What will happen to the Moscow real estate market after the key rate is raised?

On April 23, the Board of Directors of the Central Bank of Russia decided to raise the key rate to 5% per annum. Let’s try to tell you in simple terms how this will affect you and me.

Figuratively speaking, the key interest rate is the very “valve” that either opens or closes the flow of money into the economy. So in 2020, in response to the outbreak of the pandemic, the Central Bank decides to lower the key rate, bringing it to a historical minimum of 4.5%. This is the rate (4.5%), in other words, these are the conditions under which all banks in Russia borrow money from the Central Bank. And then they pass them on to us (ordinary citizens), enterprises or businesses, “throwing on” their margin on top.

How did banks react to the reduction in the key interest rate? As a matter of fact, they reacted quite predictably, as was expected of them, namely. Banks reduced deposits for individuals, and at the same time reduced interest rates on loans for the population. Thus, starting to issue more and more loans to the population. And finally, the “cherry on the cake” was the introduction of the preferential mortgage program on April 17, 2020, after which that same “valve” regulating the flow of money no longer turned into a “valve”, but into a whole “portal” or “platinum” and cheap money flooded the economy.

Two moments that came later and which are most interesting for you and me (hunters for square meters).

1. It has become unprofitable for the population to keep money on their deposits, because the interest paid on them has become record low.
2. On the contrary, it has become more profitable for the population to take out a mortgage and transfer their money to Moscow developers and buy real estate.

And then what happened is what you already know very well. People withdrew rubles from their accounts (their savings), supplemented them with mortgage loans and rushed to the developers. And Moscow developers, in fact, were not at a loss either, and raised prices for absolutely all segments of apartments.

But do you know which segment of apartments has grown the most? Yes, most likely you guessed it, these are apartments in the budget range from 7 to 15 million. There is a very simple explanation for this. The borrowing limit in Moscow under the preferential mortgage program was 12 million rubles, in fact, it is still 12 million, and the down payment is at least 15%. Therefore, all transactions for the most part do not exceed 15 million under the preferential mortgage program. Thus, apartments with a budget of 14-15 million were simply swept off the shelves of developers, and this applies to Moscow, New Moscow, and even the Moscow region.

Prices reacted accordingly. Thus, according to the analytical portal IRN, prices within the Moscow Ring Road in Moscow increased by 16.2%, in New Moscow by 17.3%, and in the Moscow region by as much as 19.8%. This is the market average.

What is the market now and how is it doing? According to the official website of the Bank of Russia, inflation continues to grow and has now reached 5.8%. Which significantly exceeds early forecasts. This means that keeping money in accounts where you receive interest on your amount is already extremely unprofitable. At the same time, real incomes of the population continue to fall. And recently we came across such a figure and it really became sad. It turns out that now the consumer power of the Russian population is 10% lower than in 2013. Think about the numbers. If we bring the prices of 2013 and 2021 to one base, then you and I can afford 10% more than then.

At the same time, real estate prices in Moscow continue to rise. And you ask, who buys apartments at such prices? We will answer you. It’s quite simple. The locomotive of demand is two categories of buyers.
The first category is those same mortgage holders who are still trying to fit into the preferential mortgage program in a budget of up to 15 million.

And the second category is the so-called investors, but investors not in the classical sense, who enter “at the foundation pit” and then exit at a later stage and make money on the difference in the price of the apartment. And those people who are also trying to take out a preferential mortgage at a low rate and pay off the mortgage with further rent payments. That is, on the contrary, they focus on projects at a high stage of readiness or, preferably, already ready for occupancy.

And now, by starting to reduce the key interest rate, the state is essentially “sawing off one leg of the table” on which developers have laid out “tasty” but expensive real estate offers. And when the preferential mortgage program is canceled on July 1, 2021, “the second leg of this table” will essentially shake. By the way, we are 99.9% sure that this program will be cancelled.
Who will then remain on the Moscow real estate market, who will continue to buy apartments, and where are these two remaining “legs on the table”? Let’s call these “legs of the table”, the remaining buyers, two categories.

The first is the so-called pure demand. A small layer of people (buyers) throughout the entire market who will buy apartments regardless of the situation, i.e. these are people who solve their life issues.
And the second category, it can be called “common sense”, these are people who choose longer, analyze more and have a very pragmatic approach to choosing an apartment. Such people will also stay, will buy, and there are projects for this.

And, of course, you will ask whether the demand for Moscow real estate will fall in the summer. We think, most likely, it will fall. But how much is still unknown. Because Moscow itself has many countervailing demand drivers. And, of course, you will ask the second question. Will developers respond to the decline in demand? We think they will react, but not quickly. There will also be some kind of inertia in this process. Developers have had “fat” times, they have a good margin of safety. Therefore, they will gradually reduce prices, if any reduction occurs at all.

And finally, the most important question of this article. Should I buy an apartment before July 1, 2021, while the preferential mortgage program is still in effect? Let’s answer it this way. Yes, we believe that you can still buy, but you need to select options even more carefully and carefully. There are very few such options left, so we recommend you hurry up.

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