Overview of the Russian real estate market at the end of 2021 - PART ONE

The residential segment 

The Central Bank of Russia has estimated that housing prices in Russia have risen more in the past year and a half than in the previous 7 years combined: from the beginning of 2013 to 2020, apartment prices per square metre had increased by 33%, while since the start of the pandemic they additionally increased by a staggering 39%.

The main factors behind this trend were: the reduced mortgage rates that came into force in mid-2020 for the purchase of new builds, but also, and above all, the rise in the price of building materials (for which the Federal Statistical Office recorded an increase of more than 25% compared to the previous year) and the inflation in the country (official figures are close to 8%, while "real" ones plausibly exceed 10-12%).

The situation on the market began to change gradually in the spring of 2021, when, especially because of a surge in inflation in practically all sectors of the economy, the Central Bank of Russia was forced to tighten its monetary policy by gradually increasing its refinancing rate between March and October 2021. Against this backdrop, mortgage interest rates rose again and bank deposit yields also increased (from 4.5 to 6.3% per year on average), making the property market less attractive to investors.

Already in the summer, therefore, the interest rates applied to the above-mentioned "subsidised" mortgage programmes for the purchase of new flats became much less attractive, which significantly "cooled" demand, which is estimated to have fallen by almost 30%. There has also been a decline in the "resale" segment, albeit less noticeable. For the time being, however, there is still no significant downward correction in average prices.

Forecast for the coming months

Many analysts expect a partial stagnation in the Moscow region market in the first months of 2022.

The previously widespread "buying spree", no longer supported by incentives to purchase, clashes with the reality of the facts: in the last 5/6 years, the average incomes of the population have gradually decreased and the exponential increase of the above-mentioned inflation has only further reduced their purchasing power.

According to some insiders, prices will "settle" at current levels in the coming months. Depending on the segment, there could be a reduction of 3-7%, but this would rather be due to individual discounts.

The potential for further growth in apartment prices seems to have been (at least temporarily) exhausted, but certainly in the medium term the unpredictable inflation rates will still have a "say" in this respect.



Restrictions and countermeasures introduced by the authorities to hinder the spread of the pandemic have put a strain on the office segment over the last two years and demand has not fully recovered compared to pre-COVID times.

As of today, there are still around 3 million employees working remotely in Russia, compared to around 5-6 million in mid-2020. The return of half of this workforce to offices has partially helped to lift demand, but it does not seem to be enough yet.

During the period of the first lockdown in the spring of 2020, demand had plummeted by 50%, but after the gradual removal of restrictions, a timid reversal of the trend was recorded, particularly in the spring of 2021.

According to the CIAN portal, demand in Moscow continues to be mainly concentrated in the 'B' class office segment (76%), with the share of 'A' class offices declining slightly as a result of companies' attempts to optimise costs.

In spite of this it should be noted that few tenants seem to be willing to move away from the centre (despite proportionally higher prices): about 40% of demand in Moscow continues to be concentrated in the central administrative district, almost as in pre-pandemic times.



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