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17 September 2020, 14:00

Alternative to lending. New apartments from developer!

The market of new housing is bracing up for a new reality this autumn. The situation the potential buyers are facing now is not due to developers, but they are the ones who are looking for a way out and quite successfully.

According to the National Cadastral Agency, this spring witnessed a sharp decline in the number of registered property transactions in the capital city. The pandemic delivered a heavy blow on the real estate market of Minsk - in April and May the number of transactions shrank by more than 40% compared to March, and especially February. Thus, only 725 apartments were sold in Minsk in May.

However, the real estate market bounced back soon due to the high unmet demand for housing. Some growth was reported in the summer with a peak in July when 1,024 deals were signed. The growth slowed down in August, although insignificantly.

New homes are in higher demand
New homes are in higher demand

Thus, factor number one on the Belarusian real estate market is an overall decrease in buyers' activity due to economic instability amidst the pandemic.

Factor number two: new homes were in higher demand in the spring and the summer. In July, the share of transactions in the market of new homes jumped to 13.2% from 6.7% in January. This trend, undoubtedly, is expected to remain in place, as it is no longer possible to buy an apartment on the secondary market using a loan, buyers have to rely on their own funds.

Factor number three: the real estate market will have a hard time without loans.

This summer, the share of housing purchased with the help of loans reached 70%.

This figure is not surprising. Bank equity is formed mostly by household deposits and in developed countries it is two to three times higher than the GDP of these countries. In Belarus, household deposits make up about 30% of GDP.

In other words, the average German is more capable of purchasing an apartment using own funds than the average Belarusian who will need a bank loan in 70% of cases. And this when the purchase of an apartment in our country is affordable to a rather affluent strata of population whose income allows them to qualify for loans.

Artyom Sakharevich, an analyst with the internet portal realt.by, believes that the main factor determining the market development now is the absence of loans.

“The market resembled a roller coaster for the past year. The demand was very high at the beginning of the year, then it fell in the spring, bounced back in the summer, but began to decline again in September. In August banks stopped issuing loans to purchase housing in the secondary market. In early September the similar move was made in respect to the housing construction programs. Of course, buyers are accustomed to making use of loans. In recent years, interest rates under lending programs have been on a steady decline. If earlier loans were used by some 10-15% of buyers, then recently more than half of the clients have bought housing with loan support. The number of those who want to buy an apartment has not decreased in general, but those who can afford it has become fewer,” Artyom Sakharevich says.

Artyom Sakharevich, an analyst with the internet portal Realt.by
Artyom Sakharevich, an analyst with the internet portal Realt.by

Factor number four: housing prices are decreasing at a slow rate. Of course, we are talking about the foreign currency, with the price per square meter traditionally pegged to it. Over the past year, since August 2019, the price for studio apartments in new houses has fallen from $1350 to $1320 per square meter on average, that for two-room apartments - from $1290 to $1210, and that for three-room apartments - from $1230 to $1150. This was mentioned by Vibor Mulic, the chairman of the Board of Directors of a well-known developer company, in spring, before the coronavirus pandemic and the subsequent changes on the real estate market. He said then that there is no need to wait for a significant reduction in prices.

A distinguishing feature of the real estate market is its high inertia, and it may face significant changes a year or two after the trigger. The fact is that apartments are becoming cheaper much slower than one would expect with the current decrease in income. After all, the price of housing in Minsk is determined not by speculation of developers, but by high unsatisfied demand for apartments of different sizes. The most popular are small apartments, which is a priority both for young families and those unmarried.

Vibor Mulic, the Chairman of the Board of Directors of the Dana Holdings development company
Vibor Mulic, the Chairman of the Board of Directors of the Dana Holdings development company

According to Artyom Sakharevich, almost nothing has changed for those who can afford to buy housing at once, or those who buy apartments for investment purposes. Such customers do not actually consider loans at all.

“Buying housing has become even more profitable, because many developers offer promos and give the opportunity to buy an apartment cheaper than it was a few months ago. The person with cash is now the owner of the situation, dictating terms. In general, however, if the developers are not able to sell apartments at the prices set for now and the buyers are not able to buy them, then they will be making steps to meet each other halfway. At some point their interests will meet, and we will see an increase in demand,” the analyst says.

It is possible that the prices for new housing will continue to go down, but there is no point to relying on this factor much in any long-term perspective. It will be more profitable for developers to keep their apartments until better times than to offer them at huge discounts.

“At present, there are no frozen construction sites. Real estate developers are having a hard time, because the demand has slumped. But in the past large companies created their financial cushions and found ways to maintain stability in unstable times,” Andrei Chernyshev, deputy head of the consulting and analytics department of the Tvoya Stolitsa company, stressed.

Andrei Chernyshev, deputy head of the consulting and analytics department of the Tvoya Stolitsa company
Andrei Chernyshev, deputy head of the consulting and analytics department of the Tvoya Stolitsa company

The fifth factor came as a surprise to many: banks stopped financing the purchase of new homes, with exception of targeted state-funded programs. Only Belinvestbank continues issuing loans to purchase real estate, while the rest announced plans to suspend lending indefinitely. Banks' partner programs with real estate developers were also frozen.

“The situation in the real estate market is both fast-changing and complicated. First it was affected by the fears caused by the pandemic, then by the dollar exchange rate. At present, the main factor that is threatening the whole real estate market is decreasing lending. It is impossible to buy an apartment in the secondary real estate market using a bank loan. People seeking to buy a new home still have the opportunity to get a Belinvestbank loan on the general terms. Several weeks ago, partner loan programs with lower interest rates were still available,” Andrei Chernyshev explained.

As a result, those customers who intended to buy apartments in the secondary market had to turn their attention to new housing, the analyst believes.

This is a new reality for 70% of clients who cannot afford a new apartment without taking a loan.

A gridlock? By no means!

Large real estate developers came up with an alternative option of financing the purchase long before the crisis. This option turned out to be the most convenient and understandable one – an installment plan. Andrei Chernyshev views it as an important advantage of the new real estate market.

“Medium-sized and large real estate developers offer installment plans from several months to a few years, or until the commissioning of the house. Tapas offers an installment plan for three years, Airon – for up to seven years, and Dana Holdings – for 100 months, which is eight years and four months,” he said.

Understandably only the companies that have the capability to invest money in their own projects can use this tool. For instance, the developer stated previously that this year it will channel at least €300 million into the construction of the Minsk World complex alone. In essence it is the source of money to finance installment plans. To put it simply, the company undertakes to finance some of the construction operations out of its own pocket in order to allow customers to compensate for the sum later.

Natalya Radenya, head of information projects of the website Prometr.by, describes purchase by installment as the most important financial tool.

“Payments by installment will become more and more popular since many banks no longer offer loans. It is the most promising tool for financing real estate purchases and its advantages are obvious. A rather lengthy period allows making plans, getting expectations, and gradually paying the price for a home that is being built. An increasing number of buyers resort to this tool today. Because it is profitable to gradually invest in future real estate instead of bringing all your money to the real estate developer,” Natalya Radenya believes.

Natalya Radenya, head of information projects at Prometr.by
Natalya Radenya, head of information projects at Prometr.by

In essence in Belarus payment by installment resembles how real estate developers work in the USA and Europe where customers are primarily offered to buy ready real estate instead of investing in housing construction projects. If customers buy ready real state, then the possibility to scam people is greatly reduced since people pay for work that has already been done and for the relevant expenses, particularly so in case of long-term installment plans.

So, on what installment terms can customers count on? Two factors are essential for making a decision – the length of the installment plan and the size of the down payment. Data from open sources – primarily from websites of real estate developers – was used for an express analysis.

Thus, families able to pay at least 10% of the apartment as the down payment will still be able to buy an apartment in a new house when bank loans are unavailable. It is necessary to calculate the size of monthly payments because paying the rest of the sum over the course of 18 months is one thing while doing it over the course of 100 months is another! Sales offices of real estate developers will help customers find out the precise figures.

Conclusion? It is obvious – a certain decrease in demand for new housing only means delayed plans of the buyers instead of market saturation. People still need apartments. Since bank loans are unavailable and customers lack the money to purchase an apartment in one go, installment plans from major developers will help their dreams come true – it is quite feasible to become a homeowner even today!

Should one wait for a more opportune moment to make a purchase and can one expect that financial options from real estate developers will become scarce just like bank loans is something every one of us will have to decide on his or her own.

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