Despite the drop in overall housing prices, here's what's going on
Following the scrapping of the preferential mortgage scheme, prices of new properties in Krasnodar have risen by 4%.
A year after axing the subsidized mortgage program in Russia, specialists spotted a significant slowdown in the growth rate of primary housing by over doubling. In contrast, prices for new constructions jumped by 4%, according to "RBK Real Estate," based on a survey by the federal real estate agency "Etagi."
Interestingly, during the subsidized mortgage program's period, housing prices in millionaire cities swelled by an average of 21.5% yearly. However, in the year subsequent to its withdrawal, prices climbed by only 9.4%.
It's worth mentioning that in major cities such as Kazan (20.3%), Omsk (19.9%), and Chelyabinsk (19.5%), the most substantial price surge occurred within a year.
Check out the two uniquely protected natural territories added to Krasnodar's list due to their stunning landscapes.
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#priceincrease#pricehike#housingmarket#mortgagesSophia Meliksetyan
Insights
The steep difference in the growth rates of housing prices in Russia - from an average yearly increase of 21.5% during the subsidized mortgage program to merely 4% after its termination - can be chalked up to several interrelated factors affecting mortgage financing affordability and the dynamics of the housing market demand.
1. Role of the Subsidized Mortgage Program in Demand and Prices:
The government's provision of funding to banks to offer discounted, low-interest loans to lower-income borrowers during the subsidized mortgage program made borrowing significantly cheaper and more accessible, causing a surge in demand for housing. This increased demand led to sharply higher housing prices, evident in the 21.5% average annual growth during the program's active years. The program effectively stimulated the market by lowering the cost barrier for many buyers.
2. Impact of the Program Cancellation and Higher Borrowing Costs:
With the subsidized program scrapped, the availability of cheap loans diminished. Banks, lacking government support, set higher interest rates for housing loans, with current prime interest rates hovering around 21%- a hefty cost for borrowers. This rise in borrowing costs lessened the pool of affordable mortgages, denting the demand for housing.
3. stricter Mortgage Lending Conditions by Banks:
Post-cancellation, banks imposed stricter criteria on the issuance of preferred mortgages. They hiked down payment requirements, tightened credit standards, and squeezed loans, making it more difficult for borrowers to secure financing. The government and regulators even acknowledged that banks discovered government mortgage programs less financially rewarding, contributing to these stricter lending criteria.
4. Slower Price Growth due to Reduced Demand:
With demand receding due to higher interest rates and stringent lending conditions, housing price growth slowed substantially, dropping to roughly 4% yearly after the program concluded. This mirrors a market readjusting to the elimination of a significant subsidy that had artificially inflated demand and prices.
Summary
| Factor | During Program | After Program Cancellation ||--------------------------------|-----------------------------------|------------------------------------|| Mortgage interest rates | Low (subsidized) | High (~21% prime rate) || Accessibility of mortgages | High due to subsidies | Reduced due to high rates and bank restrictions || Demand for housing | Strong, pushing prices up | Weakened, sluggish price growth || Annual housing price growth | ~21.5% | ~4% |
In summary, the subsidized mortgage program fueled a robust, artificial housing demand that pushed prices soaringly high. Once terminated, the housing market cooled, reflecting healthy demand levels under higher borrowing costs, resulting in much slower price increases.
- The drop in overall growth rate of primary housing in Russia following the cancellation of the subsidized mortgage program can be attributed to the increase in mortgage interest rates and stricter lending conditions, making mortgages less accessible and reducing demand in the housing market, thus causing a decrease in annual housing price growth.
- Despite the slowdown in the growth rate of primary housing, the prices for new constructions continued to increase by 4%, indicating that investors may still find opportunities in the housing market, particularly in new builds, as they navigate the changing dynamics of the real-estate sector.
