How coronacrisis to bring down property prices

High demand and sharp drop

Drastic changes due to the coronavirus pandemic have had a negative impact on the real estate market. At the webinar of the Association of Russian Banks, Sergey Palamarchuk, the director of analytics at CIAN service, stated the following: “We sincerely consider what is happening now to be a crisis because there is no other name for it. Almost everything has changed at the moment.”

I'll start with the demand. At the moment when we had a lockdown, first the oil quotes fell, and there was a standard situation, very similar to December 2014, when we saw a high demand. People rushed to call, book. They remember that last time banks still raised rates and wanted to fix the possibility of buying an apartment at the available price," Palamarchuk described the chronology of events.

This continued for a little more than a week, and then analysts noted a sharp drop. It is worth emphasizing that now the figures are fixed and there is no further decline yet.

Demand for long-term rentals fell by 25%. This is due to the fact that many Russians have lost their jobs and are forced to return to their native regions. There's just no money to pay for rent. In the short-term rental segment, there was a sharp decrease of 50%. According to the speaker, there are two factors of influence: the closure of borders, as well as competition with hotels.

Focus on country houses

There are also positive aspects: for example, long-term rental of cottages has increased three times compared to last year. At the same time, the peak has passed, and now there is being a correction and decline.

“Everything here also depends on the lockdown: people want to spend time outdoors, families with children want to walk. I think it is unlikely that this trend will continue after self-isolation," suggests Sergey Palamarchuk.

Analysts also record a shift in long-term demand for daily rental of cottages. The reason is that in March people did not know how long the regime of self-isolation would last, they thought to sit out for a week or two in the country, to rest, but this, unfortunately, did not happen.

If we talk about sales, the demand for the country market increased by 25%. According to Sergey Palamarchuk, people who have funds are now thinking about investing them in a small cottage, instead of new or secondary housing.

What will happen to prices and mortgages

An equally important issue is related to the level of real estate prices. The CIAN director of analytics reports that in countries where the pandemic started earlier than in our country, about 60% of the top players in the real estate sector note a drop in prices.

“Forecasts are a thankless task, but based on standard laws, if the demand falls, but the supply remains unchanged, people are expected to give a discount for real estate. It seems natural. We heard yesterday about a 20% decline in the world, and I think it will be the same for us," the speaker said.

In general, the price level is directly related to the duration of the self-isolation regime. Sergey Palamarchuk believes that “every month adds a few percent to the discount that will be on the market”.

“The world is talking about 20%, and this is quite a shock price. But here and now the prices have not changed. At the same time, the percentage of decline in transactions will be much higher than in demand because transactions reflect real purchasing power, not interest, plus they have become harder to carry out," the expert said. “I do not see any reason for prices not to fall, except for one — it is how the state support of developers will be implemented. If it is significant, it will keep prices afloat.

Also, according to Palamarchuk, due to the pandemic, banks will adjust the requirements for borrowers in terms of mortgage lending — towards greater strictness.

“Some people are going to lose their jobs, even in such areas as IT. I want to believe that salary loans will be issued and this institute will support businesses that can thus go through lockdown by paying employees salaries. Then people will take out mortgages. The rate may remain at the same level, but to reduce risks, the requirements to the borrower, including the initial payment, may become stricter," the speaker suggested.

The market going online

Another change caused by the pandemic is that the market is going online. For example, among the online tools used by developers, there are 3D tours that allow clients to assess the apartment.

“Online 'secondary' housing tours are also a good tool. In general, it doesn't make any sense to go to all the views these days. Of course, the secondary housing market is the sphere of real estate in which, without direct communication and personal viewing, it is unlikely that more than a dozen percent of transactions will be carried out. In contrast to the new housing market, is very difficult to convey the state of the entrance, smells, some roughness via video. Probably, in the lockdown mode, the number of transactions here will fall not only because of difficulties with registration but also because of the inability to personally visit the apartment," said Sergey Palamarchuk.

Besides, you can apply for a mortgage online, as well as conduct an online transaction.

“Online transaction allows you to buy an apartment remotely. This is possible in new housing market: you transfer money from the card, give a digital signature, the courier arrives, you sign the documents. The main problems are in the secondary housing market. According to the law on registration, it is impossible to conduct online registration if you have not given your consent earlier… That is, to do something electronically, first go with your feet and say that you want to do it electronically. There are also problems with the notary, which, unfortunately, is not yet online," the expert concludes.