Aparthotels: new growth spot for non-residential construction in Russia

Posted on by efalucskai

Written by Andrey Vakulenko – MACON, EECFA Russia

Russia’s resort real estate market has seen a dynamic growth in recent years, partly due to the emergence of aparthotels – a format attractive to both developers and hotel operators. The coming years are also expected to see a sharp increase in aparthotel construction, supporting the non-residential construction market – according to Andrey Vakulenko, EECFA’s Russian analyst.

Thriving aparthotel segment

Resort real estate has been one of the fastest-growing segments of the Russian construction market in recent years. Aparthotels – apartment complexes with minimal infrastructure and services, and with the mandatory availability of a trust management – have particularly seen a rapid growth, though they are relatively new to the Russian market. The core of the supply is (and will be) resort projects, i.e. aparthotels in locations with developed recreational and tourist infrastructure for seasonal vacations. Urban aparthotels – primarily in metropolitan areas with minimal infrastructure – are rather aimed at business travelers and to a lesser extent at traditional tourism and long-term rentals.

As of Q3 2025, the aparthotel market size stood at 25,200 units with a total area of ​​612,500 sqm and by the end of this year, roughly 143,000 sqm of new aparthotels, or 4,300 new units are expected to open. Based on the announced plans, the next three to four years will register a sharp rise, and by the end of 2029 aparthotels may amount to around 109,800 units with over 3.6 million sqm, almost six times higher than the current level.

Behind the growth

One of the main reasons for the anticipated expansion of the aparthotel format is that domestic tourism gained popularity after 2022 due to the reduced accessibility of many international resorts (because of the suspension of air travel, the weak ruble, visa issues, and other internal or external restrictions). Rise in domestic tourism created stable high demand for accommodation in virtually all key resorts in Russia.

Another reason is that developers specialized in multi-unit residential construction began to start many projects in aparthotel and resort real estate construction amid the decline in the residential real estate market following the cancellation of the mass preferential mortgage program.

Also, there are significant incentives and state support for developing tourism infrastructure and the domestic tourism industry, including the construction of hotel complexes and aparthotels.

Furthermore, in 2024 the status of aparthotels was legalized; they were included in the official hotel classification system, creating uniform standards for the segment and transparent conditions for market participants.

Besides, the departure of many large foreign hotel operators from the market in 2022 led to the expansion of Russian hotel chains (Azimut Hotels, Cosmos Hotel Group, Alean Collection, ZONT Hotel Group, VALO Hotel Services, Mantera Group, among others), which began collaborating with aparthotels, increasing the latter’s attractiveness and guaranteeing a high level of service and trust management services.

Moreover, many investors appeared in the market who found the trust management model used in aparthotels and the opportunity of generating passive income attractive. The operating return on investments in aparthotels in developed resorts managed by well-known hotel brands can reach 7%-10% and higher. And given the rise in the market value of apartments, long-term returns can reach 13%-17% per annum, exceeding the return on long-term bank deposits (currently 8%-10% per year for a three-year deposit).

All this suggests that aparthotels will be a major segment of non-residential construction in the coming years.

Coastal regions: top locations for aparthotels

The aparthotel format is developing most actively on the Black Sea coast, currently accounting for over half of the total supply in this segment. Urban aparthotels are primarily in Moscow and St. Petersburg with just over one-fifth of the total supply.

In the coming years, it is also the Black Sea coast that will likely register the biggest expansion in supply, but new aparthotels are also set to be actively emerging on the Caspian Sea coast, in Dagestan.

In coastal regions (Krasnodar Krai, Crimea, Dagestan), aparthotels under construction already amount to more than a quarter of all multi-unit residential real estate under construction and this figure is expected to grow further.

There is also an increase in the construction of similar projects in other resorts across the country, for example, on the Baltic coast or at mountain and spa resorts in the North Caucasus, the Altai Mountains and the Urals, among others.

For more information and forecast for non-residential construction and the rest of the Russian construction market, consult our current report or the next report scheduled to be out on 12 December.

Life after the preferential mortgage scheme in Russia

Posted on by efalucskai

Written by Andrey Vakulenko – MACON, EECFA Russia

The biggest preferential mortgage scheme in the history of Russia, a temporary response to the pandemic in 2020, lasted much longer than planned. The market got accustomed to relatively low rates, prices rose sharply, and mortgages became the main tool for purchasing homes. However, external conditions changed dramatically in the meantime, and this summer the program was phased out. Housing demand immediately collapsed, and the main question now is whether the market will be able to find balance, or the current problems are just the beginning of a major crisis.

The saga of the preferential mortgage scheme

Even though the Russian housing market developed well in the pre-pandemic period, in 2020 the pandemic (lockdown, decline in the economy and in the population’s income) threatened the construction industry. Hence the state program to subsidize mortgage rates. Such programs existed before but only targeted certain groups (e.g. families with children). The new scheme in 2020 was large-scale with no restriction on the type of buyer and was to support demand and ensure stability in the housing market that is one of the key construction segments in Russia.

But good intentions soon turned into problems. The impact of preferential mortgages on demand was disproportionately big: buyer activity soared against the backdrop of a relatively short lockdown and a more-favorable-than-initially-expected dynamics of the economy during the pandemic. Increased demand led to a surge in the cost per square meter. Many investors took out mortgages to make money on rapidly rising prices. Initial savings on loan interest at the start of the program were quickly exhausted due to growing prices. Eventually, the preferential mortgage program, designed to support the solvency of home buyers, reached the exact opposite: it sharply reduced the availability of new homes for them, so much so that it is now at its lowest level of the last 15 years. Another key problem was the excessive length of the scheme. It was kept in the post-pandemic period and extended several times, continuing to stimulate demand and price growth (although conditions were revised to be stringent). So, the market became dependent on state participation and ensured affordable mortgage rates for all types of buyers.

By early 2024, the preferential mortgage scheme started to show side effects such as structural market imbalances (secondary housing became significantly cheaper than primary housing as the secondary market did not have such support), increased indebtedness of the population, and the risk of a primary housing market bubble. The drawbacks of the scheme gradually began to outweigh its benefits. However, either the continuation or the abrupt phase-out of the program would have damaged the market. Yet, external conditions have become extremely difficult, and rising inflation has contributed to a sharp tightening of monetary policy. The key rate of the Central Bank of Russia has increased from 7.5% to 19% since last summer and is now at historical highs. At the start of the scheme in 2020, market mortgage rates were at 8%–9%, and the state subsidized them to 6.5%. In 2024, mortgage rates on average grew to 20%-21%, while the program allowed borrowing at 8%. Because of this, government spending on subsidizing mortgage rates under the scheme soared, and its final cancellation was only a matter of time.

What is happening now

The large-scale preferential mortgage program, officially phased out on 1 July 2024, was the most massive demand support in the history of the Russian housing market: 1.6 million loans were issued for a total of about RUB 6 trillion. Now state support for housing has become more targeted through the introduction of other mortgage programs:

  • Family Mortgage Scheme for families with children
  • IT Mortgage Scheme for employees of IT companies
  • Rural Mortgage Scheme for homes located in rural areas
  • Far Eastern Mortgage Scheme in the eastern and Arctic regions of Russia.

These, however, due to their narrower audience and stricter conditions, will not be able to fully compensate for the cancellation of the preferential mortgage program. The record high key rate makes general market rates effectively prohibitive. In monetary terms, the number of issued mortgage loans in July 2024 dived by 55% over June 2024. The volume of accumulated debt on mortgage loans this July decreased for the first time since 2019. The number of transactions in the primary market (in construction projects) sank by 51% this July against this June and continued to decline this August by another 13%.

Despite reduced demand, there is very high developer activity which has been breaking records for 7 months in a row. At the beginning of September 2024, about 117 million sqm of multi-unit residential buildings were under construction. And growth in supply amid reduced demand creates risks of market oversupply in the future.

What happens next

The end of the preferential mortgage program was planned to take place in a period of low market mortgage rates, but the gap between market rates and preferential rates had been growing steadily and reached record levels this year. Thus, due to the cancellation of preferential mortgages, demand in the market crumpled. It is aggravated by the expected continuation of a tight monetary policy, at least throughout 2025. The projected level of the key rate for this period is 14%-16%, so market mortgage rates will remain high in 2025, exerting strong downward pressure on demand.

Since the mortgage loan became the main instrument for home purchases during the scheme, demand could only be activated if we returned to those rates. The targeted mortgage programs mentioned above partly do so, but they will not be able to fully replace the large-scale preferential one. The most significant, though, Family Mortgage, was extended this July until 2030 with some restrictions: the program now applies mainly to families with a child under 6 years of age (and two other smaller groups of the population[1]). The number of families with children under 6 as per the latest census (2020) was about 7.1 million, but the number of potential borrowers until 2030 will plummet owing to the deceleration in birth rates (an average decline of 4% per year over the past 5 years) and the limitation of the program itself (it can only be used once).

Therefore, demand in the housing market does not have any clear prerequisites for growth in the coming years, and the volume of unsold supply will likely accumulate. Yet, existing schemes might develop, and new ones might be launched, which one way or another might support buyer activity and the entire residential market:

  • New targeted mortgage programs might be introduced based on professional or geographic criteria (public sector employees, representatives of professions valuable to the state, scarcely populated areas, etc). They will not carry the risks of market overheating or bubble since they exclude the purchase of homes for investment. But with high key rates, any such program requires huge state funding, so their introduction in 2024-2025 is unlikely. 
  • New payment schemes might be launched. The popularity of tranche mortgages[2] and various instalment programs is growing, and savings schemes are also being discussed (banks might introduce special target mortgage deposits on which buyers could accumulate funds for home purchases with partial co-financing from federal or regional authorities).
  • The flexibility of mortgage products might grow. Banks are starting to offer borrowers the inclusion of a clause in loan agreements to guarantee a reduction in mortgage rates when the key rate falls. That is, if the key rate drops in the duration of the agreement, the bank reduces the mortgage rate without having to conclude a new agreement.

Direct discounts or a major reduction in the cost per square meter are unlikely though since developers are constrained by the highly increased construction costs in 2022-2024 and will not agree to a considerable decrease in prices. Thus, in the coming years we can expect a reduction in new residential projects launched.

Currently, the housing market in Russia, for an indefinite period, is becoming to be dominated by buyers who qualify for one of the targeted mortgage schemes and whose list will be determined by the state. The game-changer might either be a pronounced and long-lasting increase in the population’s income or a drop in the key rate and, accordingly, market rates on mortgage loans, which is unlikely at least in 2024-2025. Therefore, residential construction volumes will likely decrease. A more detailed forecast on the residential market and the entire construction industry of Russia can be found in the current EECFA Forecast Report Russia that can be purchased on our website.

[1] Families with a disabled child and families with two or more children aged 7-17 living in regions with low housing construction activity (35 regions of Russia) or in a small town (with a population of less than 50,000).

[2] The bank issues a mortgage loan to a client for purchasing a home under construction in several parts. The total loan amount is divided into several tranches (the borrower has a minimum loan payment until the new building is put into operation).

A hidden threat to the Russian housing market: demography

Posted on by efalucskai

Written by Andrey Vakulenko – MACON, EECFA Russia

Negative demographic trends in Russia are conditioning lower demand on the housing market in the coming decades. Due to the general population decline and aging, the number of most active home buyers will decline in the future. And this should – in the long term – lead to a reduced number of housing transactions.

Currently, the demographic situation in Russia is said to be extremely unfavourable. In July 2023, for example, only a little more than 110 thousand children were born, lower than in any July since 1945. This confirms that the country is experiencing a real ‘demographic hole’, and recovery is unlikely in the next decade.Population size and structure represent one of the main macro-drivers determining housing demand over a long period. Steady population growth leads to an increased number of individual households that over time begin to feel the need for own housing, so in virtually any housing market much demand is generated by young people purchasing their first home. The aging of the population, on the contrary, reduces demand for homes. Demographic factors are structural ones that operate long-term, over the horizon of decades, though. Now the market may show a rise in demand for housing, but if the long-term trend is negative, it will have a restraining effect and limit the potential for buyer activity. Often total population may grow or drop insignificantly, but its age structure can change significantly, determining the prospects for the residential real estate market.

Demographic trends in Russia yesterday, today and tomorrow

Russia’s population has undergone a steady downward trend in recent years. Over the past 30 years, the number of births almost every year has been way less than the number of deaths. The only exception was the period of 2012-2016 when the balance of indicators was minimally positive or near zero. In other years, there was a constant natural population decline. Record fertility rates during the USSR in the 80s have not been repeated to date: after a sharp drop in the 90s during numerous crises, the indicator recovered between 2001 and 2015, but another negative trend followed in 2015-2022 owing to the worsening macroeconomic climate and an almost constant decline in the real income of the population. And the pandemic broke the long-term trend of low population mortality, exacerbating the negative impact of decline in birth rates. Migration growth has also been insufficient in recent years and could not compensate for natural population decline, only slightly smoothing it out. Birth rates in each period determine the population size in a particular age group in the future, therefore, the current age structure of the Russian population is a consequence of past fluctuations in this indicator in different years.

In the future, the Russian population will likely decrease. As per the demographic forecast of the Federal State Statistics Service in Russia (Rosstat) and that of the UN Department of Economic and Social Affairs, population decline is estimated at 2%–5% until 2035. In addition, the age structure of the population will continue to shift towards the elderly. The graph on population structure by age always moves to the right: the rise in fertility in the 80s led to a higher population of people aged 35-49 now, the sharp decline in fertility in the 90s caused a fall in the population aged 20-30, and the recovery in the 2000s led to an increase in the number of under 20 age group. And with the current trend of decreasing birth rates, the elderly will surpass young age groups in the next decades.

What does demography have to do with the housing market?

As population in Russia is anticipated to decline slightly (2%-5% until 2035), this is unlikely to have a major impact on overall housing demand. But the lack of growth expectations is creating negative preconditions for the market in the long run. Also, the next decade should see a demographic shift in Russia: the share of 30-year-olds will plummet against the growth of older age groups. Such shifts directly affect the residential real estate market due to the different behaviour patterns of people of different ages in the housing market. According to a 2022 study by the Bank of Russia, Russians usually live in rentals until they are 30 and first home purchase is most often done after this age. This is also indirectly confirmed by the portrait of a typical mortgage borrower (DOM.RF study), whose average age at the end of 2022 was about 37.8 years. Mortgages in Russia are ‘aging’ under the influence of ongoing demographic changes, as seen in the dynamics of the average age of the borrower and the share of young people in the total number of borrowers.

In general, the main stages of human activity in the residential real estate market are as follows:

  • 20-29 years of age: rental housing. Until 20 young people live with their parents and then separate due to studying or working. Buying a home immediately is accessible to very few, so they rent flats.
  • 30-39 years of age: purchasing a first home. At this age, families are established, children are born. The first home is usually purchased to ensure comfortable living conditions.
  • 40-49 years of age: improving living conditions. After 40 people reach the peak of their career and financial well-being, enabling them to improve living conditions. This can either be an increase in space or change in the home (moving from a flat to a house).
  • 50-64 years of age: optimization of housing. Children grow up and live separately, pushing this age group to optimize housing (moving to a smaller home or to another city/region).
  • 65 years and older: transfer of housing by inheritance.

Considering the predicted age structure of the population, in the coming years Russia will see the largest and most active demand group (first home buyers/those aged 30-39) steadily decline. Population structure will be redistributed towards the age groups of 40 years and older who are considerably less active in the market. This will certainly be negative for housing demand. At the same time, negative trends will to some extent be smoothed out by the following demographic factors:

  • Expected increase – after a long decline – in the number of young people aged 20-29 in 2026-2035. They mainly focus on rentals, but demand for rentals will push them to be more active in home purchases mainly in large cities that are educational and economic centres.
  • The 2020-2021 census showed that the number of households consisting of one person is steadily increasing: their share is now about 42%, almost twice as high as in 2022 (22%). More single people will need more housing units, supporting housing demand.
  • Great need for new and high-quality housing. Residential volume per capita in Russia is about 28 sqm/1 person, way lower than in developed countries, and lower than the target values of state housing programs (min. 30 sqm/person). Low income, coupled with an often outdated and low-quality housing stock, creates need for more frequent improvement in housing conditions.

Having these in mind, the ‘aging’ housing market is not a disaster, it is rather a structural factor that we will need to adapt to. Nonetheless, the gradual contraction of the traditionally most active demand base and the overall downward trend in population will put pressure on the market. An additional challenge for housing developers will be to adapt the product to the needs of older buyers whose number will grow in the near future.

Residential forecast for Russia is available in the latest EECFA Forecast Report Russia. For orders and sample report, please visit eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries, including Russia.

How subsidized mortgages changed the Russian housing market

Posted on by efalucskai

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Housing construction remains one of the biggest segments of the Russian construction market, affecting both related industries and the overall macroeconomic situation, including GDP dynamics and labor market indicators. Because of the stagnating real income of the population over the past years, housing demand was stimulated by affordable mortgages. State programs that started back in 2018 targeted specific groups, but due to the pandemic in 2020 they became part of a comprehensive anti-crisis package to stimulate the economy, and unprecedented measures were launched to support construction. Thus, preferential mortgage became available to everyone. This excess demand caused record price increases in 2020-2021 and the rapid exhaustion of the positive effect of cheaper loans. As a result, housing has become even less affordable for buyers, and the market has become addicted to cheap mortgages whose issuance was supported exclusively by the state. Owing to the economic crisis caused by the events in early 2022, the central budget will experience a shortage of funds and spending on certain areas will be reduced. The mass subsidizing of mortgage rate is also likely to fall under sequestration, which may have negative consequences on the market in terms of demand.

Subsidized mortgage schemes then and now

Subsidized mortgage schemes to stimulate housing demand and support housing construction as a whole started in 2018. By then, the real income of the population had been declining for more than 3 years (from 2014 on). Subsidized mortgage rates (at the time about 10%) could stimulate demand and help those in need of buying a new home:

  • ‘Family Mortgage’: launched in 2018, it was the first program to reduce mortgage rates to 6% for families with children.
  • ‘Far Eastern Mortgage’: a targeted state program that started at end 2019 (a reduction to 2% for buying a home in the regions of the Far Eastern Federal District). Both programs are still in effect (with minor changes in conditions) and are valid until the end of 2023.
  • ‘Rural Mortgage’: a targeted mortgage scheme, though geographically limited, started in 2020 (this year it was announced to become indefinite) for citizens intending to buy or build an own house in settlements with a population of less than 30,000. Participants can take up a loan for a new home or for a used home. The goal is to increase the number of people living in rural areas.

All three programs apply only to borrowers meeting certain conditions. All of them supported demand and stimulated buyer activity. But:

  • The ‘Preferential Mortgage’ program (as part of anti-crisis measures to restore the economy at the onset of the pandemic in early 2020) had the biggest impact on the market. During this time quarantine restrictions caused a large-scale economic crisis and a major drop in the real income of the population, reducing the solvency of potential homebuyers and the number of transactions. It endangered housing construction, which is a critical segment for the economy. To aid the construction industry, the government implemented the scheme dubbed ‘Preferential Mortgage’. Unlike the other three schemes, it was available to everyone and citizens were able to take up a mortgage at 6.5%. Initially planned to be valid until November 2020, it was extended first until July 2021, and then until end 2022, but with tightened conditions: the maximum possible loan amount was greatly reduced, and the loan rate was raised to 7%. The events in early 2022 led to macroeconomic instability and a sharp increase in the key rate of the Central Bank. The rate under the Preferential Mortgage program also rose to 12%, although by June 2022 it was reduced to 7% again. It also became possible to combine soft loans with mortgages on market terms, which greatly increased the maximum loan amount.
  • The latest state program to support the mortgage market has been the so-called ‘IT mortgage’ introduced in May 2022 for the employees of IT companies. It has become part of the large-scale measures to promote the development of IT industry in Russia and stop the brain drain.

The impact of subsidized mortgages on the housing market

In 2018-2019 the volumes of the mortgage market stagnated: the number of issued loans dropped (-8% in 2019 against 2018) and there was a minimal positive correction in the total number of transactions in the primary market (+1% in 2019).

The targeted schemes launched in 2018 helped certain categories of citizens to solve housing problems but did not have a huge impact on the whole primary market of multi-unit housing. But everything changed in 2020 with the Preferential Mortgage program available to everyone without exception. At end H1 2020, the number of transactions in the primary multi-unit housing market was 37% less than in 2019 due to quarantine measures and the general economic downturn after the start of the pandemic. However, the Preferential Mortgage program launched in Q2 2020 contributed to a sharp increase in demand, and in H2 2020 the number of transactions was already 33% higher than in H2 2019. In general, according to the results of 12 months of 2020, transactions slightly decreased, but the effect of the program in the second half of the year almost made up for the decline at the beginning of the year.

Continue reading How subsidized mortgages changed the Russian housing market

Rental housing: a potential growth spot in the Russian market

Posted on by janosgaspar

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

The residential rental market in Russia is now at the initial stage of development: professional* projects are just beginning to appear, and almost the whole supply is made up of private units in the unorganized* market. However, the active participation of the state and the expected set of measures to stimulate developers and support demand for rental housing should contribute to the active development of the segment: by 2030 at least 45 million sqm of rental houses are planned to be built. At the same time, the longer-term potential is estimated by market experts at the level of at least 20% of the total housing stock in Russia, with the current value of 6% (in absolute terms, about 520 million sqm). Even with the partial realization of the indicated potential, rental housing will certainly play a major part in the Russian construction market in the coming years.

*In this article, by ‘organized/formal/professional, we mean rental objects under professional management such as apart-hotels, rental houses with professional operators, co-living and so on, while by ‘unorganized/informal’ segment we mean individuals renting out their own apartments.

source: DOM.RF

Current rental market

Total rental supply in Russia is estimated at 240 billion sqm (DOM.RF) with about 97% rented by private individuals and most of them not being officially registered with no taxes paid. Yet, professional rental properties (apart-hotels, apartment buildings, co-living, etc.) throughout Russia total at about 60 units, with 45 located in Moscow and St. Petersburg. The segment, despite the current relatively low supply, is developing quite actively, though: over the past 3 years, the market increased 1.6 times in project number, and will likely continue to grow rapidly in mid-term since 31 new projects are under construction with 18.2 thousand dwellings (now the volume of supply in the market is about 10.4 thousand dwellings and about 3.3 thousand beds in co-living).

Plans for regulation

The active development of professional rental homes, the need to regulate the shadow rental market, as well as the current state policy to improve living conditions in Russia in general, have led to new legislative initiatives with three main goals: 1) creating conditions for the further development of the formal market; 2) tightening the regulation of the informal segment; 3) creating a large block of social rental housing on preferential terms for citizens with below-average wages who cannot afford to take out mortgage.

In August 2021, the Ministry of Construction proposed a number of amendments to the current state program dubbed ‘Provision of affordable and comfortable housing and utilities for citizens of the Russian Federation’. Although the planned changes have not yet been adopted and are being examined by anti-corruption experts, it is highly probable that they will come into force. The main measures of the state program for the rental segment are: 1) tax incentives, including building or creating buying out apartments (a separate section) in a building under construction and making it a rental object rental homes through collective investment mechanism, 2) tax deduction in the amount equal to rent payments, 3) building or creating rental homes through PPP schemes, 4) subsidizing rent and 5) the provision of land plots on preferential terms.

These measures will ensure the annual volume of rental housing construction of about 5 million sqm by 2030. The stages of implementation are as follows:

  • By end 2021: tax incentives, preferential terms for the provision of land and connection to engineering networks will be developed,
  • By 2024: a fully transparent and legal rental market must be created,
  • By 2030: 45 million sqm of rental housing built (between 2022 and 2030).

Social rental housing

The planned changes are to create the social rental housing segment mainly through the state-owned company DOM.RF, which is currently one of the main financial institutions for the development of the housing sector in Russia. They intend to provide preferential rent for people in need of better housing conditions and for citizens with below-average incomes who cannot afford to take out a mortgage loan to purchase own housing. It will subsidize up to 80% of the rental rate for these categories of citizens. In 2021–2024 about RUB 650 billion will be allocated for this purpose. It is planned to attract private investors and developers to implement social housing projects to build such facilities on preferential terms and are guaranteed to receive the required demand. The difference between the reduced preferential rate and the market rental value will be covered by the state budget, so developers’ lost profit will be compensated for. This should stimulate the construction of new rental homes and increase the attractiveness of the segment for developers previously not interested in such projects due to the long payback periods and the high level of market risks.

Whitening the segment

Another important area of ​​the regulation to contribute to the development of formal rental housing in professional projects is the measures to increase the transparency of the informal market. According to expert estimates, over 90% of housing in Russia is rented out by landlords not paying taxes. Even though the situation slightly improved after the law on the self-employed came into force which lowered the tax rate for renting out housing from 13% to 4% (under several conditions), but most of the market remains in the shadows. Authorities intend to resolve this issue through the introduction of measures in 2021-2024. As of September 2021, the real steps are still under discussion and specific decisions have not yet been made, but, in general, the following steps are planned:

  • a unified electronic system for all residential lease transactions with data from the register being transferred directly to the tax office,
  • a standard lease agreement to protect the rights of tenants,
  • a unified online register of owners renting out housing,
  • to regulate relations between tenants and landlords, a special state-owned company will be created as an intermediary between the parties,
  • penalties for failure to provide data on renting out residential property, and
  • a publicly available ‘blacklist’ of homeowners evading tax liability.

Although this will likely increase the security of rental transactions for tenants, the main difficulty of the transition to the new system will be that it is voluntary for homeowners to register, transfer their data and start paying taxes. Thus, it is planned to provide tax incentives for landlords complying with the new rules in good faith, and to develop additional support measures such as the possibility of introducing a system of guarantees on the part of an intermediary company against non-payments for landlords, as well as insurance against early termination of the contract unilaterally by the tenant, among others. It is also assumed that penalties will gradually be introduced with a long transition period.

Despite all the advantages, the regulation of the informal rental market will lead to increased rental charges: additional taxes and other costs that landlords will have when switching to the new system will be passed on to tenants. This will raise the competition of the informal market with formal rental properties that on average are significantly more expensive than renting homes from individuals, limiting demand for them.

Residential forecast for Russia is available in the latest EECFA Forecast Report Russia up to 2023. For orders and sample report, please visit eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries, including Russia.

Fundamental factors determining the segment:

  • Insufficient level of living space and low availability of housing. At the moment, the former indicator is at the level of about 26 sqm/person, less than the values ​​in most European countries and less than the level of comfortable living conditions (30 sqm/person). The construction of at least 600 million sqm would be required, which, with the current volume of completion, would take at least 8 to 10 years. The level of affordability of own housing for the wide range of the population is low. According to the estimates of DOM.RF and the Ministry of Construction, mortgage loans – the key means to buy housing in Russia – are currently unaffordable for 35% of the population who needs to improve living conditions. Such families will not be able to take out a mortgage even with a zero loan rate as their income will be insufficient for monthly repayments. Housing rental is a potential solution, so social rental projects are of key importance.
  • Low level of development of the rental housing market. As of end 2020, only about 6% of the Russian population (about 8.8 million people or about 5.5 million families) lived in rental housing, while this figure in developed countries can reach 50%-60%. Even in the largest Russian cities with the most developed rental markets, the share of rental housing in the total stock does not exceed 10%, which can also be assessed very low.
  • High potential for development. DOM.RF (by far the biggest rental housing operator in Russia) estimates a realistic achievable share of rental housing in the total stock at about 20% long-term. With the current volume of the housing stock (about 3.9 billion sqm), this is potentially about 750 million sqm of rental housing, (about 240 million sqm already built and about 520 million sqm still to be built). The current version of the state program plans to build about 45 million sqm of rental housing until 2030. The market potential will surely not be exhausted in the coming years, making the overall prospects favorable for the segment in the long run.
  • Pandemic effects. The pandemic has had two main consequences. First, a sharp deterioration in the macroeconomic climate last year and a long-expected economic recovery after the recent shocks. Against the backdrop of falling real incomes, own housing has become even more inaccessible for many people, and for some, renting can become a permanent replacement. Second, although less significant to the rental market, the growing popularity of remote work and new sources of demand for rental housing. With many companies shifting to a fully or partially decentralized work format, employees have more opportunity to choose where to work. This raises the number of digital nomads, i.e. employees not tied to an office and having the opportunity to work from any Russian city. The number of transactions in the rental market in mid-term will to some extent grow due to this category. One of the trends in the rental housing is the workspitality format focusing on the needs of such nomads (separate work areas, co-working spaces, meeting rooms).
  • The absence of major growth in real incomes and the lack of macroeconomic prerequisites for this on the horizon. Real disposable income was in the negative between 2014 and 2017 (the decline varying from 0.5% to 4.5% per year), followed by a short period of positive correction (+0.1% in 2018 and +1% in 2019), and then by another decline at end 2020 (-3.5%). Thus, purchasing power has actually been declining for 7 years. At the same time, the Ministry of Economic Development forecasts a rather moderate dynamics of this indicator in 2021-2023: +1.6%-1.9% per year in a conservative scenario and +2.4%-3% per year in the baseline scenario. But even in the best case, by 2023 purchasing power will not return to the level of 2013, which should not contribute to more home purchases, but should grow demand for the rental market.

Russian Metropolitan Areas: Crisis Resilience in 2020

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The economic turmoil of 2020 is hammering real estate and construction, but its degree is not the same across Russia. We saw this happening during the 2008 and 2014 crises, and we are watching it right now. Tracking the situation on the real estate markets of large Russian cities, we see that the dynamics of market indicators in crisis periods have always been different in various cities under the same external conditions, and different regional real estate markets react to macroeconomic shocks in different ways.

Written by Ilya Volodko and Andrey Vakulenko – MACON Realty Group, EECFA Russia

Moscow city – Source of picture

The 2020 crisis and regionality in Russia

While the past crises were mostly of macroeconomic nature, the crisis in 2020, in addition to the macro component such as falling oil prices and the ruble’s volatility, has a strong local component: different regimes and periods of lockdown measures due to the pandemic and the variety and unequal effectiveness of regional measures to support businesses and the population. Because of this, the current crisis affects local real estate markets even more asymmetrically.

One of the main influences on the degree of penetration of the crisis into the largest cities of Russia will be exerted by the structure of their economies because the degree of damage caused by lockdown and other measures to combat the pandemic on different sectors is mixed. To analyse these differences, we have used data from the Institute for Urban Economics Foundation on the structure of the economy of Russian cities and the volume of the Gross Urban Product (GUP).

To understand how strongly a metropolitan economy reacts to the crisis, MACON consultants have assigned a stability coefficient to each metropolitan economic sector (classification according to the Brookings Institution methodology), depending on its vulnerability, recovery rate and predicted consequences. Coefficient 1 means the greatest stability/no influence, 0 means the least stability/complete or partial temporary liquidation of the industry:

  • Local/non-market services. Stability coefficient 1. The most stable sector, including state and municipal services, education, health care, social support, culture and art, recreation, etc. Its volume is set to remain or increase due to additional indexation or one-time/permanent support measures.
  • Manufacturing. Stability coefficient 0.8. Despite a possible decline in output and employment, the sector is sufficiently stable as severe lockdown measures do not apply. Since these are large businesses, they receive the greatest support both directly (financially) and through government orders, tax incentives, subsidized interest rates and easier access to debt financing.
  • Utilities. Stability coefficient 0.8. They remain fundamentally resilient to the crisis. They are negatively affected by shrinkage in business activity, which is offset by the rise in consumption by individuals, many of whom still work remotely. Yet, the difference in tariffs for individuals and businesses is hurting earnings.
  • Commodities. Stability coefficient 0.7. It includes mining, agriculture, forestry, hunting and fishing. The impact is more significant, the dynamics of commodity prices has a negative trend. But given the large volume of employment, the traditional volatility in these markets, and the non-stop nature of many extractive industries, the sector is most likely to continue working and maintain basic employment in mid-term.
  • Construction. Stability coefficient 0.5. A major negative impact due to the industry’s high dependence on any macroeconomic fluctuations, as well as with the multiplier effect, due to which even a slight decrease in construction volumes causes great changes in related industries. But the nature of the industry guarantees a considerable degree of state support and hence stability.
  • Transportation. Stability coefficient 0.5. The sector contracted due to both direct factors during the lockdown (almost complete elimination of air traffic, reduction of railway transportation, prohibition of movement within cities, between municipalities and regions), and indirect factors during the lockdown (reduction of wholesale and retail trade turnover). Yet, the need to ensure commodity logistics preserves industry volumes at an acceptable level.
  • Business/Finance. Stability coefficient 0.4. One of the most vulnerable sectors of the metropolitan economy, including financial services, insurance, real estate and new technologies (science and technology). It is characterized by a great drop in business activity and a decrease in physical access to such services.
  • Trade and tourism. Stability coefficient 0.1. The segment of retail and wholesale trade, catering, hotel and conference services is the most affected in the current crisis due to the impossibility of carrying out such activities during the lockdown. It is aggravated by the low ability of the sector to recover fast, the simplicity of liquidation procedures, the lack of access to credit and inadequate state support.

Based on data on the structure of metropolitan economies, as well as the above estimates and stability coefficients, it is possible to compile a ranking of the largest Russian metropolitan areas in terms of the degree of resistance to the crisis, where the first place/highest value means a higher degree of stability.

The findings

The metropolitan areas of Perm, Chelyabinsk and Saratov demonstrate the greatest stability. In these cities, on average, more than 60% of the economy is accounted for by the 3 basic sectors: local/non-market services, manufacturing, utilities. These are either fully controlled by the state/municipality or have a major systemic/city-forming character allowing them to receive benefits that contribute to the preservation of employment and production.

The metropolitan areas of Moscow, St. Petersburg, Krasnodar and Yekaterinburg turned out to be the least resistant to the crisis. The share of the 3 basic sectors (local/non-market services, manufacturing, utilities), in contrast to the leaders, is much lower here: on average 45% versus 63%. However, the share of Business/Finance and Trade and tourism sectors, which are the most vulnerable in the current situation, is much higher (42% versus 23%). But while Moscow and St. Petersburg, due to broader financial opportunities, can offset these factors with active financial, tax and other support of the population and businesses, non-capital cities do not have such a resource.

We have found that the poorer the city, the more stable it is in the current crisis. The paradox is that Russian metropolitan areas that actively developed before the current crisis with a great deal of financial, business services, improved construction market and IT-technologies are in a much more difficult situation today than those with an economic structure from the pre-digital era and with industrial enterprises and non-market services.

For construction forecast on Russia, consult the latest EECFA Forecast Report Russia that can be purchased on eecfa.com

Construction and resilience

The different resilience to the crisis in various cities has a direct consequence on the segments of the construction market. Apart from the obviously severely affected office and retail, the most indicative is housing where demand reacts rather quickly to macroeconomic shocks and changes in the external environment. The number of housing transactions in Q2 2020 compared to Q1 2020 decreased in most Russian cities and regions owing to the dropping income of the population, the restrictions on movement, and the temporary impossibility of state registration of transactions. However, the most pronounced decline in demand was precisely in the cities with the least crisis-resistant economies which experienced a bigger increase in unemployment and a much bigger reduction in general business activity and a decrease in household income.

Russia C-19 situation in construction (status on 16 April 2020)

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Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Physical restrictions

  • The first case of COVID-19 was registered in Russia on March 2. Since then, the situation has developed quite rapidly and on April 16, the country has 27.9 thousand cases. There is no official quarantine or emergency throughout the country to date. The government declared a «non-working days regime» from March 30 to April 30. During this period only vital organizations and areas of activity continue to operate (continuous production; medical organizations; organizations providing the population with food and essential goods; banks and financial organizations and some others). Other companies must temporarily suspend business (while maintaining wages to employees), or, if they have an opportunity, they can switch to remote work.
  • Also, on March 30, a self-isolation regime was announced on a national scale. This regime implies that citizens should not go outside without urgent need and should limit contact with other people. At the same time, the regime of self-isolation is not a quarantine, but an easier form of restrictions, whose violation entails only administrative responsibility, and not criminal, like violation of quarantine.
  • However, in different regions the situation with incidence is developing in different ways and in order to contain the spread of the virus in some regions full quarantine or additional restrictive measures have been introduced with a complete ban on moving around the city and region without special permits. Such an enhanced regime with more stringent restrictions on movement is temporarily in effect in 26 out of 85 regions of the Russian Federation. In Krasnodar region too.

Construction works

  • The construction sector is ranked by the government as a continuous production, therefore, currently there is no complete or partial ban on construction work, however, the situation will depend on the incidence rate and the dynamics of the spread of the virus. Of all the Russian regions, temporary restrictions on construction work have been introduced only in Moscow and the Moscow region (locations with the most COVID cases). Here the construction of all objects, except medical and transport ones, has temporarily been suspended. In other regions of Russia, a construction stop was discussed, but not undertaken.

The new EECFA Russia Construction Forecast Report is planned to be issued on 29 June 2020. Sample report and order

Anticovid measures in construction

  • Although construction has not stopped anywhere, except for the capital’s region, the industry is already ranked among those that will be most affected by the crisis. The final package of measures to support the construction industry is still under discussion, but it is already clear that these measures will extend mainly to the biggest segment of the construction industry in Russia – residential construction. The anti-crisis program, currently being developed by the Ministry of Construction, includes subsidizing interest rates on mortgage loans to support demand, as well as credit and tax moratorium for developers and reducing the cost of project financing (lower lending rates).
  • Another possible direction of support may be the purchase of unsold apartments from developers by state-owned companies. Purchased apartments can be used for social rentals or sold later on the open market.
  • In addition, until January 1, 2021 housing developers will not be fined or otherwise punished for the improper fulfillment of obligations under contracts in shared construction participation (for the delays in the completion of residential buildings).
  • In non-residential and civil engineering segments, as support measures, it is planned to increase a number of government contracts and lift advances on those contracts from 30% to 50%.

Factors limiting the construction sector’s performance

  • The current situation in the Russian construction industry is determined by the macroeconomic background which depends not only on the negative effects of the coronavirus, but also on the consequences of the “price war” with Saudi Arabia in the oil market and the OPEC + deal, which was disrupted in early March, followed by a collapse in prices for oil and the rapid devaluation of the national currency. Many experts talk about the “perfect storm” in which the Russian economy is now. All this will directly affect the income level of citizens, which will also inevitably affect the construction industry, especially housing construction.
  • At the same time, the effectiveness of supporting demand with the planned subsidization of mortgage rates is most likely to only slow down its decline, but not prevent it. Banks will not significantly increase mortgage rates, but the share of approved applications for borrowers from the most affected sectors of the Russian economy may decrease: tourism, hospitality, air travel, advertising, catering, non-food retail, etc. Tighter requirements for borrowers and a drop in real income will inevitably lead to a reduction in the number of transactions in the market.
  • The ruble exchange rate is highly dependent on the dynamics of oil prices, which, despite OPEC + new agreements, are expected to be at low levels at least until the autumn or until the end of the year. Accordingly, the ruble exchange rate against world currencies should remain at the current low level, contributing to the rapid rise in price of imported building materials, the price of many of which is tied to the dollar.
  • Limited workforce is also a direct consequence of the pandemic and will also adversely affect the construction industry. Traditionally, a large number of guest workers from neighboring countries are employed in the Russian construction industry. Closing borders with these countries is expected to result in a shortage of cheap labor.

Construction statistics or constructing statistics?

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Development of Russian construction statistics

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

Assessing the development of construction industry on national scale is practically impossible without high quality statistical data that allow us to draw conclusions on industry trends and create any forecast model. The quality of Russian official statistics and its reliability have increasingly been becoming the subject of public discussion and the work quality of statistical service has been questioned by independent experts and economists. To overcome the problems, at end 2018, a comprehensive plan was developed for the reform and modernization of the Russian Federal State Statistics Service (Rosstat).

Design by EECFA Central, source of original picture: nlomov-pnzreg-ru

In 2018 the Russian economy seemed to have registered the highest growth over the past 6 years. According to Rosstat, GDP grew from 1.6% in 2017 to 2.3% in 2018; the highest value since 2012 (+3.7%). Such pronounced growth came as a surprise since all official and unofficial forecasts were much less optimistic: an average of 1.5%-1.8%. To a large extent, the successes of the Russian economy in 2018 derived from artificial manipulations, i.e. Rosstat’s review of the growth rate of the construction sector in 2017-2018. The indicator of the volume of construction works completed over 12 months has drastically changed: 2018 was to amount to RUB 8.4 trillion, 5.3% higher, or RUB 422 billion higher (at current prices) than in 2017. It was astonishing as previously Rosstat estimated construction works for 11 months of 2018 to post a modest growth of 0.5%. The 2018 growth in construction was a record for the last 10 years: it was only in 2008 when the sector grew at a higher rate (by 12.8% per year). On the contrary, between 2014 and 2017, construction industry saw a steady decline, which, according to official statistical calculations, gave way to a rather sharp increase in 2018. The final contribution of the construction sector to Russian GDP in 2018 was 0.3pp, although in 2017 it was previously negative (-0.1 pp). Such drastic changes caused a wide discussion for the following reasons:

  • Weak argumentation for revising statistics. The Ministry of Economic Development and Rosstat recalculated construction data in late 2018 and early 2019 on grounds of clarifying previously submitted information by respondents at the end of the year. (This is due to the peculiarities of statistical accounting in construction in Russia: the peak of completions is at the very end of the year and then statistics are updated for a long time. Final data for the reporting year are published in spring and some figures may be adjusted retrospectively for a longer period). However, in this case, Rosstat adjusted the data by RUB 565bln, referring to only one project (Yamal LNG), which adds only RUB 241bln. The artificial increase in the indicator couldn’t be explained by only one project in one region, but Rosstat did not voice other official explanations.
  • Growth of indirect construction indicators. Volume of completed construction works posted a massive rise against the backdrop of a decline in many industries related to construction, for example, in the production and transportation of building materials. In 2018, rail transportation of building materials for the year decreased by 6.8%, cement transportation also fell by 6.5%, cement production shrank by 2%, brick production dropped by 4.8%, and the construction of metal structures saw a 1.5% slump. Thus, according to Rosstat, production and transportation of building materials dipped, while more construction works were carried out. An important indicator here is also growth in the volume of housing completion, the most capacious segment of the Russian construction industry, which at end 2018 showed a steady decline by more than 4% (and by 6% in the multi-unit segment).
  • Administrative reasons. In 2017, Rosstat, previously a fully independent agency under the Government, became subordinate to the Ministry of Economic Development. This created an internal conflict of interest since Rosstat data directly or indirectly indicate the effectiveness of the Ministry and the reliability of its forecasts.

EECFA’s Russia Construction Forecast Report with detailed analysis and forecast for the construction market of Russia can be ordered on http://eecfa.com/

Over the last year, official statistics was at the center of public discussion in the scientific community due to regular adjustments and revisions. And construction is not the only area of statistics affected by data manipulation, there are examples for other important macroeconomic indicators being revised:

  • At end December 2018, Rosstat significantly improved data on Russia’s GDP growth rate in 2015-2017. The new estimate showed that in 2016 the economy expanded by 0.3% despite the previous drop of 0.2%. GDP growth in 2017 also turned out to be adjusted, although less: +1.6% instead of +1.5%. Decline in 2015 was also less than originally indicated: -2.3% instead of -2.8% (the first estimate by Rosstat was -3.7%). The recalculation was associated with obtaining newly revised data.
  • In October 2018, public attention focused on published data on the real income of the population for January-June 2018, which, as per Rosstat, in the whole country rose by 2.4%. However, 6 out of 8 federal districts registered negative growth (from -1.6% to -0.4%), and the income growth of the population in the remaining 2 districts was +0.5% and +2.0%. The apparent contradiction in statistics was not explained in any way, and from early 2019, Rosstat switched to a new methodology for calculating population income and recalculated all data on this indicator from 2013. As a result, it turned out that in 2013-2018 real income decline was 8.3%, instead of 10.9% (previous estimate), and in 2018, the initial drop of 0.2% was replaced by a rise of 0.2%. Thus, growth rate of the real income indicator has been revised upward.
  • Rosstat’s recent upward revision of industrial production data for 2016–2018 also raised many questions. Instead of stagnation in the industry in recent years, new statistics began to show moderate growth. For example, at end 2017, Rosstat estimated growth in industry at +1.0%, but after the revision at the level of +2.1%. Similarly, data for 2016 were revised upward. It was an interesting coincidence that Rosstat was fully in line with the forecast of the Ministry of Economic Development published even before the final results of 2017 became known.

In 2019, Rosstat conducted a radical revision of macroeconomic statistics since 2014. The losses of the economy from the “sanction war” and the slump in world oil prices were exaggerated and the economic recession was slight and short-lived. According to newly recalculated data, there was neither a long economic downturn, nor a big recession in industry and construction, and 2015 was the only crisis year.

Large-scale revisions by Rosstat, the wide range of indicators that they affect, their upbeat nature (indicators are only revised upward) and the often insufficient or unconvincing argument behind raise doubts in all who use these data. Refinement of statistics and revision itself is a normal practice taking place in any country, any revision though should have a clear and understandable explanation, and if such adjustments frequently occur, the question of the quality of applied methodology for collecting and analyzing statistical data arises.

Periodic revisions of statistical data in construction and other sectors of the economy are not the only difficulties. There are weaknesses not only in the statistical office itself, but also in the whole system of collecting and publishing statistical information in Russia such as:

Continue reading Construction statistics or constructing statistics?

Russia’s mortgage boom

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Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

The Russian residential market will long be the driving force behind the whole construction sector due to the continued high demand of most of the country’s population for improving their housing conditions. Mortgage loans, the most common means for purchasing homes in Russia in recent years, have finally strengthened, which compensates for the crisis years of 2015-2016 in Russia. As there has been a major drop in the population’s income, and it persists, mortgage lending is the only way to increase home purchases. The mortgage market easily overcame the crisis of 2015-2016 in Russia and already in 2017 exceeded the peak indicators of the pre-crisis year of 2014. During the first half of 2018, the trend towards growth further strengthened: the volume of issued mortgage loans rose by 68%, and its share in the total number of housing transactions reached a record 54% in the primary market. All this shows the current high demand for mortgage loans.

To explain the explosive growth in mortgage lending, the fundamental factors shaping the housing market need to be considered:

  1. Level of individuals’ living space provision (sqm/person);
  2. Demand for housing (how much more housing needs to be built, so that the level of living space provision can reach an acceptable value – about 30 sqm per person);
  3. Affordability of housing for purchase (the ratio of the income of buyers and the price of real estate).

As per the Federal State Statistics Service of the Russian Federation, to date, the total housing stock in Russia is about 3.4 billion sqm, only slightly more than 23 sq km in terms of the country’s permanent population (146.9 million as of January 1, 2018) per person. This level can be considered low compared to most developed foreign countries (39 sqm/person in France and Germany; 70 sqm/person in the USA, 76 sqm/person in Canada). Minimally comfortable living conditions are achieved with a security level of at least 30 sqm/person as per the social standards of the United Nations, and it is the target of public housing programs in Russia. To ensure that the population’s living space has reached this target, while maintaining the country’s population at the current level, another 1.0 billion sqm of living space should be built. Thus, the low level of housing provision is the guarantor of the preservation of demand for new housing projects for a long term.

The second factor ensuring long-term demand for housing is the quality of the existing housing stock, which has more than 33% (or about 1.2 billion sqm) of housing built before 1970. Even with the record volumes of housing construction registered in Russia in recent years (in 2014-2017 about 80 million sqm annually) and even if it stays at the current level, it will still take at least 28 years to reach the minimum acceptable security and to fully replace the old housing stock. In general, housing demand in Russia will not be Continue reading Russia’s mortgage boom

Housing market in Russia: Demand potential shaping future market dynamics

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While in the EECFA Forecast Report Russia we estimate/forecast residential output, this article is looking at another angle of predicting housing market developments: demand potential in the Russian housing market (the number of households able to buy housing) as the main indicator of further market dynamics. Positive macroeconomic indicators in Russia currently are suggesting growth in real incomes and an increase in the population’s solvency, which in the near-term future is set to raise the number of households able to buy housing. This growth in demand potential will have a positive impact on residential output, yet, this is not something that will happen overnight: the Russian housing market is predicted to continue to slump for the time being. Nevertheless, the predicted growth in demand potential will play a major role in halting this drop, leading to an expansion in the housing market in 2019.

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

‘North Valley’ Residential Complex in St. Petersburg – Source: http://www.severdol.ru

Having the largest share in total construction both in value and volume terms, the housing market is the engine of the whole Russian construction market. Any change – decline or growth – in the housing subsector may have a decisive effect on the Russian construction industry as a whole; as it was the case, in particular, during the crisis of the Russian economy in 2015-2016. In this period, the housing sector enjoyed an unprecedented level of state support (more details in the current/previous EECFA reports), which prevented the entire construction industry from collapsing.

The state of the housing market primarily depends on the ability of the population to purchase housing. Other market factors, such as the volume of supply in the market, the level of competition or the cost of housing are secondary. It is the ability of citizens to buy housing that ultimately determines the total volume of effective demand, which in turn regulates development activity and price trends in the local housing market. At the same time, the indicators of the population’s need for housing are also secondary in terms of the dynamics of the market situation; they are of an abstract nature and cannot be used to predict the situation in the market. The need for housing is a conditional market potential, which, without the ability to buy housing is never realized. The ability of the population to purchase housing is the real market potential, which – in most cases – is realized in transactions. The level of housing provision (need) affects only the nature of demand: investment purchase, purchase of a first home, improvement of housing conditions, among others. Continue reading Housing market in Russia: Demand potential shaping future market dynamics