Why housing in Moscow is becoming more expensive

Recommendation points

• Increased demand for housing
• Availability of credit and loan programs
• The possibility of a repeat of the financial crisis
• Expanding the borders of Moscow
• Prohibition of construction within the third ring and reduction of construction areas in other districts of Moscow
• Dollar exchange rate and inflation
• Elections

In the last 9 months of this year alone, in such districts of Moscow as Krasnoselsky and Cheryomushki, the price of 1 square meter of residential real estate increased by more than 34%. This information was provided by the analytical center “Indicators of the real estate market” and formed the basis for the rating of districts of the capital, the cost of apartments in which grew at the highest rates.

Specialists, including representatives of the Ministry of Regional Development, managed to identify four reasons for the increase in prices for building materials:

• exceeding demand over supply, especially in those regions where capital construction projects of federal significance are being implemented;
• an increase in the selling price of inert materials: sand, crushed stone, expanded clay and screenings;
• an increase in tariffs for freight transportation, which is also associated with an increase in the cost of gasoline in our country;
• increase in energy prices.

According to representatives of concrete manufacturing companies, the cost of inert materials, which are one of the main components of concrete mix, has increased 7 times in the last six months alone and as a result has risen by almost 15-20%. Developers note that since the beginning of the year the cost of construction has increased by an average of 6-8%, and by the end of the year it may increase by 20%.

Increased demand for housing

Of course, it is impossible to “write off” the growth in demand for apartments in Moscow only on visiting oil and gas workers, who actually make up only a small percentage of the total number of real estate buyers. However, experts unanimously note that this year the demand for housing has grown by at least 25%.

The greatest demand is for new buildings, the cost of 1 square meter of housing in which does not exceed 170 thousand rubles, as well as apartments in old brick houses and monolithic buildings of “second freshness”, that is, erected 3-5 years ago.

The demand for relatively inexpensive one- and two-room apartments in panel buildings and tiny, economical “one-bedroom apartments” of a small area, located in “good”, prestigious districts of the capital, is stable.

Availability of credit and loan programs

This reason for the increase in housing prices in the capital is, of course, not directly, but through an increase in demand. According to analysts, an increasing number of Russians can afford mortgages, the interest on which has dropped to 11.9% over the past year. According to the results of a study conducted by the analytical center Penny Lane Realty, this is a historical minimum for the entire time of observation. For comparison, in the past year, the average interest rate on mortgage loans was 14-15%.

Interest on mortgages issued in foreign currency also decreased, albeit not so significantly – from 10.5% to 10.4%.

Of course, banks are in no hurry to reduce rates on loans issued for a long term – 15-20 years, but it is still safe to say that the number of Russians considering mortgages as the only way to acquire housing is slowly but steadily growing.

Many real estate developers are attracting buyers with the opportunity to purchase housing in installments, the interest on which has also decreased over the past few months.

The government, in turn, promises that by 2030, 60% of young families in need of better housing conditions will be able to purchase an apartment on a preferential mortgage, which is provided for by the state program. In this regard, analysts recall the situation that developed in the capital in 2007-2008, when the introduction of soft loans without a down payment and the resulting sharp increase in demand for housing led to the fact that the cost of 1 square meter increased on average by 2 thousand dollars.

However, some experts do not consider the reduction in mortgage and loan rates to be such a significant factor in increasing the cost of housing. According to experts, even if the mortgage rate is zero, the overwhelming majority of Muscovites who receive wages below average will still not be able to afford to buy too expensive Moscow “square meters”.

The possibility of a repeat of the financial crisis

It is no secret that the latest, not too optimistic news of the European Union financial market and the growth of public debt in the United States made experts talk about the possibility of a new round of crisis that hit the world economy in 2008.

LeRoy Neiman. American stock exchange. 1986

Memories of a sharp rise in the dollar exchange rate and general instability are still too fresh, and the very possibility of a repetition of the situation has forced many investors, uncertain about the future state of affairs on the stock exchanges, in banking institutions and the growth of securities quotes, to invest in the acquisition of such a reliable and growing price fast paced real estate.

Thus, if during the crisis itself, in 2009, the cost of housing in Moscow decreased slightly, then in anticipation of a new crisis period, prices begin to rise again..

Expanding the borders of Moscow

Experts are already expecting a sharp increase (at least 20-25%) in the value of real estate in the Southern and South-Western Administrative Districts, which, after the expansion of the capital, will become central.

However, many analysts predict an increase in the cost of housing in the central districts of the capital, which in the near future will be divided into “old” and “new”. Moreover, the rise in prices began long before the start of any construction activity in the newly annexed territories, and with the beginning of the development of the “new” Moscow, the jump in prices may become even more significant.

Prohibition of construction within the third ring and reduction of construction areas in other districts of Moscow

Back in March this year, the new mayor of the capital, Sergei Sobyanin, announced the possibility of introducing a ban on the construction of new buildings within the third transport ring. And although at present the authorities are not talking about a complete ban, but about the introduction of restrictions, such a decision has already caused an increase in demand for apartments in the central districts of the capital, because in the near future the supply here may significantly decrease..

At present, the Urban Planning and Land Commission is reviewing contracts that have already been signed with developers and only some of them will be subject to renewal, the rest, which do not satisfy the Moscow authorities for one reason or another, will be terminated. The mayor’s office emphasizes that this is being done for the convenience of the residents of the capital themselves, in order to prevent further compaction of buildings.

In any case, the territories that can be used as a construction site in Moscow are becoming less and less, so there is no reason to count on massive development and the appearance of a large number of new proposals on the market..

Dollar exchange rate and inflation

There are two more completely objective factors that affect the increase in the value of real estate not only in the capital, but throughout the country. Since the cost of square meters is most often expressed in dollars, then with an increase in the exchange rate of the American currency, real estate prices also rise. True, this only applies to prices in rubles.

In the United States in September, the inflation rate was 3.9% and economists have already started talking about the worsening economic situation.

All experts call an increase in the value of real estate to the inflation rate quite normal and even necessary. However, it should be borne in mind that the Russian inflation rate, which this year may reach 5-7% according to forecasts of financiers, would be considered extremely high for Europe and the United States. For example, in the United States in September, the inflation rate was 3.9% and economists have already started talking about the worsening economic situation. And in the European Union, the inflation rate at the end of October was only 2.1%.

Elections

Many experts believe that on the eve of the presidential elections, real estate begins to rise in price faster than usual. Most likely, such a connection is based on the expectation of changes that will surely occur with the change of power in the country. A similar situation was observed in Russia every time before the presidential elections, so that experts are already confidently talking about the current trend..

Mikhail Natarevich. Elections in the village. 1975

According to experts, the election campaign is a time of “scrolling” a lot of money, as well as instability, which causes an increase in activity in the real estate market. In addition, wishing to attract voters, it is just before the elections that the authorities begin to implement social programs, including the provision of housing for young families, privileged categories of citizens and those on the waiting list..

And although the current presidential campaign has already lost the main intrigue, some analysts still believe that the change of the country’s leader will have an impact on the cost of housing. If only because the new president will have to make a decision on real estate tax.

As you can see, there are quite a lot of factors influencing the increase in the value of real estate in Moscow. Not all of them can be considered objective, many are based only on expectations and pessimistic forecasts..

In any case, whatever has such an impact on the formation of housing prices, the government should think about: in any other developed country in the world, an increase in the cost of square meters in the capital (and in any other city) by more than 5-6% would cause panic and immediate measures from the authorities, and in Moscow, an increase in housing prices by 34% for some reason is not surprising and is considered quite acceptable.