Record development and regional crisis: key events in Tatarstan’s individual housing market of the year
The first transactions with escrow accounts, high demand at the start and stagnation at the finish — how the industry survived 2024 and what it is preparing for
More than half of housing construction in Russia, and over two-thirds in Tatarstan, was attributed to individual housing construction (IHC) last year. A record 62 million square metres of housing in this area were commissioned across the country, and 2.3 million square metres in the republic. Participants in the Tatarstan real estate market will remember 2024 as a sharp change in the mood of buyers: from high demand for suburban housing at the beginning of the year to a significant decline at the end, as well as the first problems in working with escrow accounts. Many developers have taken a wait-and-see attitude, some are thinking about closing the business. Read the details in the material of Realnoe Vremya.
Record demand for country houses
The past year of the Dragon started positively for real estate market participants: there is a high demand for suburban housing. In general, despite further shocks with an increase in the Central Bank's key rate, falling sales and stagnation, the industry finished 2024 with the best performance.
In Russia, almost 58% of the housing built was in residential housing, which is 62 million square metres out of 107 million square metres in total. Record-breaking figures for individual housing construction. This is 1.6 times more than in 2019, said Russian Deputy Prime Minister Marat Khusnullin. He explained the increased interest of Russians in private homes with preferential programmes in the segment, the development of transport and communal infrastructure, social gasification and simplified registration.
In Tatarstan, according to the latest data from the Ministry of Construction of the Republic of Tatarstan, the republic commissioned 3.45 million square metres in 2024. Out of the total volume, approximately 2.3 million square metres, or 17,037 houses, were built under the individual housing construction (IHC) programme. Previously, the peak popularity of country houses in the republic was recorded in 2022. In addition to these reasons, experts cite the lower cost of a square metre of housing in residential housing compared to new buildings and the interest of private investors. A new trend has been the development of well-thought-out concepts and projects for villages, which include infrastructure facilities such as kindergartens, shops, cafes, and medical centres.
First transactions with escrow accounts in residential housing
The repeated increase in the Central Bank's key rate to a record 21% has significantly changed the situation in all segments of the real estate market, including suburban housing. This led to an increase in the cost of building materials, labour services, and an increase in the cost of building houses.
But one of the main challenges for the individual housing construction market was the first experience of working with escrow accounts. From March 2025, it will be possible to build private houses to order only with their use. During the construction of multi-apartment housing, developers have already tested this scheme, but they are only trying it out in residential housing. The first transactions with escrow accounts have already been concluded, but they have not gained much popularity in this segment. President Vladimir Putin has instructed the government to speed up the process of expanding this mechanism. Whether to apply it or not is up to the developer and the customer to decide. However, if the buyer wants to use government programmes, escrow accounts are mandatory.
The scheme works as follows: the customer, contractor, and bank sign a three-party agreement for the construction of an individual house. The buyer's funds are held in an escrow account until the construction is completed. The developer builds the facility using his own funds or credit. After signing the acceptance act, the buyer receives the funds from the escrow account.
According to Ramil Usmanov, the president of the Federation of Residential Housing and Communal Services, the introduction of an escrow account mechanism will have a positive impact on the development of the construction industry in the republic. According to him, the new requirement is aimed at ensuring transparency and security in the segment of individual housing construction, which, in turn, will contribute to increasing customer engagement in the field of suburban real estate.
“I have never seen such a protracted crisis”
In turn, the developer of cottage communities Khanskaya Usadba and Altyn near Kazan, Ilyas Gimadov, pointed out that the Tatarstan IHC market is currently undergoing significant transformation.
The interlocutor of the publication named two main factors that have a serious impact on the situation in individual housing construction. Firstly, the industry's transition to working with escrow accounts, and secondly, changes in the banking sector.
“This has been a double blow for the residential housing market. If these factors had not arisen in parallel, the market would have adjusted to the new realities more smoothly, and there would have been no severe losses. We will see the effect of this next year. Already, many developers have stopped working, while others are trying to switch to the escrow account mechanism. But it must be acknowledged that this system is not yet well-established. There is no roadmap to understand how this happens in practice. We have never seen how this mechanism is implemented from beginning to end, there are no such examples," he stressed.
In addition, according to him, the escrow account system does not suit Muslim clients and developers who operate according to Sharia principles.
“As a practicing Muslim, I will not take out loans. Therefore, we were forced to refuse to work as a contractor under this system. In this regard, we have closed our branches in Moscow, Izhevsk and Naberezhnye Chelny. We are currently developing two villages near Kazan, but we are more in the role of a developer who builds a concept, builds infrastructure and sells land. If earlier we sold land plots only with our contract, now we allow us to work with other contractors, but without departing from the concept of settlements," the businessman said.
As the entrepreneur admitted, his company is working on a new programme, negotiating with leading banks and looking for alternative schemes. “We are focused on the development of project financing for the construction of a cottage settlement. This is planned to be implemented within the framework of project Islamic financing. Here, the bank acts as a partner and benefits from the profits," he said.
The end consumer will suffer
In the second half of the year, the demand for suburban housing decreased significantly, market participants say. The reasons are the tightening of mortgage conditions, an increase in the Central Bank's key rate and rising prices. If the big players are still coping with the decline in sales, then it threatens to collapse for the small ones. This opinion is shared by Ruslan Kasimov, the director of Master Doma company.
According to him, if the Central Bank does not lower the key rate in the coming months of 2025, this will reduce the number of participants in the residential housing market. Developers have already felt a decrease in interest in suburban housing from Tatarstan residents.
“Many small-scale builders are likely to abandon this business, since an escrow account implies that you need to build at your own expense. Not everyone has such opportunities. Large developers are offering to pay the down payment for the client, which smaller builders cannot afford," the businessman explained. All these factors, according to him, will form an increase in prices for country houses. As a result, the end consumer will suffer, the expert summarises.