Few Russians can still buy a house: mortgage interest of 36 percent

This article was last updated on December 20, 2024

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Few Russians can still buy a house: mortgage interest of 36 percent

The Russian economy is squeaking and creaking. Inflation is rising and to counter that, the Central Bank of Russia is raising interest rates again and again. Prices rose by an average of 10 percent over the past year and the minimum interest rate now stands at 21 percent. This also puts Vladimir Putin’s war economy at risk.

According to experts, there is a threat of stagflation: stagnation accompanied by high inflation. The expectation is that the Central Bank will raise interest rates again tomorrow, to 23 percent. That is the highest level in more than twenty years. The Russians are now feeling this in their pockets.

Alarming signal

The Russian housing market is at a standstill. There are even mortgage providers who charge 36 percent interest for a new loan. For a loan of 150,000 euros, this amounts to 54,000 euros per year in interest alone. At the end of a fifteen-year term, someone has paid almost six times the amount borrowed.

Putin said on Thursday that the economy is indeed showing signs of overheating. “Of course inflation is an alarming signal. It is up to the government and the Central Bank to slow down the pace,” Putin said at his tightly orchestrated annual press conference, where he further mentioned historically low unemployment and rising wages.

Priceless

Project developer and real estate agent Evgenya Angel offers apartments in a new construction project on the Russian Moskva River. The asking price is over €200,000 for 52 square meters. There’s just one problem: no one can afford it. “The interest rates are absolutely unaffordable for many,” says Angel.

Many people therefore choose to rent. “As a result, the demand for rental housing has increased and rental prices in Moscow have also increased significantly.” Russians who own multiple homes are renting out their properties at increasingly higher prices, Angel says.

Evgenya Angel offers her apartments with gusto, but there are no buyers:

‘If you are an optimist, this is a temple on the water’

The average income in Russia is about 800 euros per month. Not nearly enough to buy a bare new-build apartment. A mortgage with an interest rate of 21 percent requires a monthly income of almost 5,000 euros. “For many Muscovites, unfortunately, this amount is absolutely unaffordable,” says Angel. “The real estate market is struggling across the country.”

Small pieces of sausage

There is a lot of complaining on the market in Moscow. “Prices are rising every day. How can a retiree make ends meet? Look at the prices of potatoes, cabbage, all vegetables.” And: “How do I make food for two people? I use one piece of meat. Other than that, I only buy cabbage, potatoes, onions and carrots. Cucumbers and tomatoes are way too expensive.”

The prices of dairy products are also rising every week. The highlight is the price of butter, which has risen by more than 20 percent since the summer.

The open complaints in the market are remarkable. People point fingers at the Kremlin. Something that doesn’t happen often in contemporary Russia. “We put small pieces of sausage on a piece of bread sparingly. We don’t just want cabbage and potatoes,” says a retired woman. “Why are our prices so high? Everyone sees it, but in parliament they only talk. That leads to nothing.”

Economist Mathijs Bouman

The Russian economy appears to be faltering, says economist Mathijs Bouman. There is a large increase in defaulters and companies going bankrupt. Inflation is high, interest rates are extremely high. These are important indicators for the economy. The Kremlin has little control over this.

The president of the Central Bank in Russia used to be a hero of monetary policy, but has now also come under criticism. Today even from Putin who believes that the Central Bank could have used other means than just interest rate increases. It remained unclear which means he was referring to.

Investments in the war economy pump up the economy, but those factories are at a production ceiling and do not make things that people want. And it is usually bad news for a regime if people can no longer afford their groceries.

The sanctions are not working as well as intended, because oil is now coming to Europe, for example via India. Exports appear to be less affected than hoped. Russia’s imports suffer much more from the sanctions. Industrial products from the West, for example for production equipment in Russia’s oil and gas industry, are particularly missed.

The only way to sell an apartment is with a high discount. Project developers offer up to 40 percent discount if someone pays in cash. There are few Russians with such a large savings account. And there is also a lack of confidence in the future. There is a lot of fear that the entire housing market will collapse, says project developer Angel. “I hear those rumors more and more.”

Yet Angel remains optimistic. She has now received a down payment on one of the apartments she is selling. For this she had to give almost a 15 percent discount. It is a one-room apartment. It has a view of the water, if you look very closely.