Russian housing prices up due to cheaper loans

Russian housing prices up due to cheaper loans

Russian real estate market is benefiting from the state-backed preferential mortgage programme for home buyers. However, cheaper loans have caused a surge in demand that resulted in substantial price growth.

Government-backed mortgages designed to support the economy’s post-coronavirus recovery are fueling a boom in Russia’s property market, says The Moscow Times. According to the Central Bank’s data, the number of mortgages showed a 40% increase in July and August compared to the corresponding period of 2019. In many cities, prices for new housing have surged.

The coronavirus lockdown, which was introduced at the end of March, affected many sectors of the Russian economy negatively, so in April, the government introduced a preferential mortgage scheme aimed to support the construction industry and spur the property market. The programme envisages a beneficial interest rate of 6,5% for newly built homes and apartments. The price of the housing may amount up to 12 million rubles ($160,000) in Moscow, St Petersburg and their surrounding regions and up to 8 million rubles ($105,000) in the rest of the country.

The policy has become a boon to the construction industry weakened by the lockdown, especially in Moscow. “The freefall in residential sales in early April — down 65% — was arrested by the introduction of subsidised mortgages,” commented Maria Kolbina, real estate analyst at VTB Capital. In June, when banks issued loans worth 258 billion rubles ($3,6 billion) to homebuyers, mortgage lending showed an increase of 28% year on year.

In Moscow, construction sites were frozen under strict quarantine measures in April. Photo:

Before the pandemic, the average mortgage rate exceeded 9%, while in August, it decreased to 7,3%. Besides the government-backed programme, the flexible interest rate policy pursued by the Central Bank also contributed to the fall. Since the introduction of the scheme, the regulator has lowered the key interest rate from 6% to 4,25%.

However, Sberbank points out that the prices of new apartments have increased as a result of the new policy. In Moscow and St Petersburg, prices have risen by more than 10% over the past year, while in some Russian regions they have surged by more than a third. As for construction companies, they reported an annual increase in income of 8,9% in August.

By Anna Litvina