At a March 27 press conference, Deputy Minister of Construction, Housing and Utilities Nikita Stasishin warned
that “certain real estate experts” should be careful with their forecasts “so as not to mislead Russian citizens.”
This comes as experts are increasingly discussing the possibility of the Russian housing market overheating, with a “mortgage bubble” growing amid the popular “preferential mortgage” program. And it isn’t just “certain experts” – the Central Bank of Russia (CBR) is also calling attention to the issue, worried about possible financial shocks should the real estate bubble burst.
Literally the next day after Stasishin’s comments, Alexander Danilov, who heads the CBR’s Banking Regulation and Analytics Department, said
that preferential mortgages are no longer helping to make housing more affordable, as due to rising prices, an apartment in a new building costs the equivalent of eight years of the average annual income, while back in 2019 it was six years. “What are we talking about with affordability? We know how it works, a preferential program is first come up with, then these schemes with near-zero interest rates. And then what? Are we going to come up with negative rates? Some other schemes? The scope for this sort of artificial support [for mortgage demand] has run out,” he concluded.Pandemic legacy
Back in 2021-22, developers were widely taking mortgages at near-zero interest rates, starting at 0.1% for the first year or two. Working with a bank, the developer would subsidize part of the interest on the mortgage. The flip side was overpricing by the developer – as a result, buyers did get some relief during the initial payback period, but very much overpaid for housing in general.
The CBR came out against preferential mortgages right when they were introduced in 2020, while in mid-March of this year, CBR Chair Elvira Nabiullina publicly promised
to fight “God knows what” mortgage schemes that developers had come up with.
Preferential mortgages were introduced by the government when the pandemic brought sales of new housing practically to 0: Russians could get a loan at 5% with a down payment from 15% (for some it was from 10%). At that time, bank mortgage rates were 9% or higher, so there were plenty of people who wanted to take out a loan on preferential terms. Had the program remained in place only until mid-2021, as originally planned, it would have been considered a success that had helped the construction industry effectively overcome the pandemic crisis.
However, as they say in Russia, there is nothing more permanent than a temporary measure: once introduced, preferential mortgages have taken on a life of their own, being extended and extended, with interest rates adjusted, restrictions on the loan amount introduced, the criteria for the program changed, though the basic principle has remained that the so-called Agency for Housing Mortgage Lending (Dom.RF) would subsidize part of the interest payments on mortgages for new housing.
This is the problem: