Spring has come, and with it the implementation of the fateful decision of the Central Bank to limit risky mortgage practices has become closer. Market participants froze in anticipation, not daring to adjust prices and offer new terms of purchase. Stagnation has begun.
Central Bank against cheap mortgages
The primary market, like the entire residential segment as a whole, is highly dependent on mortgages. For a long time, developers really managed to maintain demand by attracting buyers with a low monthly payment. Suffice it to recall subsidized mortgages at a near-zero rate, tranche mortgages and, most recently, cashback for buying an apartment.
However, no matter what new trick the developers come up with, no matter how profitable offers they showered on the buyer, the Central Bank is in a hurry to wrap them up, attributing them to risky mortgage practices. The main reason is that all these mechanisms are based on the overestimation of the cost of housing. Developers need to compensate for the cost of paying bank interest. The risk of the buyer is that when trying to sell an apartment in the bottom line, the money from its sale will not be enough to pay off the mortgage and interest.
Financial institutions also expose themselves to great risk. The borrower may not be able to meet the loan obligations, and then the bank will have to sell the mortgaged apartment. Again – at the market price, not overpriced.
The Bank of Russia is obviously tired of dealing with local centers of deterioration in the quality of the mortgage portfolio and has moved on to global measures. The head of the Central Bank announced an increase in premiums to risk ratios for mortgage loans from May 1, 2023.
– The dialogue between market participants and the regulator is not over. The measures proposed by the Bank of Russia make mortgages subsidized by the developer at ultra-low rates economically inefficient. Moreover, the programs themselves are a temporary and non-market measure, developers are already refusing them. In addition, banks raised the threshold for the minimum rate on mortgage loans. That is, the market regulates itself,” said Vladislav Preobrazhensky, executive director of the Moscow Investors Club.
According to him, the primary segment is waiting for further actions of the regulator. This state can be characterized by the expectation of some key event that will determine the future movement.
Yan Feldman, Marketing Director of Lenstroytrest Group of Companies, points to another alarming “bell” in the field of new buildings – artificial price fluctuation of the market instead of natural pricing.
– A number of companies began to offer discounts on their apartments up to 25%. Only large developers can afford such proposals, while smaller companies will have to adapt to the current situation. At the same time, the buyer himself will not understand the real cost of housing, he will focus only on projects with discounts, which can generally lead to a lack of sales from most developers, he specified.
- Mortgage
Cheap mortgages for everyone will drive home prices up
Prices for new buildings in the spring of 2023 will stagnate
Experts agree that price reductions in the new-build market in the spring of 2023 should not be expected. Most likely, the situation will enter a phase of stagnation.
– We do not predict a price drop during 2023. Unless some new external or political shocks happen, we will work with price stagnation. Stimulating demand through the development of targeted mortgage programs, discounts and promotions from developers, improving the product of developers. The price increase is observed for the comfort class, which will be in demand in any situation. But it is worth noting that over the year we have formed a tendency to reduce the average purchase area to 46 sq. m. m, – Andrey Garifullin, deputy commercial director of the largest IT platform for booking apartments Nmarket.PRO, told the Realty Times correspondent.
Preobrazhensky adds that it is too early to talk about a significant drop in prices from current values to price tags for the upcoming second quarter. Probably, if there is any movement, it will not be large-scale.
In any case, according to the specialist, it will not be possible to significantly reduce prices, since they are part of the financial model (banking covenant) under which project financing was issued. A decrease in price may mean a breach of bank covenants, which may lead to a halt in project financing. Price adjustments are possible only in new projects, for which financial models are only being discussed.
– In the primary market, the actions of developers are limited by the financial model, which is agreed with banks when obtaining loans for construction. In addition, companies need to cover costs that grow along with social burden, administrative barriers, rising prices for components, and so on. Business develops only if it receives regular profits, – agrees the director of the marketing and sales department of CJSC “Baltic Pearl” Asya Levneva.
Therefore, there will be no sharp drop in prices for all objects, she emphasizes. Due to the lack of solvent demand, companies will selectively reduce prices for less liquid lots, generate new interesting offers for installment purchases, mortgages, offer discounts and gifts.
Feldman also echoes his colleagues, adding that due to the tightening of mortgage programs and a decrease in demand, prices for primary real estate will continue to stagnate in the spring of 2023. There are no prerequisites for their reduction – the cost of construction continues to grow, there are difficulties with logistics and finding personnel, servicing loans for developers is also expensive.
- Russian real estate news
- New buildings
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Look for alternatives
At the moment, the market is guided by inflation, the key rate of the Central Bank will depend on it, Feldman continues. Against the background of the disappearance of near-zero programs, the rate will gradually move towards 8%. However, there are still proposals at 3-4% per annum, taking into account the subsidization of part of the loan by the developer. New installment programs will also appear as an alternative to mortgages.
– Maintaining mortgage rates at 4-5% without overcharging through joint programs with banks is now the most obvious way to maintain demand. Higher rates with a decrease in real incomes of the population and high real estate prices can become protective for the main part of consumers, Levneva concluded.
Recall that we also previously reported that Nabiullina was not enthusiastic about the idea of a universal mortgage at 5%.
Message It became known what will happen to prices for new buildings in the spring: Central Bank restrictions provoke stagnation first appeared on the Realty Times.
