Russian apartment prices soar 172% as war and sanctions bite
The prices of apartments in Russia's largest cities have increased by 172 percent over the past three years. The war in Ukraine and sanctions have directly impacted the Russian economy. "Elvira Nabiullina, president of the Russian central bank, is terrified," we read in The Economist.
9:43 AM EDT, July 23, 2024
"Decades of Soviet propaganda condemning credit as an unbearable burden have had an effect," notes the British economic weekly "The Economist." Russians have long been reluctant to take out mortgages, considering them a form of slavery. Therefore, Vladimir Putin has been fighting this perception since 2003, during his first presidential term. At that time, he argued that home loans could solve many citizens' problems.
The number of borrowers eventually increased, but the Kremlin received a bill for it. "State subsidies fueled a very hot real estate market, causing a sharp increase in home prices," it was noted.
Already after the outbreak of the COVID-19 pandemic, preferential loans with an interest rate of about 6 percent—2 percentage points less than the market offered—were introduced, with the state subsidizing the difference. Such loans could be obtained not only by families but also, for example, by employees moving to Siberia or the occupied territories of Ukraine.
Loans after the outbreak of war
"The Economist" notes that despite the Kremlin's efforts, the number of loans issued shot up only after the invasion of Ukraine. In 2023, banks issued mortgages with a total value of 88 billion dollars, an increase of almost 50 percent compared to 2020.
Why such an increase? Russians have severely limited investment options due to sanctions imposed by the West. There is also the problem of "transferring money abroad." Additionally, inflation has hit Russia.
Paweł Jeżowski, a stock investor and analyst of the Russian economy, recently said on Patrycjusz Wyżga's program "Didaskalia" that real inflation in Russia could be as high as 30 percent. Officially, the Kremlin states that it is 8.59 percent.
The Central Bank of the Russian Federation raised reference rates a few months ago to 16 per cent. At the same time, the government maintained preferential lending conditions, raising them from 6 to 8 per cent. This created a significant difference between the government and market mortgage rates.
"As a result, the Kremlin is bearing high costs. The Ministry of Finance has already spent almost half a trillion rubles on this program," notes "The Economist." And costs may rise further, as rates are expected to be raised to 18 percent on July 26 at 2 p.m. Eastern Time.
According to estimates, real estate prices in the country's largest cities increased by 172 percent between 2020 and 2023. These figures terrify the head of the Russian central bank, Elvira Nabiullina, who blames government subsidies for "overheating the housing market."
