Russia’s primary property market is at risk of overheating, the Central Bank has warned. Prices in the sector continue to grow apace, despite high mortgage rates. The primary real estate market refers to the sale of newly built properties directly from developers to buyers.
Bank officials are increasingly concerned that a bubble might be forming, posing a threat to the economy if it bursts. Analysts looked at a number of indicators, including mortgage lending, rental prices, household incomes and construction activity.
“In the primary real estate market, all of these indicators were on the rise until the second half of 2024, increasing the risk of a bubble forming in this segment,” the Central Bank said in a quarterly report.
“Following the end of the large-scale subsidised mortgage program and amid high mortgage interest rates, the growth of mortgage issuance slowed, helping to reduce bubble risk in the fourth quarter of 2024,” the regulator added.
The bank said Russia’s primary real estate market reached the “high risk” level in April, with the index hitting 1.6, a rate not seen since at least 2016.
The average mortgage loan reached a record 4.4million roubles (£41,432) in April, according to the Russian newspaper Vedemosti.
The average yearly salary in Russia comes to around 1.24million roubles, or roughly £11,682.
Currently, many Russian banks are offering mortgage loans with a whopping 30% interest rate.
A person taking a loan out for 4.4million roubles with a 20% down payment would end up having to pay 14.6million roubles – over three times the initial amount.
Last November, some banks were offering mortgages with an eye-popping 43% interest rate.
According to the Russian publication RBK, a 20-year mortgage at 43% on an apartment worth £95,472 would mean repayments totalling an astronomical £752,452.
The average price per square metre of a flat outside Moscow is £1,773, meaning for £95,472 a buyer would get a 53 square metre apartment.
Russian homebuyers had been helped by a generous government mortgage subsidy introduced in 2020 and extended after the imposition of Western sanctions following Putin’s full-scale invasion of Ukraine.
Under the scheme, mortgage rates were fixed at 8% which helped drive a property market boom.
However, the surge in house sales led to a spike in inflation, forcing the Kremlin to scrap the subsidies.
