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Further decline in mortgage rates compared to their peak in March and April 2022 and access to subsidized mortgages will support the demand for housing in the medium term.
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The continuing decline in the purchasing power of the population is a long-term trend that will begin to restrain the demand for housing in the future.
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Restrictions on the production of building materials and other construction elements, which are either imported or produced on the local market using imported equipment or components, will have a negative impact on the industry.
The demand for residential real estate will be determined, as before, mostly by the dynamics of mortgage rates (historically, the fall in real incomes of households is poorly correlated with the housing demand and prices). It should be noted that, as early as May this year, the subsidized mortgage rate decreased to 9%. This will allow the economy to avoid a collapse in the demand, as evidenced by some recovery in the primary residential real estate market. The expected decline in demand in H2 2022 following an increase in mortgage rates (relative to the average level of 2021) will be in the range of 10–20%.
Given the record high sales in the first quarter, the decline in sales for the current year (expressed in square meters) will be about 10–15%, while in monetary terms, the market volume will stay approximately at the level of 2021. The decline in demand in 2022 will affect the volume of commissioned residential real estate no earlier than 2023–2024, while this year's figures have shown new records. The volume of housing commissioned in January—May grew by 58% y-o-y, while the increase in the commissioned apartment buildings amounted to 33.4%.
In 2022, similar to the situation in 2020, the demand is shifting from the secondary market to the primary one. At the same time, economic uncertainty is forcing companies to postpone decisions on the start of new projects, while the supply of ongoing projects has significantly decreased as a result of a record demand in 2021 and Q1 2022. In addition, consolidation continues in the market, which began as a result of the transition to escrow accounts in 2019. Therefore, we can expect that by the end of this year, the primary market supply will significantly decrease.
Another factor negatively affecting the stability of the industry is that a significant proportion of construction materials and equipment (elevators, plumbing, etc.), as well as finishing elements are either imported, especially in the premium housing segment, or produced using imported equipment or components.
It should be noted that due to the transition to project financing, companies do not need to sharply reduce prices to attract funds required to complete the projects in progress, and this is what sets the current situation apart from past unfavorable periods in the economy. As a result, the factors listed above will prevent prices from falling in the primary market and contribute to maintaining the profitability of developers.
It should also be emphasized that after a record demand and price hikes, most of the industry leaders have accumulated significant amounts of funds in escrow accounts, which exceed the size of the total debt of companies, including project and corporate debt. Moreover, in 2022–2023, a massive unlock of escrow accounts is expected, which will allow developers to pass the period of economic turbulence relatively comfortably in the medium term.
Further situation in the real estate development segment will largely depend on the general trends in the economy and on the dynamics of household incomes. If economic indicators continue to decline, the negative pressure on the industry will increase.
