Vicious Circle of Preferential Mortgage

Vicious Circle of Preferential Mortgage


Russian authorities extended an anti-crisis mortgage program by one year. At the very least, it means that housing prices are unlikely to decrease. Also, ordinary citizens remain skeptical about the measure to support the industry.

The group of potential preferential mortgage borrowers has been expanded to include families with one child. On the other hand, the rate will still go up to 7% instead of 6.5%. Anyway, it is not the regular 8-9 % charged by banks.

“On June 11, the key rate jumped by 0.5%. Central Bank governor Elvira Nabiullina said that the CBR might raise the key rate again in July.

By extending the state-subsidized mortgage program, the authorities continued to support developers and bankers, inflating the market with credit money in a move that is likely to hit hard the secondary market. In the near future, banks will begin to raise mortgage rates. I’m afraid that the prices of new homes will become exorbitant even at the groundbreaking stage while the demand in the secondary market will fall," director of a Krasnoyarsk-based real estate agency Maxim Omelyanchuk told

“Many case scenarios were discussed. Negotiations were held at the level of the Russian Ministry of Construction and the Central Bank. Twelve Russian regions asked the Construction Ministry and the Federation Council to extend the program. The government of Krasnoyarsk territory also noted the positive impact of the program and the need for its extension. The abrupt cancellation of state support could have had a negative impact on the housing market. We see now that new buildings are brought to the market," says Elena Laletina, head of Etazhi’s Krasnoyarsk branch.

Preferential mortgages attract new buyers and boost the. demand. The developer sees the increased activity and raises prices. As a result, there is an unprecedented situation in the market, where housing prices at the foundation stage are the same as finished home prices or even higher. Top officials previously drew attention to the wrong pricing. At the end of May, the regional branch of the Federal Antimonopoly Service said that no evidence of collusion between developers had been detected.

People’s attitude to the events in the housing market is also interesting. Otkritie Bank conducted a survey among Siberian regions on the attitude to preferential mortgages. Almost half of the respondents support this measure.

“The majority of Siberia residents (48%) support the decision to extend the state program of preferential mortgages, as it reduces interest rates and makes housing more affordable. However, 20% believe that the program should have been stopped, as housing prices are rising because of it. A third of the surveyed residents of Siberia do not know anything about this program. Only 17% of the respondents believe that if the state program of preferential mortgages were canceled, housing prices would decrease. According to 32% of those polled, housing prices would continue to grow anyway. In the opinion of 17% of the respondents, apartment prices would have remained at their current level after the cancellation of the preferential mortgage program, while 34% could not assess the dynamics of prices in case of program termination,” the bank press service said.

The latest monitoring shows that housing prices in Irkutsk are the highest in Siberia. In less than six months, the average cost of a square meter of secondary housing increased from 80,400 ($1,099.07) to 89,900 rubles ($1,228.93). The cost of primary housing increased from 78,300 ($1,070.36) to 95,600 ($1,306.85) rubles in the same period.

“The general trend in Russia is obvious: the cost of housing is going up. The Irkutsk region accounts for the largest price hike which raises concerns. The average cost of a square meter of primary housing in the region has increased by more than 21%. President Vladimir Putin, in his annual address to the Federal Assembly, called for concessional lending for large families. Monitoring showed that banks in the Irkutsk region officially offer loans under the Family Mortgage program at the average rate of 4.5-5%. Apparently, this is an advertising trick. In reality, the interest rate is much higher,” said Sergei Ten, a State Duma deputy from the Irkutsk region.

Apartments are also becoming more expensive in the Republic of Khakassia.

In the first quarter of 2021, prices in the primary housing market increased by 7.7% on average and by 6.4% in the secondary market. According to Krasnoyarskstat, the cost of high-quality apartments, i.e. apartments featuring original layout, comfortable entrances, enclosed courtyards, and other elements of modern housing development posted the biggest jump. In Tuva, a square meter of living space in the secondary market is 68,400 rubles ($935.03) on average due to local demand specifics. Tuva residents prefer to buy housing in the neighboring republic of Khakassia, to be more precise, in its capital Abakan. It is relatively close to depressed Kyzyl, but more economically developed, with a rail link and well-developed air service.

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