- Risks of buying real estate in a crisis
- Decrease in the profitability of rental housing
- The risk of buying apartments under shared construction contracts
- The difficulty of acquiring real estate with a mortgage
- What will affect pricing
- Real estate tax increase
- Ruble exchange rate fluctuations
- Population income level
- Increase of the Central Bank’s discount rate to 17%
- What kind of housing is more profitable to buy in a crisis
- Property type
- Price segment
- Acquisition time
Risks of buying real estate in a crisis
At first glance, investing in real estate in a crisis seems like a reasonable idea, but Russians who are going to resort to this method of investing should take into account all possible risks.
Decrease in the profitability of rental housing
According to the Rosrielt portal, in December 2014 alone, the average rental rates for 2-room apartments in most large Russian cities fell significantly: in Moscow – by 13.5%, in Vladivostok – by almost 30%, in Tyumen – by 16% , in Belgorod – by 11%.
In 2015, experts predict an even greater decline in rental prices, as the solvency of Russians will fall, and the number of rented apartments will inevitably increase due to real estate acquired in order to preserve savings. The greatest losses will be incurred by the owners of elite apartments, prices for which, according to some forecasts, will fall by almost 40%.
Along with a decrease in income in 2015, the expenses of lessors will also increase due to the planned increase in property tax by approximately 3 times..
The risk of buying apartments under shared construction contracts
Shareholders run the risk of being left without an apartment if the developer does not complete the construction of the house and return the money to the clients. In the context of an increase in the Central Bank’s discount rate to 17%, the likelihood of such situations arising increases many times over, because a huge number of Russian new buildings are being built on borrowed money. So, for example, just a couple of weeks after the discount rate increase, the large construction company Morton announced that in 2015, the output of new projects will be reduced by 35%.
The difficulty of acquiring real estate with a mortgage
According to some reports, the share of apartments purchased on a mortgage in the Russian market is 30%, for real estate in new buildings this figure is even higher – 50%. This financial instrument was the main “driving force” of the growth of housing construction.
In 2015, for many Russians this option of buying real estate will become simply unbearable, since after the Central Bank raises the discount rate, interest on mortgages in Russian banks will amount to 18-20%. And it is unlikely that government subsidies, which are outstanding for many categories of mortgage borrowers, will somehow radically affect the situation..
What will affect pricing
It is very difficult to make accurate forecasts of how real estate prices in Russia will behave in 2015, but there are several factors that will affect the formation of housing prices throughout the year..
Real estate tax increase
This factor will lead to a decrease in demand for capital housing, since apartments in Moscow, as a rule, have a very high cadastral value, and it is from this indicator that the amount of real estate tax is calculated.
Ruble exchange rate fluctuations
Apartment prices directly depend on the ruble exchange rate. It is expected that in the near future the exchange rate will stabilize, as the government’s measures have already begun to act, which were taken to support the national currency. This fact was recognized even by representatives of the IMF in a statement that was made a few days ago..
There is an opinion that the ruble exchange rate against the dollar will strengthen during 2015, which will lead to a fall in ruble real estate prices by more than 10%.
Population income level
The reduction in incomes of Russians, which is expected in 2015, will lead to a significant decrease in demand for housing. According to the staff of the analytical center Est-a-Tet, the drop in demand may amount to 30%, and if the economic situation in the country remains unstable for a long time – by 40-60%. Moreover, the demand for elite real estate will decrease the most. The share of purchases of budget housing will sink much less, since many Russians in a crisis are investing in real estate, which can be sold the fastest.
Increase of the Central Bank’s discount rate to 17%
This factor will affect the prices in new buildings built with credit money. Now payments to developers on bank loans will be much higher and, naturally, this will be compensated by raising the cost of housing. Thus, according to the forecasts of the partner of the development company “Khimki Group”, prices may rise by 8-12%.
What kind of housing is more profitable to buy in a crisis
The most promising housing in times of crisis are apartments on the secondary market, built in 2005-2010. Their advantages are obvious: such houses are not much different from new buildings in terms of wear and tear, apartments in them can be bought at a large discount, and besides, this housing has a ready-made finish, so its owners will not have to live in a state of constant renovation.
Also this year it is worth paying attention to real estate in new buildings. Due to falling incomes of the population and high mortgage rates, apartments in such houses will not be sold out too quickly, and developers will most likely sell them at great discounts. But it is too risky to buy housing in houses at the zero stage, the ideal option is new buildings at the final stage of construction. In this case, one can hope that the developer will have enough funds to complete the construction of the house. You should also pay attention to the participation in the construction of state-owned companies. This increases the likelihood of completion of construction on schedule..
Another interesting type of real estate is duplexes and townhouses in the middle and budget price segment. Such housing is gaining more and more popularity with residents of Russian megacities every year. Therefore, after a few years it will most likely be sold at a higher price..
It is best to buy housing in regular sleeping areas. Such apartments will be in demand in any economic situation and can be easily sold or rented out. It is also necessary to pay attention to the infrastructure of the area: metro, shops, markets, kindergartens, schools – all this affects the attractiveness of housing for potential buyers.
Of course, you should give preference to economy class housing, which can afford the largest number of Russians. You should pay attention to luxury real estate only if the apartment is considered as a long-term investment. It may be difficult to sell it over the next few years, and the profitability from renting will be low, but the economic crisis will end sooner or later and then the price of such housing will inevitably begin to grow.
You should not rush to buy a home. The demand in the market and the paying capacity of the population, on which the price of real estate depends, will fall gradually. Accordingly, the most optimal time for buying an apartment is the second half of the year or even the end of 2015..