Every two mortgages are taken out for purchasing a house.
In the Russian housing market, Individual Housing Construction (IHC) mortgages have been a popular choice for many clients, with the "Family Mortgage" program being the most preferred option. This trend was evident in May 2022, as over 80% of IHC mortgage deals were made under the "Family Mortgage" program.
The demand for IHC mortgages varies across regions, with the Moscow Region, Krasnodar Krai, Republic of Tatarstan, Primorsky Krai, Leningrad Region, Samara Region, Novosibirsk Region, Rostov Region, and the Republic of Bashkortostan showing significant demand. In May 2022, the top five regions with the highest demand were Moscow Region (down 6%), Krasnodar Krai (up 12%), Republic of Tatarstan (up 15%), Primorsky Krai (down 20%), and Leningrad Region (up 45%). Notably, Tyumen Region and Samara Region saw a 65% and 200% increase in demand, respectively.
The region of Krasnodar Krai had the highest demand for IHC mortgages in May 2022, with approximately 360 million rubles, followed by Krasnodar Krai with around 350 million rubles, and the Novosibirsk Region and Republic of Tatarstan with around 200 million rubles each. The Moscow Region had the largest demand, with approximately 600 million rubles.
The warm season is favoured for starting construction of IHC, as better weather conditions enable both construction and buying activity. However, macroeconomic pressures may dampen this seasonal uplift.
The growing interest in IHC can be attributed to its format, which has seen increasing popularity in recent years. However, the "Far Eastern Mortgage" and IT-mortgage programs are less commonly used, accounting for around 20% and 5% of deals, respectively.
The escrow mechanism is considered crucial for IHC transactions, ensuring transparency and the safety of funds. This was highlighted by Alexei Kosiakov.
The housing construction sector in Russia is facing pressure due to high key interest rates and tight monetary policy, which restrict mortgage availability and affordability. This is expected to slow down housing construction volumes between 2025 and 2027. Elevated borrowing costs also depress demand for mortgages in individual housing, affecting IHC growth negatively.
Large-scale government financing targeted at priority infrastructure and energy projects helps stabilize overall construction output, indirectly sustaining or stimulating IHC demand in some regions. However, regional differences are pronounced, with Moscow and Saint Petersburg maintaining luxury housing popularity while other regions may face slower mortgage-driven IHC growth.
In prime regions such as Moscow and Saint Petersburg, luxury residential real estate demand remains robust, driven by affluent buyers who often use cash rather than mortgages. This segment is less sensitive to mortgage rates due to strong domestic demand for high-end properties as a wealth preservation strategy amid currency volatility. Such buyers prefer large, energy-efficient smart homes with advanced amenities.
In summary, the popularity of IHC mortgages in Russia is influenced by factors such as affordability challenges, seasonality, government interventions, and regional demand characteristics. High interest rates and reduced mortgage availability, particularly outside luxury property markets that rely more on all-cash buyers, are curtailing the growth of IHC mortgages. Seasonal housing demand growth is expected but will likely be modest due to macroeconomic conditions. Regional differences are pronounced, with Moscow and Saint Petersburg maintaining luxury housing popularity while other regions may face slower mortgage-driven IHC growth.
- Since the "Family Mortgage" program is the most preferred option for individual housing construction (IHC) mortgages in the Russian housing market, it would be interesting to explore how this trend extends to investing in real estate.
- In the discussion of financing options for the housing market, it's noteworthy that the "Far Eastern Mortgage" and IT-mortgage programs are less commonly used compared to IHC mortgages, but their potential role in the housing-market investing landscape requires further consideration.
