Euroinvest: Russian Housing Will Go Up in Price
The real estate market in Russia is experiencing growing expectations of higher prices. These expectations are not only shared by professional experts and analysts but also by a significant portion of potential buyers, as evidenced by mass surveys, among other indicators. To understand what kind of price increases the market participants are anticipating and to assess the validity of these forecasts, we will delve into the details in our report.
Some have Grown and Some are Planning to Do That
The media has released the results of a public opinion poll conducted by the Avito Real Estate service. According to the findings, two-thirds of Russians expect that housing prices, particularly in new developments, will rise significantly during the current quarter. The rest, making up one-third, are divided: 25% predict that prices will stabilize and remain about the same, while a mere 8% anticipate a price decline.
The survey results differ by city. The majority of participants expecting price hikes in the new housing market are from Rostov-on-Don, Omsk, and Ufa, with their proportion surpassing 75%. This expectation is somewhat lower in Krasnoyarsk and Chelyabinsk, with over 70% of respondents predicting an increase. In Kazan and Samara, the figure stands at 69%.
In contrast, the expectations in the capital cities are more subdued. In St. Petersburg, 58% of those surveyed foresee a price increase, and in Moscow, the figure is 56%.
The outlook of residents regarding the secondary housing market is similar. Again, Rostov-on-Don leads, followed by Chelyabinsk and Omsk. The residents of St. Petersburg and Moscow have comparably modest expectations for the price growth of existing homes, with 54% predicting an increase.
It’s noteworthy that residents from the three cities that saw the highest price increases in the first quarter—Krasnodar, Krasnoyarsk, and Saratov—are not at the forefront of expecting further growth. This suggests that many believe the potential for price rises has been largely depleted in these areas.
In Rostov-on-Don, where the highest growth expectations are recorded, local dynamics play a significant role. A substantial migration of new residents to the city, especially from the conflict zone in eastern Ukraine, has driven the recent surge in local market prices. The survey data indicates that residents expect the influence of this factor to continue.
Mortgage Pushes Up
Setting aside the unique case of Rostov-on-Don and focusing on nationwide trends, it's imperative to consider the role of mortgage lending dynamics, which experts argue is the main driver of the housing market's pricing structure.
Indeed, the first-quarter analytics support the notion of increasing prices. For instance, the Sber group, a leading force in the Russian banking sector, issued over 104,000 mortgage loans in April alone, totaling more than 336 billion rubles—marking the highest figure since the start of the year. Moreover, there's been a consistent monthly rise in the number of loans disbursed by the bank.
Experts and market stakeholders attribute the surge in mortgage volumes primarily to the allure of concessional mortgage programs. In April, nearly half of all home loans, amounting to about 154 billion rubles, were concessional mortgages.
Among these, the family mortgage program emerged as the most sought-after, with loans exceeding 72 billion rubles for the month. Hot on its heels was the preferential mortgage option for purchasing housing in new buildings, with loans amounting to more than 63 billion rubles. Furthermore, there's been a significant uptick in mortgages for individual housing construction—that is, private houses—with their monetary value in April nearing 20 billion rubles, a record high for this mortgage category.
From the UAE Back to Russia
Reflecting on the previous year, the forecasts for market price trends and mortgage programs in Russia were rather pessimistic. With the deteriorating economic climate and shrinking buyer demand, many specialists anticipated a best-case scenario of stagnation or, more critically, a downturn that could have led to a fall in property prices.
Contrary to these projections, the market did not witness such a downturn. A key factor, according to some analysts, was the lack of alternative investment options for capital placement in real estate. Russian housing had been considered alongside international properties as an investment avenue, but this option soon narrowed. Western sanctions imposed certain constraints that complicated real estate purchases in Russia. Concurrently, property prices soared in other sought-after locations. For instance, in the UAE, real estate prices doubled over the year, with even steeper increases in some market segments. Similarly, in Turkey, property prices in resort cities like Alanya, favored by Russian buyers, escalated to levels that deterred even affluent investors.
The immediate beneficiaries of this situation appeared to be developers, albeit to a limited extent. Increased sales activities, including the uptake of mortgages and the expected rise in housing prices, could indeed funnel additional revenue to developers. Yet, this upturn, which remains largely speculative, would only serve to recoup some of the industry’s recent losses due to supply chain disruptions, a pause in mortgage lending following last spring's spike in the key rate, and the general contraction in buyer demand.
Furthermore, the infusion of additional funds into the construction sector could be instrumental for the social advancement of Russian municipalities, including the capitals. Over recent years, successful collaborative frameworks have emerged between local governments and construction firms. Within these partnerships, developers are granted access to prime land parcels in exchange for their commitment to building social and infrastructure amenities, ranging from sports facilities and kindergartens to large medical centers and comprehensive transport networks.
In the Leningrad region, for example, a kindergarten in Kudrovo has been inaugurated, constructed by Euroinvest as part of such a collaboration. Over the coming year, the partnership is set to deliver eight kindergartens and one school.
Companies like Euroinvest don't just focus on building homes; they also prioritize social infrastructure within their residential developments. As Andrey Berezin, the Chairman of Euroinvest’s Board of Directors, points out, "We acknowledge the crucial need for parents to have confidence that their children can safely reach nearby educational institutions. To illustrate, our comfort-class iD Kudrovo residential complex encompasses two kindergartens and a school for 825 students. A preschool for 200 children was already inaugurated last December. In Murino, we plan to construct two schools for 1,300 and 650 students, respectively, and two kindergartens each accommodating 240 children. Meanwhile, in iD Park Pobedy, we are building a kindergarten for 110 children and a school for 216 students," he explains, highlighting the social commitments integral to his company's projects.