Russia Ends Housing Mortgage Subsidy Amid Economic Uncertainty
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Loading... - Klaus Sauer
- 04 Jul 2024
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Russia is winding down its mortgage subsidy program, which provided loans at an 8% interest rate despite the Bank of Russia raising the base rate to combat accelerating inflation. This program, which spurred a property boom amidst the COVID-19 pandemic and the war in Ukraine, has drawn criticism for distorting the market and driving up prices.
Impact on the Real Estate Market
- Subsidy Program: The program, now ending for most groups, allowed for 8% mortgage rates while the central bank's base rate was significantly higher.
- Criticism: Central Bank Governor Elvira Nabiullina criticized the program for making housing unaffordable, enriching developers, and driving prices up.
- Current Rates: Banks are now offering unsubsidized mortgages at 17% to 20%, making monthly payments unaffordable for most Russians.
Market Predictions
- Short-Term Stalemate: Analyst Pavel Shashkov predicts a 6-8 month period of adjustment for the population to the new market conditions.
- Construction and Prices: New construction is expected to slow due to low sales and reduced flows to developers' escrow accounts, though a decline in prices is unlikely.
- Mortgage Statistics: Over 75% of new mortgages were issued under the subsidy program in recent months.
Economic Impact
- Economic Growth: The construction boom, alongside surging military spending, helped Russia's economy grow despite sanctions over the 2022 invasion of Ukraine. The construction volume increased by 16% over the past two years.
- Housing Market: Housing purchases amounted to 11% of the GDP in 2023, with property prices in major cities like Moscow rising significantly. The average price of a 60 sq-m apartment in Moscow reached nearly 22 million rubles in June 2023.
Future Projections
- Demand Decline: The Bank of Russia expects a decline in demand for new property and a slowdown in mortgage portfolio growth to 7-12% this year from 30% in 2023.
- Remaining Programs: Current borrowers will retain their subsidy. A special program for families with at least two children will continue until 2030, while another for IT specialists will end this year.
Government Measures
- Access Restrictions: To restrict access to the 8% mortgages, the government previously raised the minimum deposit to 30% and limited the maximum loan amount.
- Subsidy Costs: The Finance Ministry has spent close to half a trillion rubles on the subsidy program and estimated another trillion rubles would be needed to extend it through 2026.
The end of the mortgage subsidy program marks a significant shift in Russia's housing market, likely leading to decreased demand and slower growth in the mortgage sector. The government's decision reflects a broader strategy to manage economic stability amid ongoing challenges.
