Forecast for property prices for 2019-2020
The topic of real estate prices worries people who are going to buy or sell it. In the realities of the unstable economic situation and the echoes of the recent economic crisis, people are puzzled by the question of whether it is profitable to make real estate transactions in the short term or it is advisable to postpone their intentions until better times. What will be the prices on the housing market in 2019-2020? Consider the factors affecting the cost of residential properties in the primary and secondary markets. Based on the opinions of experts, we outline the main directions of development of the situation in this area.
The situation in the housing market now
The economic crisis of 2014 still has a negative impact on the real estate market in Russia. A constant decrease in real incomes of the population until 2017 led to a decrease in the financing of developers. Money turnover fell in the industry, residential facilities began to be erected in a smaller volume.
In the previous two years (2017-2018), the following situation was observed:
- The total volume of newly commissioned buildings has decreased. This indicates the orientation of people towards relatively small and cheap housing.
- There was a significant difference in construction indicators in different regions of the country.
- Many construction companies, completing the construction of the facility, were in no hurry to take on new ones due to the unstable economic situation.
- Realizing new apartments has become harder, especially in Moscow.
Now there are serious changes in market conditions, they are changing due to government actions.
The participation of construction companies in partial financing of projects through shared construction will be discontinued by 2020. This is due to the introduction of amendments to the legislation, involving the transition to project financing and the use of escrow accounts.
Since January 2018, the following rules have been introduced for construction organizations:
- financial participation of the developer in the construction should be at least 10% of the project cost;
- one building permit gives the right to build only one object;
- the developer’s bank accounts are more closely monitored by the bank;
- only an organization with three years of experience in the construction of high-rise buildings will be able to become a developer, and in total it should build at least 10 thousand square meters of residential premises.
The aim of the amendments is to move to a more reliable and consolidated housing market. Interest holders will receive guarantees that they will receive their housing. Consolidation will occur due to the exit of small companies from the market and the merger of large developers into even larger organizations.
Do these restrictions affect the cost of housing? According to many expert estimates, they certainly influence. The explanation is very simple. During the construction of an apartment building with the participation of equity holders, the funds received in this way were virtually free for construction companies. There was no need to pay interest on this money, as was the case with project financing. These financial flows could be immediately used to purchase building materials and auxiliary equipment.
What will happen to real estate in more severe conditions? Under the new system, developers will be forced to borrow these shares from the bank. Despite the fact that they will be secured by a loan from the money of interest holders in a special bank account, and the percentage for using the funds will be minimal, while borrowing funds, while construction is in progress (about 2 years), you will have to overpay from 15%. Consequently, the cost of construction will increase. In order to return this difference and derive the greatest benefit from the sale of square meters, developers will not sell housing at the excavation stage, but will prefer to sell apartments that are already fully equipped. This, of course, will affect the price of square meters in multi-unit new buildings. She will inevitably rise.
According to experts, real estate prices in the primary market will rise by about 20% by 2020, when housing built before the legislative changes were completely sold out.
VAT increase since 2019
Since 2019, the VAT rate in Russia has increased from 18% to 20%.
The purchase and sale of real estate is not accompanied by this tax. However, the difference in VAT will affect the cost of construction of the project, as the developer will purchase construction materials and equipment with VAT included in the price. Consequently, in order to offset its increased costs, it will change the cost of housing. Therefore, only this one factor will lead to an increase in the price of apartments in new buildings not by 2%, but by 5% or more, since the price multiplier will also work.
Instability in the economy affected the decline in real incomes of the population, demand for real estate fell. To stimulate the population to purchase housing, the state ensured a decrease in mortgage rates. Such news raised the attractiveness of mortgages. Existing programs of concessional lending to families with three or more children, military personnel and the availability of special conditions when agreed with developers and so on have already duly affected demand. In 2018, the Rosreestr published information on Moscow, where in October the largest number of real estate transactions for that whole year was recorded. Whether the price of apartments will go up depends on demand. Therefore, its large value affects the rise in price of real estate.
Factors of non-state influence on real estate market prices
There are several other factors that influence housing pricing, which are not dictated by the state at the legislative level. Let's consider them further.
Building Better Housing
Developers began to make higher demands on the quality of the urban environment and infrastructure. Therefore, they pay a higher price for these conditions. As a result, there is a rise in price of square meters in new buildings.
This factor is also worth considering when deciding to postpone a real estate transaction until better times. Officially announced figures indicate inflation of 4%. The state will strive to maintain this level, but in the current situation of instability, it can far exceed this value.
Population income level
The declining level of real income will slow down real estate prices, as this factor affects consumer demand. But here the state, as noted earlier, is trying to influence the situation by stimulating mortgages. That until recently, he did pretty well.
Region and building class
The skew in price, when comparing different regions of Russia, persists. It can reach significant values. It depends on the economic situation of a particular area.
The class of housing, of course, also matters. Since with a significant increase in the price of premium apartments, the increase in the cost of ordinary housing in comparison with the latter may not be so sharp. Wealthy people are willing to pay more for comfort and security. And ordinary buyers mainly focus on the availability of real estate acquisition.
The forecast for property prices for 2019-2020 is mixed.
Government agencies predict a price increase by 2025, but argue that it will be smooth (in the region of 2-3 percent per year), since it will be affected by favorable mortgage rates.
Among the participants in the construction market, the prevailing opinion is a sharp increase in housing prices by 20% by 2020. Analysts' forecast is based on the fact that construction companies are likely to prefer to refuse any participation from equity holders (escrow accounts) and sell ready-made housing, receiving the greatest benefit from participation in construction. Until 2020, prices will be slightly restrained due to the commissioning of houses, the construction of which is according to the old rules - with the participation of interest holders.
What awaits the secondary housing market? It will still be affected by the income level of the population, the availability of mortgages and the economic situation in the country.
The suburban real estate market is not popular, so the prices of summer houses and country houses are most likely not to change or begin to decline.
From the above it follows that people who are going to buy real estate and focus on the affordability of housing should pay attention to objects that are being built with the participation of interest holders while they are still on the market. As soon as these houses are sold out, the cost of housing in new buildings will rise markedly. Other factors related to the economic condition of the country may affect the price.
People who are willing to pay for safety and comfort can wait for the completion of facilities introduced after tightening legislation.
In any case, the approach to each real estate transaction should be considered individually. Buyers should proceed from financial opportunities, job security when deciding to take housing in a mortgage, the availability of other real estate in the property and other points. Sellers may need to wait until prices rise in order to reap the greatest benefits from the sale of residential property.