Expert warns private investors about 2025 risks when buying real estate

Investments in new residential "square meters" are considered a proven asset in the Russian Federation, which helps not only to preserve, but also to increase personal capital. However, there are a lot of myths around this asset, created by creative marketers of developers and realtors. Oleg Repchenko, head of the Analytical Center "Indicators of the Real Estate Market", told us about the stereotypes and risks that prevent private investors from correctly assessing the effectiveness of investments in new buildings.

— Oleg, does a private investor have a chance to make a profit in the real estate market today?

— There are always interesting niches to be found in the real estate market. Even in periods of turbulence and high inflation. For example, at the moment, investments in offices and warehouses are promising, primarily in the light industrial format. But the entry ticket to these sectors of commercial real estate is expensive, and you also need to have the appropriate competencies. In large cities, there are still opportunities for flipping, when an investor — a flipper — picks up a liquid apartment in need of repair at a discount, and after putting it in order, resells the property at a higher price. But without your own construction team and lawyer, it is risky to engage in this business. Among ordinary citizens, two ways of earning money in the real estate market are most popular. Firstly, to buy an apartment at an early stage of building a house in order to resell it when the house is ready. As you know, new housing becomes more expensive as the construction readiness of the project increases. Secondly, to become a rentier, i.e. to buy an apartment for subsequent renting it out. However, in the current economic situation, it is highly unlikely that a non-professional investor will make money in either case. Today, housing prices are stagnating. For example, in the secondary market of Moscow, by the end of 2024, the housing cost index showed an increase of a symbolic 0.8%. This is much lower than the annual inflation. Yes, the housing market is mosaic, there is always bargaining, discounts. Therefore, some individual properties may have slightly increased in price, some - have fallen a little. But on average, the dynamics are close to zero.

— But experts say that in Moscow, new buildings continued to rise in price even in January. This means that you can still make money on rising prices.

— These are deceitful statistics. Yes, we see that formally prices are rising. More and more new buildings are now classified as business and premium classes with a corresponding price tag, which leads to an increase in the average price level. But behind the scenes, two fundamentally important questions for private investors remain. The first is at what prices are the deals ultimately concluded: at the stated price or with a discount? After all, the prices of real deals can be lower than the stated cost due to discounts and promotions. Developers often arrange so-called "Russian Black Fridays" - first they quietly raise the price, and then loudly announce a big discount. Schemes for hidden price reductions are actively used. For example, when buying a new apartment, they automatically give gifts in the form of free finishing, a parking space, a storage room, etc. Developers also use various financial schemes that artificially reduce the mortgage rate. The lost income is then "sewn" into the final price of the apartment.

The second important question is: will you be able to resell this new building on the secondary market at least for the same price? And my answer will disappoint many buyers of new buildings: "Absolutely not!" Today, in different regions of the country, the average prices of secondary housing are 20-30% lower than on the primary market. And we are not talking about old secondary housing, "Khrushchev-era buildings", but about yesterday's modern new buildings that have recently "moved" to the secondary market.

Accordingly, having bought a new apartment, then on the secondary market, where there is no preferential mortgage or various financial schemes, it is impossible to sell it at the same price. Many buyers of new buildings simply do not realize this. The beautiful stories when you bought at the foundation pit stage cheaply, and then sold it in a finished house at a high price, have passed. The new buildings market, in my opinion, has become similar to the car market, when you bought a new car, but after leaving the showroom gates, it automatically loses a significant amount of value.

— How attractive is renting housing today?

— According to the results of 2024, the average rental rates in the capital increased by 30–50%. Accordingly, rental yields also increased: if earlier they were somewhere around 4–5% per annum, now they are 6–7%. But it is important to understand that this yield is “gross”. As a rule, none of the landlords take into account the depreciation of apartments. When renting an apartment for several years, you must remember that sooner or later the issue of repairing the premises will arise. In addition, you need to pay taxes and insurance. There is a risk of downtime. That is, the “net” rental yield will be lower — about 5–6%. This is at least three times lower than the average yield on ruble deposits. Therefore, on the one hand, residential real estate still remains a low-risk protective asset. But on the other hand, it loses out in yields with comparable low risks not only to deposits, but also to “long” OFZs, money market funds, which provide a profit of 20% per annum. So my prediction is that this year residential real estate will allow private investors to save against inflation, but will not allow them to make money.

— Where will prices go this year?

— It seems to me that in 2025, given the current high “key” of the Central Bank, on which the cost of loans for developers and the cost of market mortgages for apartment buyers depend, there is no reason to expect an increase in prices for residential real estate. Even if the regulator suddenly and unexpectedly lowers the key rate by 2-3% and, accordingly, mortgage market programs become cheaper from the current levels of 28-30% per annum to 25-25%, this maneuver will not lead to a surge in demand for housing. Rates will still be at a prohibitive level. Therefore, prices will at best mark time, and at worst, slowly slide. If both scenarios are realized, one should not count on high profits from rented housing either. Since the low rental yield, which is now, let me remind you, at 6-7%, can be “eaten up” by the slide in prices for finished housing. And as a result, one can get 0% income from such investments.

— In early February, the media reported on bankruptcies of developers in a number of regions of the country. What trends may gain strength in the construction market?

— Russian developers are accustomed to the super profits they received in previous years, when housing prices skyrocketed. Moreover, the main increase occurred in 2020–2021, when preferential programs were launched. The real estate market received a powerful boost, and developers, thanks to generous government subsidies, turned into “addicts” who were not very concerned about the market situation. And when the government said: “Guys, the party is over. There is no more money in the budget for preferential mortgages, let's do it ourselves,” the developers entered a period of “withdrawal” and sobriety. However, there are no daredevils on the horizon who, in the conditions of glut on the primary market, would sharply reduce prices for new apartments, as the developer Vedis did in Moscow in 2009. On the contrary, there are threats from some developers to slow down and put projects on hold if they do not receive the usual support from the state. In my opinion, today a favorable environment is being created for the transformation of the construction industry. I do not rule out that the louder the cries for help from private construction companies are, the stronger the desire of the state to nationalize them will be.

Published in the newspaper "Moskovsky Komsomolets" No. 29469 of February 25, 2025

Newspaper headline: "Not Making Money on Residential Real Estate This Year"