at a rate of 8% per annum.
The preferential mortgage initiative, launched in 2020 to stimulate the housing market during the COVID-19 pandemic, had initially increased mortgage lending significantly. However, it also led to a sharp rise in housing prices, widening the gap between primary and secondary market prices. For example, the average price per square meter in new buildings soared from 64 thousand rubles in late 2019 to over 171 thousand rubles by July 2024. The secondary market also saw significant increases, with prices rising from 59 thousand to 110 thousand rubles.
In response to the skyrocketing prices, the government decided to curtail the mass mortgage program while retaining targeted initiatives for specific groups, including families with children and IT specialists. Tighter requirements for these targeted mortgages have made securing housing loans more challenging. Furthermore, interest rates on traditional mortgage programs have surged, now averaging around 25% per annum, following the Central Bank's decision to raise the key rate from 16% to 21% in an effort to combat inflation.
As a result of these changes, mortgage issuance in Russia has plummeted. A recent VTB study revealed that in October 2024, Russians secured housing loans amounting to 280 billion rubles, a staggering 60% decrease compared to the same period in 2023. Over the past ten months, the total value of mortgage loans issued has dropped by about a third year-on-year, totaling 4.2 trillion rubles.
With the current economic climate making mortgages increasingly inaccessible for many, the structure of the real estate market is evolving. Developers are now offering more installment plans, and transactions in the secondary market are primarily conducted in cash or through property exchanges with minimal credit surcharges. Some developers have also started providing discounts to entice buyers, although experts believe that while prices may stabilize, they are unlikely to decrease significantly in the near future.
As the gap between property prices and citizens' incomes widens—evidenced by over 76.9 million square meters of unsold primary housing—analysts predict that this situation may persist. The family mortgage program's extension until 2030, alongside the stagnation in real estate prices, may offer some respite, allowing potential buyers to save for down payments more effectively.
