"The real estate expert's assessment of Volodin's proposal for varying mortgage rates implies a potential increase in property prices"
The Russian Federation government is currently considering a proposed initiative to introduce differentiated mortgage rates in Russia, as stated by Vyacheslav Volodin, the State Duma Speaker. This new system aims to align mortgage rates with regional average salaries, with rates expected to be relatively higher in regions with lower incomes and less construction activity compared to high-income regions like Moscow.
However, this proposed change could have a significant impact on new build prices in regions with low construction volume and lower average incomes. According to Irina Radchenko, President of the International Academy of Mortgage and Real Estate, this could lead to a sharp increase in prices for new builds.
The reasons for this potential price rise are several. Regions with low construction volume typically have less supply flexibility. If mortgage rates rise there, affordability decreases for local buyers. This decrease in affordability can lead developers to raise prices on new builds to maintain profitability despite lower demand or cause a slowdown in construction activity that keeps supply tight.
Additionally, higher mortgage rates in those regions could increase the cost of financing for both buyers and developers. This increase in cost may translate into higher sale prices for new builds to cover these costs and risks.
Conversely, in high-income, high-construction regions, mortgage rates would be relatively lower, supporting greater affordability and potentially more stable or moderated price growth.
Radchenko suggests focusing on supporting the construction industry and increasing the supply of real estate on the market as a means of mitigating these potential price increases. She notes that a similar situation occurred when preferential mortgages for new builds were launched, leading to a doubling of housing prices.
It is important to note that this potential impact is based on the assumption that the proposed differentiated mortgage rates are implemented as intended. The final outcome may vary depending on various factors, including the specific details of the implementation and the response of the market.
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- The proposed differentiated mortgage rates could raise the prices for new builds in regions with low construction volume and lower average incomes, as suggested by Irina Radchenko.
- Higher mortgage rates in low-income regions could lead to increased costs of financing for both buyers and developers, potentially causing new build prices to rise to cover these additional costs and risks.
- To mitigate the potential price increases, Radchenko recommends focusing on supporting the construction industry and increasing the supply of real estate on the market.
