The Persisting Mortgage Shortage

The Persisting Mortgage Shortage

What could reignite the housing market growth in Russia’s second-largest city?

Recent statistics on mortgage loan uptake in St. Petersburg and the adjacent Leningrad region indicate that the real estate market in the St. Petersburg metropolitan area has not fully rebounded from the crisis of the previous year. The near-term outlook for market recovery and the sustained strength of developers in the region remain uncertain.

The Recovery has Not Yet Been Completed

Data from the Central Bank of the Russian Federation reveals that in the first quarter of this year, the number of mortgage contracts signed in St. Petersburg slightly exceeded 12,400, a significant drop of over a third from last year’s 19.2 thousand contracts in the same period. The Leningrad Region also experienced a downturn, with mortgage loans falling by 18% to nearly 4.2 thousand.

When recalculating the dynamics in monetary terms, the decline appears less stark, with a 28% decrease in the city and 18% in the region. However, this shouldn’t be taken too optimistically, as the increase in the average loan amount is attributed to a 12% rise in housing prices per square meter over the year.

A positive sign, though, is the gradual improvement since the sharpest decline in January, which saw a 45% year-on-year drop. By March, the gap had narrowed, with a 25% reduction in St. Petersburg and only an 8% drop in the Leningrad Region compared to the previous year.

Despite the overall downturn, mortgages continue to play a critical role in the housing market of the St. Petersburg metropolitan area, with their proportion in housing purchase agreements climbing from two-thirds to 84%, and even beyond 90% in key segments such as the primary housing market. The Leningrad Region mirrors this trend, with an increase from 70% to 85%.

Government initiatives, including various preferential mortgage programs like family mortgages and primary residence mortgages with rates at 7% last year and 8% this year, have significantly contributed to the resilience of the mortgage market.

The average mortgage rate in the first quarter stood at about 7%, up from the 5% seen six months prior. This follows a period when builders subsidized rates down to 1-2%, and in some cases, to nearly interest-free levels. However, the Central Bank later imposed restrictions on these products to maintain market stability and prevent overheating.

Stability in St. Petersburg’s Housing and Mortgage Market

Housing loans and property prices in St. Petersburg are expected to stabilize at current levels, partly because they are now comparable to those in other locations favored by Russians, such as Dubai. The average cost per square meter in St. Petersburg is similar to Dubai’s, with the former at about 255 thousand rubles and the latter at $3,175 (approximately the same amount in dollar terms). Housing loan interest rates for foreigners in Dubai are around 6-7%, aligning with St. Petersburg’s rates.

This parity brings both positive and negative implications. On the upside, the matching prices indicate that the market views properties in both locations with equal confidence, suggesting no expected downturn or crisis in St. Petersburg’s construction sector. On the downside, St. Petersburg’s real estate no longer offers a price advantage over Dubai, potentially diverting some potential buyers to Dubai or other foreign markets. This could mean that the likelihood of a quick and significant boost in the St. Petersburg housing market remains modest.

Yet, the potential for market improvement exists, particularly through the adaptive strategies of local developers. Both market leaders and medium-sized construction companies are increasingly ready to innovate, making their offerings more appealing by integrating modern features and interesting developments into their housing projects.

Euroinvest, a company with over two decades of experience in constructing housing in St. Petersburg and the Leningrad region, has recently seen a significant uptick in its market position, even outperforming larger competitors. This success is attributed to its willingness to revamp traditional design and construction approaches. By incorporating foreign planning methods and focusing on comprehensive community development within its residential complexes, Euroinvest has set a new standard.

Their properties offer more than the usual amenities; they include coworking spaces, educational facilities, entertainment options like in-house cinemas, SPA centers, and meticulously designed green and social spaces. Safety is also a key consideration, ensuring residents feel secure and comfortable both in and outside their homes.

Andrey Berezin, Chairman of Euroinvest’s Management Board, emphasizes the company’s commitment to creating public spaces that cater to the dynamic needs of the residents, fostering a sense of community and good-neighborliness.

Euroinvest’s strategy not only distinguishes its offerings but also enhances the competitive edge of St. Petersburg’s housing market. As their model demonstrates its effectiveness, it’s likely to inspire other companies to follow suit, potentially catalyzing market growth and reviving the regional housing sector.

Leading regions in the number of concluded mortgage transactions in March 2023, according to the service Domklik
RegionNumber of dealsIncrease by February 2023
Moscow region6450+35%
Tyumen region4888+37%
St. Petersburg4818+49%
Krasnodar Territory4769+36%
Republic of Bashkortostan4428+33%
Sverdlovsk region4411+35%
Republic of Tatarstan3122+35%
Chelyabinsk region2843+39%
Rostov region2695+36%

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