The real estate market under pressure: is it possible to make money on it in 2022

High mortgage rates, record inflation since 2015, uncertainty in the economy have also affected the housing market. Buyers expect price cuts

In 2022, prices for new buildings and second homes continue to rise. High inflation, an increase in the key rate, and with it mortgage rates, raised the question for investors whether real estate would retain the status of an asset protecting against depreciation of money, and for those who were going to buy housing for life, whether to wait for prices to fall.

What are the real estate prices at the beginning of 2022?

Over the last year, 1 sq. m of primary housing in Moscow rose in price by 25.3% - from ₽251.8 thousand to ₽315.5 thousand, in the secondary market of the capital prices increased by 14.8% - from ₽266.0 thousand to ₽305, 4 thousand. In the regions of RUSSIA, housing rose in price two and three times faster: by 44.6% in the market of new apartments - from ₽97.5 thousand to ₽141 thousand per 1 sq. m. m, and in the secondary market by 46.1% - from ₽81.1 thousand to ₽118.5 thousand. Such dynamics was recorded in CIAN.Analitika from April 2021 to April 2022.

According to the Avito Real Estate announcement service, in the first quarter of 2022, the average cost per square meter of housing in new buildings in large Russian cities increased by 7% compared to the fourth quarter of 2021, amounting to ₽132.9 thousand. the same period fell by 3%, to ₽267.6 thousand per 1 sq. m. m.

A sharp acceleration in housing price growth began in 2020 against the backdrop of low rates (6.5-7%) on preferential mortgages for new buildings, an increase in prices for building materials, which was expected to be even higher after the lifting of the ban on the EXPORT of metal from the beginning of 2022, rising inflation , which reached 8.39% in annual terms at the end of 2021, as well as pent-up demand.

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What will happen to house prices in 2022

Among the key factors that will affect the cost of square meters in 2022, experts name the geopolitical situation, inflation and mortgage rates, construction costs and demand.

How inflation will affect property prices in 2022

Inflation in Russia rose to 17.62% per annum, as of April 15, 2022 (Photo: Sutterstock)

The sanctions pressure faced by the Russian economy in the spring of 2022 caused a sharp weakening of the ruble, followed by a jump in inflation - in annual terms, it is 17.62%, building materials have risen in price by 9.95% since the beginning of 2022, according to the Ministry of Economic Development on 15 April.

Read: "Threat No. 1": Why building materials are becoming more expensive and how they will keep prices down

After a sharp surge in prices in March (by 7.61%, from 9.16% in February to 16.7% in March in annual terms), although inflation rates have begun to slow down, they still significantly exceed the level of previous years. “This indicates a further increase in annual inflation in the near future,” Central Bank analysts say in the report “What Trends Say. Macroeconomics and Markets”. According to an April survey of professional analysts, they expect inflation to reach 22% by the end of the year (instead of the 20% forecast in March).

What is inflation and how to protect your income from it Inflation , Hedging , Bonds , Real estate , Stocks

The most likely scenario for changes in housing prices in 2022 is an increase in nominal prices at the level of inflation, says Alexei Popov, HEAD of Cyan.Analytics. “This will be more pronounced for the primary market, where support measures have been launched again, but it will also affect the secondary market. The secondary market is inextricably linked with the segment of new buildings - a huge number of alternative transactions are carried out, when new buildings are purchased with funds from the sale of secondary housing. Therefore, owners of secondary housing will continue to increase prices against the backdrop of rising prices in new buildings. A decrease in nominal prices (in rubles) seems unlikely so far. In the context of high inflation, the continuing rise in prices for building materials, and difficulties with logistics, the scenario of continued price growth looks more likely. True, against the backdrop of contraction in demand, it will be lower,

How mortgage rates will affect home prices in 2022

Photo: Sutterstock

The increase by the Central Bank in February of the key rate to a record 20% led to an increase in mortgage rates. At the peak, rates at Sberbank rose above 18%, at VTB - above 23%.

The average mortgage rate for primary housing as of April 1 was 21.41% per annum (from 13.8% to 27.7%), in the secondary market - 21.22% (from 13.8% to 24.5%), according to Frank RG, which evaluates the mortgage programs of about 30 banks.

After lowering the key rate to 17%, Sberbank and VTB lowered mortgage rates to 16.9% (data as of April 22, 2022).

The Central Bank lowered the rate. What does this mean for the economy, loans and the exchange rate of the ruble Banking and finance , Key rate , Central Bank

“With such rates - more than 15% - no one will take out a mortgage, so it is necessary to make mortgage affordable to maintain supply and demand, to support the construction industry. This issue is understood and discussed in the government, decisions will be made,” said Dmitry Lebedev, chairman of the board of directors of Basis Investment Company, ex-co-owner of Miel-Nedvizhimost.

Preferential mortgage rates were revised upwards: from 7% to 12%, while the amount of the limit was again increased for the regions to ₽6 million, and for Moscow, Moscow Region, St. amounted to ₽3 million for all Russian regions, which practically deprived Muscovites, Petersburgers and residents of large cities of the opportunity to use the program, since apartments are more expensive in them). For three types of preferential mortgage programs, rates remained at the same level: family - 6%, rural - 3% and the Far East - 2%.

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In March, the issuance of mortgage loans became the only growing segment in the retail loan portfolio of banks, thanks to preferential programs. Central Bank analysts expect a significant change in demand and the structure of mortgage loans, compared to 2021, towards subsidized loans in the primary real estate market.

Developers also rely on preferential mortgages, which, together with banks, also subsidize mortgage rates. Thus, backbone developers - the PIK and Samolet groups of companies - offer customers rates of 6.99% and 5.99%, respectively, for the entire loan term. “Such programs will support demand from buyers, as for a significant part of them they become the only way to buy new housing. There are no prerequisites for a fall in prices, ”says Ilya Vitkovsky, DIRECTOR of analytics and valuation at the Samolet group.

Read on RBC-Nedvizhimost Mortgage at 0%: how subsidizing rates from developers work

What will be the demand for real estate and how it will affect prices

The return on real estate in Moscow as an investment object is the lowest in Russia (Photo: Sutterstock)

Another factor that affects prices is demand. Postponed demand during the lockdown during the pandemic has made a significant contribution to spinning up the flywheel in housing prices.

The economy and, accordingly, supply and demand in the real estate market will be determined by geopolitics, Dmitry Lebedev believes. “The price will be primarily determined by effective demand – it is now at risk. We will see in the near future how the economy will endure the sanctions and whether people will be able to earn money successfully. So far, the outlook looks good: commodity prices are high, more money is coming into the country than it is coming out, and more than before, part of the money reaches people's wallets, so there is a demand for housing. In the event of serious problems in the economy, prices will creep down, because demand will collapse. Right now there is no reason to increase the cost of housing. It seems that the most likely plot is small fluctuations in the cost around today's values, ”the expert explained his opinion.

“Demand will grow, because the low provision of Russians with their own high-quality housing has not disappeared anywhere. The experience of past years shows that real estate prices are constantly growing, regardless of the economic situation and any other external factors,” PIK Group is sure.

Ilya Vitkovsky says that developers will be careful about bringing new properties to the market, which will help avoid oversupply.

A contraction in demand will not lead to a radical change in prices in the market, Alexey Popov notes, because with the transition of builders to project financing through funds received from banks, and not from equity holders, pricing in new buildings has ceased to depend directly on the number of transactions in the project. “Now developers make a direct discount only on some of the least liquid   lots, but more often they provide discounts through additional subsidization of preferential mortgages while maintaining or increasing prices,” Popov is sure.

Read on RBC-Nedvizhimost: ABC of construction: what you need to know about project financing

How profitable is it to invest in housing in 2022?

In Nizhny Tagil, it is most profitable to buy an apartment as an investment object (Photo: Sutterstock)

The average yield from renting apartments in Russian cities has been declining in recent years: in 2020, the national average was 6%, in 2021 - 5.5%, as of the end of April 2022, it dropped to 4.9% per annum. It will take at least 20.3 years to recoup the purchase of an apartment by renting it out. Such data was obtained by analysts of the World of Apartments portal, who compared real estate prices in 70 major Russian cities. The reason for the decline in profitability was that prices in the secondary housing market grew faster than rent.

Top 5 cities with low housing yields (data from the World of Apartments portal as of April 2022):

Moscow — yield of 3.5%, the average price of an apartment is ₽17.7 million, the rental rate is ₽51.9 thousand per month, the payback is 28.4 years; Kursk - yield of 3.6%, the average price of an apartment is ₽4.4 million, the rental rate is ₽13.4 thousand per month, payback is 27.5 years; St. Petersburg - yield 3.8%, the average price of an apartment is ₽11.9 million, the rental rate is ₽37.6 thousand per month, payback is 26.3 years; Belgorod - yield of 3.9%, the average price of an apartment is ₽5.6 million, the rental rate is ₽18.1 thousand per month, payback is 25.5 years; Vladivostok - yield of 3.9%, the average price of an apartment is ₽8.3 million, the rental rate is ₽27.3 thousand per month, the payback is 25.3 years.

Under the current conditions, it is unprofitable to buy an apartment for the purpose of reselling it or renting it out, Vladimir Popov believes. “Demand in the secondary market is shrinking, there is no preferential program on it (as in the segment of new buildings), so it will be more difficult to find a buyer. Renting an apartment will also not bring a lot of income - in March and April, competition in the rental market has increased significantly, and rental rates have decreased. Given that the cost of housing is increasing, but rental rates are not, profitability will continue to decline, ”the expert is sure.

According to CIAN. Analytics” in April 2022, the average rental rate for a “odnushka” apartment in Moscow is ₽45.8 thousand. The average cost of an apartment in the primary market of the capital is 16.7 million rubles. “Only in order to return the full cost of the funds spent on the purchase of an apartment (assume that the apartment was bought with “real money” without a mortgage), it will take more than 12 years (provided that the apartment will be rented out without downtime). The yield is only 3% (a year ago - 4.5%), ”Popov cited the calculations.

Top 5 cities with high housing yields (data from the World of Apartments portal as of April 2022):

Nizhny Tagil - 8.3% per annum, the average price of an apartment is ₽2.3 million, the rental rate is ₽15.6 thousand per month, payback is 12 years; Astrakhan - yield of 8%, the average price of an apartment is ₽3.7 million, the rental rate is ₽24.7 thousand per month, payback is 12.5 years; Yakutsk - yield of 7.2%, the average price of an apartment is ₽6.1 million, the rental rate is ₽36.3 thousand per month, payback is 13.9 years; Murmansk - yield of 7%, the average price of an apartment is ₽4.7 million, the rental rate is ₽27.5 thousand per month, payback is 14.3 years; Grozny - yield of 6.9%, the average price of an apartment is ₽4.5 million, the rental rate is ₽25.9 thousand per month, payback is 14.4 years.

Dmitry Lebedev draws attention to the fact that in times of crisis, one must remember that the main thing is cash flow. “This is the main value of real estate, this is what it helps out in a period of turbulence. I would suggest that investors moderate their appetite, be content with even a little and value real estate for reliability - now there are virtually no alternative ways to invest and save money, given what is happening with foreign accounts and securities. And the growth in the value of real estate always overtakes inflation, although this is only visible over a long period of time. I believe that investing in real estate should be based on a planning horizon of more than 10 years - then you will get a guaranteed successful result. Even if inflation is high and the value of real estate does not rise or fall, it will be temporary,

Read on RBC Pro: Will buying an apartment help save money during high inflation

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