Safe haven to sinking ship: Mortgage subsidy cuts spark housing market slump in Russia

The end of Russia’s subsidized mortgage program has led to a sharp decline in home sales and new construction. Yet prices remain stubbornly high: property owners and developers are staying put, hoping to wait out the downturn. Many Russians continue to view real estate as the primary way to preserve their savings — unsurprising given the paucity of alternatives — so the share of cash purchases is growing. But today, this so-called “concrete currency” is a highly risky asset. Its future hinges entirely on when and how the war in Ukraine ultimately ends.

Content

• After the subsidy

• Deals collapse, but prices hold

• Holding onto “concrete currency”

• Developers rely on the government

• What’s next? It depends on the war

• What is to be done?

RU

After the subsidy

Nine months have passed since the cancellation of a mortgage program that allowed nearly any Russian to take out a loan for a budget apartment in a new building at just 8% annual interest. The last of the properties available under this program were bought up within two months of the change. Based on where things stand now, it's clear that buyers have taken the biggest hit.

Moscow and the surrounding Moscow Region serve as the clearest barometers of market trends — not because demand is weaker or construction is slower in other regions (Tatarstan and Krasnodar Krai, for instance, are holding steady), but because the scale and competitiveness of the capital’s real estate sector make it behave more like a true free market. In many regions, market signals are distorted by close ties between local developers and regional authorities, and local housing programs often have an outsized influence. This kind of interference is more the rule than the exception in the provinces, which is why it makes sense to examine the capital region as a baseline.

Deals collapse, but prices hold

The property market hasn’t crashed — just as the broader economy didn’t collapse after the war began. But trouble is quietly accumulating, creating a potentially explosive situation. According to data from the Real Estate Market Indicators portal, prices for secondary and finished housing in Moscow are inching up slightly in ruble terms.

Meanwhile, investment property yields — factoring in both capital appreciation and rental income — are significantly underperforming. Returns are only around half the rate of inflation, and they are three to four times lower than bank deposits. In dollar terms, prices remain below their levels at the start of the war ($4,559 per square meter in April 2022), but the fluctuating exchange rate can render such indicators misleading — after all, the recent strengthening of the ruble has helped lift the level from a low of $2,645 per square meter back in December to $3,289 in April. Still, the rebound remains modest, and the outlook is worse in New Moscow and the suburbs. Older parts of the capital are holding up better — that is, they remain more expensive.

The yield on investment property — factoring in both price appreciation and rental income — falls well short of both inflation and bank deposit returns

A similar picture can be seen on the primary housing market across the country, according to Russia’s state-owned housing development instutution Dom.rf. The fastest price growth in new builds has been recorded in the border regions of Bryansk and Belgorod: 5.9% and 3.06%, respectively, in the first three months of 2025. That’s hardly surprising — construction there is currently booming, with projects co-financed by the federal budget, and housing is being purchased through certificates issued by the Defense Ministry and for displaced people.

The Amur and Arkhangelsk regions have seen the steepest price declines: down 1.08% and 1.32%. These are more difficult to explain. The Amur Region falls under the Far Eastern mortgage program, and parts of Arkhangelsk, including its capital, qualify for the Arctic mortgage program. Both offer loans at just 2% annual interest. However, the eligibility requirements are strict: participants must be under 36 or work in specific professions, the maximum loan amount is 9 million rubles ($112,731 at the moment), and a 20% down payment is required. It is likely that local residents can’t afford those terms, and few outsiders are interested in relocating to these areas. Elsewhere, prices in the primary housing market are stagnating much like in the secondary market, lagging behind inflation.

Demand and supply indicators show a clear collapse. The number of transactions involving new builds in Moscow (including New Moscow) fell by 11.4% in March compared to February and by 11.8% year-on-year, according to Rosreestr. Secondary market transactions, which were 30–40% cheaper than new builds at the time of the mass mortgage subsidy cancellation, rose slightly in March: up 2.5% from February and 3.2% from March 2024.

The reason becomes clear when looking at the mortgage data. In February, the share of subsidized loans— which typically don’t apply to secondary market housing — increased, while the share of regular loans dropped to a historic low. Only 14% of transactions were made using market-rate mortgages. The share of cash purchases for new builds is rising — when combined with installment payments, it reached 44% in the first quarter.

Bank interest rates starting at 26% make it nearly impossible to buy a home without a sizable down payment. To qualify for a mortgage at the lowest available market rate on the cheapest apartment, a monthly income of at least 199,000 ($2492) rubles is needed in Moscow and 126,000 ($1578) in St. Petersburg. That’s per person — so a couple with a child would need to be earning nearly 300,000 ($3757) rubles each per month. It’s clear that families with such stable incomes — not those temporarily boosted by “combat” payouts for soldiers in Ukraine, which tend to end quickly — have no interest in buying a cheap one-bedroom apartment. Especially now that rents are falling even in Moscow, making it far cheaper to rent than to pay a mortgage.

To buy a cheap one-bedroom apartment with a mortgage at the lowest rates, a couple with a child would need to earn nearly 300,000 rubles per person per month

Fewer new projects are being launched: from January to April 2025, construction began on 12.4 million square meters of housing in Russia — an 18% drop compared to the same period the previous year. So why hasn’t the collapse in sales triggered a comparable drop in prices? There are several reasons.

Holding onto “concrete currency”

On the secondary market, sellers have sharply reduced their activity. According to data from the real estate market indicators, the number of listings dropped by 17.2% in Moscow and by 20.5% in New Moscow from March 2024 to March 2025. These are precisely the areas where most apartments were being purchased during the period of mass subsidized mortgages. Having bought at peak prices, owners are now reluctant to sell at a loss, preferring to wait for the market to recover and rent out the apartments in the meantime. This contributes to the decline in rental rates.

In the Moscow suburbs, where far fewer apartments were bought for investment purposes, the supply has decreased by just 3.3% over the year — and from February to March it even ticked up by 0.2%. Meanwhile, in Moscow and New Moscow, secondary market listings continued to fall over the same month — by 6.8% and 0.4%, respectively.

Pre-sales in new residential developments have dropped by half, according to Dom.rf. By the end of the first quarter of 2025, only 31% of the housing currently under construction in Russia had been sold. Unsurprisingly, Moscow has the highest share of units sold — 46%. In contrast, in Krasnodar Krai, which until recently rivaled Moscow in this metric, only 20% of new units have been sold.

This is despite the fact that, with construction cycles lasting two to three years, the effects of mass subsidized mortgages are still being felt in the primary market, and some of the apartments purchased under those loans won’t be completed for another two years. Deputy Prime Minister Marat Khusnullin, who oversees the construction sector and is one of the main lobbyists for developers, predicts a sharp drop in housing completions in the coming years.

Developers are offering discounts to buyers. In Moscow, the maximum discount has increased from 23% to 37.9%, although — as with many sales — this was often preceded by a price hike. Sales on installment plans have also become more common. The Central Bank sees a risk of buyer defaults here: people who sign up for a two- or three-year installment plan may not see mortgage rates drop by the time it ends, leaving them stuck with unaffordable payments on an overvalued property.

Overall, sellers of apartments prefer to wait rather than cut prices, while secondary market sellers find it more profitable to rent. Developers, having built up reserves during the years of mass subsidized mortgages, are in no hurry to sell at a discount.

All apartment sellers for now prefer to wait rather than lower prices

Rising construction costs are also keeping prices from falling — primarily due to the soaring prices of concrete and metal, which are being used for defensive fortifications in frontline regions as well as in government contracts for the “reconstruction” of occupied territories. Notable, it is this construction effort in the occupied territories that is helping large federal developers stay afloat.

Developers rely on the government

When Russia was deciding on a mortgage lending model in the early 2000s, the choice was between two systems—roughly speaking, the American model and the German one.

The German system is more of a savings model. People who want to buy a home save a portion of the purchase price in special accounts. Those who have already accumulated the required sum receive loans from this pool — similar to a mutual aid fund. The result is that most of the housing market is made up of rentals. If people do buy property, it’s typically in self-managed condominiums, or else they purchase houses. In many cases, even in large cities, people buy small multi-unit houses where they live in one apartment and rent out the others. Often, the ground floor is converted into a shop or café.

Buying an apartment in Germany may be a desirable goal, but it’s expensive and by no means essential. Saving takes time, and the rental market is tightly regulated in terms of both prices and tenants’ and landlords’ rights. This has its downsides: from competitive selection processes for rental apartments — where tenants have to show more financial documents to the owner than they would to a bank — to a relatively stagnant real estate market.

The American system, in contrast, operates under the slogan “buy now, pay later.” Before the 2008 mortgage crisis, it was possible to buy a home with a minimal or even zero down payment. But mortgage conditions are strict: interest rates are variable and tied to the Federal Reserve rate, and evictions happen quickly and with little fuss. The market is active, large, and plays a major role in the economy, with a presence on the stock market — from real estate investment trusts (REITs) to homebuilders and home goods manufacturers.

Suburban real estate in the U.S.

Russia opted for the American system. At the time, it was believed that the Russian economy would follow the American path — with a developed stock market and credit system. This was probably the right choice given Russia’s housing shortages and low household income. The only problem was that a developed financial market in Russia never materialized.

The construction market, which in the early 2000s was one of the most competitive quickly became monopolized. Moscow under its longtime mayor Yury Luzhkov (1992-2010) set the tone, and regional authorities soon discovered the appeal of creating their own favored developers.

Since the 2000s, Russia’s construction market has rapidly become monopolized

As a result, Russia built a system of diverse regional monopolies (usually closely tied to local authorities) and a handful of large federal developers (which can only enter regional markets with either the approval of local governments or a federal construction contract). This system is not designed to offer buyers the best terms — it is built to maximize profits, with construction plans determined not by market demand, but by deals with the authorities.

Nevertheless, this system does offer one crucial advantage: it is fairly resilient in adverse conditions. Local experts are confident that if a “friendly” developer is on the verge of bankruptcy, they will be rescued. They might get a loan from a similarly “friendly” regional bank on non-market terms, or else a lucrative construction contract — be it for a shopping mall or a church. The region might launch a co-financing program for mortgages or one-time payments to young families — or, now, for veterans of the “special military operation.” In the worst-case scenario, the state will simply buy up the developer’s excess stock for social housing. And this confidence in having a strong backstop is what currently gives developers enough assurance to keep prices steady.

What’s next? It depends on the war

The future of the real estate market depends entirely on how long Russia continues its war in Ukraine. In fact, the current situation is itself a product of the war: limited opportunities to invest in foreign assets, and the shift of the economy to a war footing that, along with sanctions, has fueled inflation, led to a hike in the Central Bank’s key rate (and consequently mortgage rates), and brought an end to the mass subsidized mortgage programs. Experience from previous years shows that the mortgage market only comes alive when rates drop to 15% or lower. And below 10%, demand surges.

The mortgage market only revives at rates of 15% or lower. Below 10%, demand becomes frenzied

Accordingly, several scenarios can be outlined for the market’s future trajectory.

Optimistic scenario. Hostilities come to an end in one way or another, military spending is reduced, and the price of Russian oil stays above $60 per barrel. The Central Bank’s key rate drops to 16% by the end of 2025 (this is among the more optimistic forecasts), to 13% in 2026, and to 8.5% in 2027. At the same time, the economy remains under sanctions pressure for a while, and real incomes stagnate. Subsidized mortgage programs continue in their current form but are not expanded. The geopolitical situation remains stable, without significant improvements or deteriorations.

In this case, stagnation in the market continues through 2025: demand remains low and may decline by 5–10% by the end of the year. Prices for new builds stay flat or increase by 2–4% (below inflation), while prices on the secondary market rise by 3–5% thanks to alternative transactions and discounts. Discounts on new builds become standard and increase to 30–35%. A modest recovery in demand of 5–10% may begin in 2026 due to mortgage rates falling to 12–15%. Prices for new builds rise by 4–5%, and on the secondary market by 4–6%. The market stabilizes only in 2027, with price growth matching inflation (4–5%).

Due to fewer new project launches, a shortage of new builds is possible in some regions (Moscow, St. Petersburg), causing local price hikes of 5–7%. The secondary market remains stable thanks to alternative transactions. In the regions, much will depend on market saturation: price stagnation is expected in cities with oversupply (Krasnodar, Moscow suburbs), and growth of 3–5% in cities facing a housing shortage (Yekaterinburg, Kazan).

But if hostilities continue and defense spending remains at current or even higher levels, the Central Bank’s key rate will likely stay elevated (18–20% in 2025–2026, 12–15% in 2027). The economy will deteriorate due to new sanctions and/or a drop in the price for Russian oil, and real incomes will decline by 1–2% annually. In this scenario, subsidized mortgage programs will be phased out, the mortgage market will shrink, and real estate investment will decline.

That would then trigger the pessimistic scenario. As early as this year, demand could fall by 20–30%, and prices for new builds stagnate or drop by 5–10% in regions with excess supply. In this event, the secondary market will show near-zero growth (0.1–1%). The number of mortgage loans issued will shrink to below 1 million. Next year, a shortage of new builds will begin to take shape due to a 25% drop in project launches compared to 2024. Prices for new housing will rise by 3–5% in major cities but fall by 5–15% in low-demand regions. The secondary market will stagnate.

If the war continues, prices for new builds will rise by 3–5% in major cities and fall by 5–15% in low-demand regions

In 2027, the shortage of new builds will push prices up by 10–15% in Moscow and St. Petersburg, but housing affordability will worsen. In the regions, prices will either remain flat or decline by 5–10%. Mortgage rates of 15–20% annually will lead to a rise in the share of cash transactions from the current 68% all the way up to 90%. In Moscow, price growth will continue only in the premium segment, while in Krasnodar Krai and the Moscow suburbs, market oversupply will lead to price drops of 10–20%.

What is to be done?

Overall, under any scenario, housing prices have no potential for explosive growth, and not even a possible market revival in 2027 under favorable conditions will bring back the frenzied demand seen in 2020–2021. Moscow and St. Petersburg will remain attractive for investment regardless of the scenario. Krasnodar and the Moscow suburbs, on the other hand, are in the risk zone. With that in mind, it’s better not to rush into buying property.

If housing is not an urgent need, the optimal strategy for buyers is to wait for rates to come down, and in the meantime, to place money in a high-interest deposit. If the housing issue cannot be postponed, it’s better to look at the secondary market and push for discounts. The most flexible sellers here are those who bought apartments in new builds at the foundation stage and aren’t ready to invest in outfitting them for rental — these sellers can be negotiated down by 30% or more.

For now, it’s better to wait for lower rates and put money in a high-interest deposit

For those who qualify for a subsidized mortgage, experts suggest buying a new build at the foundation stage — this can save 20–30%. It's also possible to access a family mortgage even without having children, by entering a co-financing scheme with a family that does. The arrangement carries risks, as even close relatives may act unpredictably once they become co-owners of a property — but for some, there’s no alternative. Maternity capital can also go toward the down payment, though it now covers only about 2 square meters in Moscow and roughly 5 in other cities. Potential buyers may also have to consider looking outside the capital — in the Moscow Region, for example — where the market is oversupplied and discounts are more common.

For those who already own an investment apartment and are weighing their options, the only bright spot is in the premium segment, where prices are expected to keep rising at least in line with inflation (10% under the optimistic scenario). Other types of property are likely to be rented out, yielding around 5–7% annually in major cities. That probably won’t beat inflation, but it could help owners ride out difficult times without major losses.

For anyone who purchased a home for themselves with a market-rate mortgage — especially in installments — experts recommend building a financial safety net. There’s a strong chance that mortgage rates won’t come down for a year or two, or that household income may decline. Problems are already starting to show: in the first quarter of this year, the share of overdue mortgages at Sberbank doubled. It remains relatively low at 2.6%, but that's at a bank known for rigorous screening of borrowers.

In past crises, the government stepped in to help mortgage holders. However, given the current state of the federal budget and the banks' balance sheets, it would not be wise to count on support from either. In short, Russian real estate today is a high-risk asset with limited earning potential.

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