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Analysts of the Central Bank predicted a sharp drop in housing prices

The current volume of potential demand for the purchase of housing in the primary market using mortgages at market rates can be met within 7-9 years if the targets of the national project “Housing and Urban Environment” are achieved. After that, a sharp decline in housing prices and a fall in construction volumes may occur.
This is stated in the analytical note “Problems and Risks of Credit Financing for Housing Construction”, published by the Bank of Russia . It is indicated that its content may not coincide with the official position of the Central Bank.
The national project “Housing and Urban Environment” suggests an increase in the annual volume of housing construction to a historic record of 120 million square meters by 2024 (almost a third above the level of 2018), the authors of the note remind. The implementation of such ambitious plans may be constrained by both the supply of new housing and the demand side, they say. It is necessary to take into account the experience of many foreign countries, where the period of rapid growth of the real estate market often ended in a crisis, the consequences of which were then overcome for many years. Therefore, it is necessary that the housing market and housing construction develop steadily, without leading to the accumulation of systemic risks, the authors of the note warn.
Financing projects with a sufficient level of creditworthiness may be confronted with credit restrictions: in six years, banks will have to increase the volume of housing construction loans by more than ten times (the industry moves to a loan financing model). This will make the construction industry the largest bank borrower, but the banks will take on its credit risks, which will require effective management of these risks by banks, the note says. In this regard, the change by the Bank of Russia of the procedure for creating reserves for possible losses on loans to developers only partially solves the problem of increasing the load on bank capital, they point out. Without a noticeable improvement in the financial condition of the construction industry, including solving the problem of accumulated debt of operationally efficient companies,
The development of the housing market is also facing a number of restrictions on the demand side. Thus, the goals set in the national project imply maintaining and even accelerating the growth rates of mortgage lending as compared to 2018. Their achievement will lead to a significant increase in the debt burden of the population and a further reduction in the savings rate, the note says. At the same time, the main volume of demand supported by mortgages will be in the secondary housing market, and not on the purchase of apartments in new buildings. Rapid growth of mortgages without accumulating risks for financial stability, without excessive growth in the debt burden of the population is possible only with a significant acceleration in the growth of household incomes simultaneously with a slowdown in the growth of non-mortgage consumer lending and lower rates for such loans, the authors of the note emphasize.
According to the authors of the note, the entire current volume of potential demand for home purchase in the primary market using mortgages at market rates can be satisfied within 7-9 years if the targets of the national project are reached. New significant sources of demand for mortgages, taking into account the mortgage debt accumulated by that time and the already achieved level of housing provision for households, are unlikely to appear. This could lead to a sharp drop in housing prices and construction volumes beyond the horizon of the national project, the study says.

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