Kazan housing market: new builds lose to old houses, while developers hold sales

Big cities have shown steady price growth

The prices say that the explanation for today’s slower construction pace should logically be looked for outside consumer demand. We can remember that construction companies’ capacities aren’t infinite, it is impossible to incessantly expand delivery volumes. Also, we can recall the reduction in the amount of working migrants, which is a factor whose meaning cannot be overestimated in Russia.

According to Dom.RF, we can conclude that Russians have money and they are ready to invest it in real estate, moreover, deposits are under the pressure of not a high deposit interest rate, on the one hand, and growing inflation on the other hand.

Scheduled inflation in 2022 should be 4%. But even if the government manages to hold the growth of prices, it is necessary to understand that it is just the average number in the economy. The housing market has always been a sphere of increased inflation expectations, its growth will encourage Russians to invest money today more actively. Director of Etazhi real estate agency Marat Gallyamov also confirms this point:

“With the appreciation of construction materials, lower mortgage rates in a state programme, a deficit of workforce on construction sites, prices for new builds have soared. New builds have set a trend for growth, which has been followed by old houses and then countryside realty. All these segments have become more expensive. As for tendencies, here the second half of the last year set the pace when flats in new builds were actively sold. New builds have started to significantly lose demand to the old house market in the last a few months because of high prices and interest rates.”

“In 2022, banks forecast sales will increase by 5-7%. Why not 20-30% like during the previous years? Because of the growth of the key rate, consequently, the growth of the mortgage rate. In general in 2022, we expect some stabilisation of the market. Everybody who wanted to buy a flat will likely buy it this year already,” Gallyamov is sure.

But a spike in prices shouldn’t be expected. The market is obviously overheated, and it won’t be possible anymore to keep the high pace for long, moreover, the main state regulator already paid attention to the anomalous situation. Chairwoman of the Central Bank Elvira Nabiullina didn’t rule out that the key rate would rise by one basis point. That’s to say, in 2022, average mortgage rates can reach the bar of 10% a year. She advises leaving the preferential lending programme in 25 out of 85 regions. And though such a decision hasn’t yet been made, the mortgage programme can really stop. At the moment, the mortgage is breaking one record after another. In 2020, 1,7 million loans for 4,3 trillion rubles were granted. In nine months of 2021 alone, 4 trillion rubles were. The curb on mortgage lending cools the market down, but not as much as it could be expected because other factors also play the game. For instance, a lack of supply. Tatarstan’s famous realty market expert Antonina Darchinova provides numbers speaking about a slowdown in the construction pace:

“Now about 35,000 flats are built in Tatarstan. Most projects are implemented in the capital, it is about 998,000 square metres of housing. In 2021, about 7,000 flats have been sold. We will note that it isn’t much for such a bit city. Supply in the market obviously shrank.”

At the same time, Director of one of Kazan realtor agencies FLAT-Kazan Ruslan Khabibrakhmanov expects traditional winter buoyancy:

“Housing continues appreciating. If in summer when the interest rate began to grow the preferential mortgage was lowered to 3 million, some decline started in July, August, now, demand is again demonstrating a confident growth, and not only in new builds but also in old houses. To a certain extent, this is a seasonal rise that can always be seen from September to December. And as we expect, December should become the most productive month from a perspective of sales.”

Whereas Vice Director of Unistroy Iskander Yusupov thinks:

“Today we see a paradoxical situation when developers at times have to slow sales down. Why is this happening? Because of sudden and unpredictable growth in the prime cost. A developer can turn out in a situation when he has quickly sold a too big amount of housing, the prime cost has risen, while the company doesn’t have the leverage to play the rise in the prime cost back with a price hike, which can have a serious impact on the profitability of the project.”

Though the factors working in the real estate market have different directions, a collapse should not be expected anyway. Of course, the market is overheated, but buyers show their readiness to buy real estate not only to improve their living conditions but also to make an investment. This means that stabilisation awaits us at best both in available new builds and the price bar.

“The price growth pace will unlikely stay, but the steady growing housing price will go on — the costs on the construction and land preparation have notably increased, there is a project financing system with escrow accounts, which cancels the direct dependence on sales and stable demand in the city with low supply. Perhaps, in the mid-term, the situation will be offset by the development of big industrial zones and reorganised territories in Kazan,” thinks Director General of Zhik Group of Companies in Kazan Emil Khusnutdinov thinks.

Higher supply quality is today’s main trend

A better quality of life, higher requirements for comfort are a general tendency of the housing market. Comfort includes not only the state of houses but also such an important component as infrastructure. So the closer social facilities, the more expensive the flat. In the last few years, aesthetics has started to influence the value of the flat, which is probably quite unusual for Russia at the moment.

Emil Khusnutdinov says developers have noticed this new tendency:

“Notable changes in new builds have taken place in the last few years compared to existing houses. In new projects, clients are offered completely different architecture, well-considered common areas, well-designed courtyards and parks. Due to this, those who live in relatively new houses are showing big interest in the houses that are under construction. A trend for improving a product, which has been operating for a couple of years, is the most important thing that now determines the market.”

Antonina Darchinova agrees with this point of view specifying the importance of the interior layout:

“Today small flats with a good layout and convenient location are in demand. Demand for one-bedroom flats is now 50%. Investors who invest money in them to save them from inflation create the demand for them. Two-bedroom flats account for 35% of the market, the other share of purchases is held by three- and four-bedroom flats.”

According to her, from a perspective of demand criteria besides the location and budget, the interest in new flat formats is growing — with a terrace, warm balcony, patio and so on. There is increased interest in flats with better finishing, the brand of the organisation matters. The role of sales marketing is growing.

Of course, nobody has ever cancelled the importance of a good location of the flat. And it doesn’t matter why the flat is purchased, as an investment or a place to live now and here. As for the size and type of the flat, small flats and studios are the most fast-moving item.

Multi-factor market movement

The technology of housing price analysis and forecast lies on two whales. It is necessary to define a set of factors fixing prices. Then it is necessary to rank them in terms of importance and define key market drivers. It is a kind of economic axiom. It often really works. However, if experts’ opinions are summed today, we can see a serious dispersion of expectations in 2022. From a conviction of the further price growth in key segments to the confidence about their fall.

The reason for the current situation rests on a number of factors pulling the market in opposite directions and the difficulty of forecasting their real impact.

The uncertainty of the influence of some factors gives rise to, as theoretical physicists say, singularity, that’s to say, a situation in which any event can create a domino effect with a rapid price change. Soon, the stance of some politicians who think it is necessary to restrict labour migration can become such a driver. If we consider that Army General, Full Cavalier of the Order For Merits to the Fatherland, Director of Russia’s Federal Security Service, Secretary of the Security Council Nikolay Patrushev represents this opinion, the restriction of migration flows can become quite real.

He believes that migrants already became a serious reason for increased crimes in the country and a foundation for political and ideological forces that are hostile to Russia. It isn’t hard to find statements of politicians on the Net claiming that migrants’ readiness to work for a small salary takes away Russians’ jobs and doesn’t facilitate higher workforce productivity via technological modernisation.

For instance, Russian Vice Government Chairman Marat Khusnullin explains that the Russian construction complex cannot do without a cheap workforce in the next 2-3 years. The term voiced by the vice chairman envisages that the government is ready to consider reducing quotas for migrants. The replacement of Central Asian workers with Russians can and should lead to higher salaries and, consequently, a rise in prices.

The so-called investment flats are another factor that can cause significant price changes. In other words, the goal of the purchase is to save one’s money. Firstly, we can assume that Russians’ ability to buy a lot of houses has already significantly run out. Secondly, due to a number of reasons, investment housing started to appear in the old house market, which is thousands of flats. Such a big supply itself can cause a price collapse.

Prices for construction materials also grow. In 2021, materials in different categories have risen from 30 to 200%. The situation with other important components of the construction process is almost the same.

Raising prices developers didn’t manage to enjoy the growth of profitability for long. Manufacturers of materials who think that they should also have a share in the rapidly growing profits of the housing market also joined the game quickly enough.

All the above-enumerated factors continue pushing the prices upward despite deterrents. The potential of fast growth is depleted, but a noticeable fall in prices in 2022 shouldn’t be expected. The tendency will highly likely stay, which means one shouldn’t postpone a planned purchase hoping to save money with lower prices.