Payouts to warriors keep Russia’s housing market afloat
With mortgage rates approaching 30%, only wealthy people and families of soldiers fighting in Ukraine can afford to buy a house.
Mortgage rates in Russia began to rise noticeably in the spring of 2024. In early October, the Central Bank allowed Russian banks not to restrain mortgage rates, and a month later Sberbank started offering buyers of apartments in new buildings a loan at 29.2% p.a. The mortgage calculator shows that the total payment for the most modest one-room apartment worth three million rubles (around €28,500) on a 20-year loan will be 13 million (€123,800). And the monthly payment will be upwards of 55,000 rubles, which is almost equal to the median salary.Elena, a real estate agent from St. Petersburg, explains: the effective interest rate on the loan will be lower due to the discount system, and there are also various lower interest rate programs, such as for families or residents of Arctic regions.
However, the market has slowed down, which is noticeable even by the number of transactions.The composition of market participants has also changed. Those who previously could not afford housing have now come to the market, a Petrozavodsk-based real estate agent Oksana (not her real name) told the Barents Observer.“Some of the buyers today are participants of the SVO (special military operation, an official term used by the Russian government to denote the Russian invasion of Ukraine) or their families. They receive compensation for injuries or death. Many are injured, they are given three million and more. I personally had such buyers who paid for the apartment in cash.””Two friends have husbands in the SVO; they are from a village, they never had any money, and now they sit and discuss which bank to put the money in at interest…
So the population has a lot of money pumped in now.”“People want to live today”Her colleague from St. Petersburg confirms that the population has a lot of money, and people in big cities do not even notice that anything is happening.“They live in luxury apartments, drive luxury cars, and they do not care what sanctions have been imposed on whom. They live as they lived, and everything is fine with them. Moreover, many have savings that they do not even touch. The interest rates on deposits that banks are offering now are not offered, it seems, in any country in the world.The interest rates may still go up, but people couldn’t care less.
Everyone accepts this as something inevitable. People want to live today; and if something happens tomorrow there’s no flying from fate, as they say.”“In Russia, people get used to everything,” Oksana agrees. “The need to expand their living space has not gone away. People have children or move away; and at first, when some kind of cataclysm happens, everyone freezes in some kind of incomprehension, and then they start to get going and live on.”However, even the new and old elite cannot ignore high mortgage rates.“Before the interest rate increase, people borrowed 4-5 million rubles or more, now the largest loan I can remember is 2.7 million,” Oksana says. “However, the market has not stopped.
In addition to apartments, there are rooms; they are bought with maternity capital and a small additional payment. Someone, on the contrary, sells a room and adds their small savings. This is how these chains are built.”“Everything has become more expensive”During the coronavirus pandemic, the Russian authorities decided to support construction and introduced low-interest mortgages for everyone. As a result, the price of a square meter grew significantly – more than the population's income. Now, the affordability of housing is also affected by mortgage rates, which also greatly outpace purchasing power.
The result is rising prices in the rental housing market, says the real estate agent from Petrozavodsk.“Rents have gone through the roof. In Petrozavodsk, rent for a one-room apartment is 25,000-30,000 rubles (€240-285) a month. It has increased multifold! Mortgages used to be more affordable, and people, choosing between renting and buying their own home, preferred to pay for their own. Now potential buyers have slowed down and started renting.
And with high demand, the price is high. When the interest rate is reduced, there will be another jump in apartment prices, because demand will exceed supply,” Oksana summarizes.Despite the very hypothetical affordability of housing, people still consider it an investment, Oksana believes.“We have very high inflation, everything has become more expensive. Money is depreciating, people are investing it in real estate,” the real estate agent reasons.“Not long ago, people made bank deposits, but now, on the contrary, they are afraid that their deposits will be frozen. We are constantly in some kind of funnel, there is no stability.”
