How did the increase in the key rate affect the primary real estate market?
Anton Glushkov: Today, fortunately and unfortunately, more than 80% of mortgages in the primary market are prime products. In this sense, changes in the key rate do not affect household expenses, but are reflected in budget expenses.
This is offset by the total volume of loan services, the average term of which is almost 20 years. But in the current budget it is a huge amount that worries the financial block. That is why there is now a lot of talk and debate about the impact of prime mortgages on market growth and prices.
In part, this is probably true, but at the same time, the number of citizens taking out a mortgage is also an element of housing affordability. Availability in the primary market is now very high.
But housing affordability has been declining in recent years.
Anton Glushkov: There is a mortgage affordability index: the relationship between the level of salaries and the amount allocated to servicing the loan. And if we compare 2022 and 10 months of 2023, our affordability level has even improved, due to rising wages. And this year there is no such increase in the price per square meter as in previous years.
According to official data, prices increased by 15% in 2023. I don’t know how they think about it, but in the regions I see I don’t notice such an increase in the primary market.
How much did construction costs increase due to the increase in project financing rates?
Anton Glushkov: The increase in the price of loans for developers is much smaller than the change in the official interest rate.
When a developer sees a figure of around 18% on a loan contract, he gets scared. A year ago it was 8 to 9%. If you mechanically multiply the cost of construction by 18%, it’s scary.
But the average housing construction cycle is 20 months: it is a parabola with acceleration. At first, the costs are quite small, then they increase sharply and 2-3 months before the commissioning of the house they begin to decrease. That is, when the sales volume is low in the first stage of construction, its costs are not very high. The promoter does not contract the entire loan at once, but in parts. And then it starts filling the escrow account and the rate goes down.
I mean, isn’t a rate of 18% that scary?
Anton Glushkov: With such stable demand, it’s not scary. With a high level of escrow accounts, the rate for the developer is now 3-3.6%. And if the escrow covers the costs several times over, it is even less.
Negative?
Anton Glushkov: You can say it. There are large developers who finance some of the projects on their own; It is more profitable to take the funds you have, put them in an escrow account and choose this loan. Six months ago there were examples of this type. In general, you are lending to the bank. Why does the developer need this? Today you have the opportunity to build, tomorrow you need to start selling this house. And without project financing mechanisms and escrow accounts, it will be impossible to achieve this. That’s why some people insure themselves this way. Especially when the lot is large: 5-6 houses. You have the funds for one house, but you will still have to sell five.
What is the current level of earnings for developers?
Anton Glushkov: The fact that developers make a lot of money is a fallacy. The average rate of return for a developer today is around 15%.
But any developer is like a walking excavator. You constantly need to do more than just dig. To dig you need to walk all the time. Therefore, the main task is to make a profit by finishing one project so that you have enough money to dive into the next one. At first, to buy land you need to have approximately 15% of your own funds.
Of course, there are profits too. But it is not calculated even in tens of percent, but in percentages. All this seems quite successful, because the cost of the item is very high. And 1% of a billion rubles is still good. This is not 1% of 100 thousand rubles. That is why the market is consolidating. Development companies have not yet entered the regions, but have begun to study regional markets en masse. Business consolidation has a positive effect on profitability rates due to increased volume. The trend is partly good for the consumer.
What will happen to the market after July 2024, when the preferential mortgage program for new construction should end?
Anton Glushkov: It is clear that nothing good will happen on the primary market.
It’s interesting to see how developers behave now. Its entire marketing policy is aimed at maximizing the retention of individuals so that they quickly enter into equity agreements for objects that are at a low level of readiness. The actual interest rate subsidy by the developer varies depending on the degree of completion of the property: the closer the house is to completion, the less the developer will be willing to pay more for the mortgage.
Homes coming online in 2024 are sure to find buyers given such demand. But with the objects that will be presented later, a big question arises.
How will cluster mortgages affect the market?
Anton Glushkov: The cluster mortgage is an approach that consists of five indicators. All regions (and not municipalities, which, in my opinion, would be more correct) are divided into five groups. The first are the depressed regions that have no primary construction or very low volumes. And then there are four compilations of two indicators: high and low supply and high and low demand.
There are no criteria to determine what is high and what is low; These are biased indicators. In this case, it is necessary to somehow classify all regions. Although, in my opinion, the key word is municipalities. Because the situation is very different in the regional center and a hundred kilometers from it. However, they still do not want to move to the municipalities, but say: let’s evaluate the cluster not as a complete region, but without the central city.
In any case, cities with a population of more than a million will immediately step aside, everything will be fine there: there is and will be an increase in the population, as a rule, a large concentration of developers. Overall, it seems to me that we will have over a million cities and, quote, “rural mortgages,” which will become more global.
Aren’t developers stopping new projects on the eve of the change?
Anton Glushkov: I repeat: a developer is a walking excavator. She can’t just stop. You find it much easier to increase the volume than to decrease it.
The development industry employs specialists of an objectively very high level. Each developer acquires its own contractors. If you want to keep the contractor, you will need to complete the project and transfer it to another. Because if the contractor works with someone else, there will only be one way to distract him: money. And this leads to increased costs. Therefore, no major developer wants to disrupt this chain.
What are you waiting for?
Anton Glushkov: The level of provision of square meters to the population of our country is quite low, even in comparison with the countries of Eastern Europe, where it is 15% higher.
Therefore, in principle, if we talk about pent-up demand, it is still very high in Russia. But how to create mechanisms so that this demand becomes solvent demand is, dare I say, magical. So far, the work has felt supported and seen this magic work.
If demand cools in so-called hot markets, will developers “move” to places where prime mortgages will remain?
Anton Glushkov: I think this will redistribute resources a little so that our offer on the primary market begins to form not only in regional centers, but also in other cities.
Is good or bad? Any shock to the market is bad: it can bankrupt construction companies, both contractors and developers.
Officially we employ 6.5 million people in construction, and if we add housing and communal services and the production of building materials, then that is 10 million people out of 70 million working-age population. These are great processes. At the same time, we do not have such mobility that today, without a contract, you can take the entire team and go to some region.
In this aspect, the experience of Turkish companies is very interesting: they are the only ones that have managed to make the export of construction services competitive.
Will our builders go to work abroad?
Anton Glushkov: The construction complex is increasing its pace from year to year. Now this is a competitive environment with good teams and strong teams.
Furthermore, this applies to both residential and industrial construction. The roads being built now are on a completely different level in terms of quality, safety and speed limits.
A very good level has been reached in the construction of the metro.
Our developers are already heading to Dubai. Metrostroy is negotiating to go to China to build a subway. At the current ruble exchange rate, our road and metro builders are more competitive than the Chinese on the international market.
Have workers from other countries stopped going to construction sites due to changes in the ruble exchange rate?
Anton Glushkov: While the CIS countries focused exclusively on Russia, the devaluation of the national currency, in general, had no effect. Now, against the background of massive Asian projects, the same Dubai, Korea, these countries have begun to actively fight for the population. And not only in construction, but also in industry.
For example, in Uzbekistan, South Korea’s level of industrial penetration is much higher than in Russia. And the young Uzbek, first of all, wants to work in Korea or in a Korean company on the territory of Uzbekistan. And if you’re not lucky, go to Russia.
Are our works left without workers?
Anton Glushkov: Thank God no. But there are large cities where they are being built and it is possible to pay high salaries. And there is everything else. And there is a flow of construction workers to big cities.
Who can fill the worker shortage?
Anton Glushkov: The main reserve for construction, in my opinion, is the rural population. In European countries, the proportion of the rural population is 5 to 7%. Ours is 15%. An ethical question arises here: how much rural population is needed?
Do the villagers go to construction?
Anton Glushkov: Yes. The rural population is very hard-working. Probably only villagers will go to construction sites if we eliminate foreign labor. Our percentage of secondary vocational education graduates who end up on construction sites is very small. Therefore, education and career guidance are also an element of increasing the number of Russian builders. But these measures will not have an effect so quickly. Involving the rural population is, in my opinion, a more systematic and realistic step.
Escrow accounts have spread to the rural market and rural mortgages are developing. Have the big developers gone to build suburban communities?
Anton Glushkov: Come on, but not the developers. The contractors have arrived. Contractors doing various types of work are obsessed with the glory of development. But the price of entry to urban development is very high. But rural development has a much lower entry price and smaller scale, somewhere with its own working capital.
Experts propose introducing an infrastructure tax for developers, which will be used to build schools, kindergartens, clinics and other social facilities. what do you think about it?
Anton Glushkov: In most regions, with the current volume and high demand, the economy can withstand the transport burden due to development, and in cities with more than a million inhabitants, there is also a social burden in the form of nurseries. Only two capitals can resist the construction of schools.
Furthermore, political issues arise here. If social rent appears in a region, for every meter one thousand rubles are allocated to social development. This imposes additional obligations on local authorities. You collect rent from all the developers working throughout the municipality and you build a school. And why here? The developer not only pays the rent, he assumes that the school will be close to his house, but he capitalizes on his territorial resources. The issue is complex.
