Comfort-class housing is the key mass real estate segment in Old Moscow. Despite this, its new housing supply is currently on the decline driven down by fast-paced market shrinkage. New properties coming to the market are just enough to cover the demand and not sufficient to boost the supply. The demand for comfort-class flats leapfrogged in 2020 taking advantage of lower mortgage rates and the subsidised mortgage programme available to borrowers. The demand was at its highest in 2H 2020, and the market saw new comfort-class housing supply in the same period go up 87% year-on-year.

Supply and demand in Moscow’s market of new comfort-class housing, thousand sq m
Sources: newly built housing database, Federal Service for State Registration, Cadastre and Cartography (Rosreestr), Company’s proprietary databases

The share of sales of new comfort-class housing funded by mortgage loans increased by 20 pp, from 49% in 2018 to 69% in Q1 2021. This growth was driven primarily by lower mortgage rates and availability of the government-subsidised mortgage programme launched in 2020. According to INTECO estimates, about 94% of all mortgage transactions in the comfort-class segment relied on this government programme. In 2020 alone, their share in the sales of comfort-class housing increased by 10 pp.

Share of mortgage transactions in sales of new comfort-class housing, %
Sources: newly built housing database, Rosreestr, Company’s proprietary databases

A surge in demand in 2020 triggered a rapid increase in the price per sq m. Back in 2016 to 2019, prices rose marginally from RUB 150 thousand to RUB 170 thousand per sq m. However, in 2020 and early 2021, a rally began, with sales prices adding 22% throughout 2020 alone.

According to the Company’s forecasts, in Q2 2021, the price growth will continue driven by the discontinuation of the subsidised mortgage programme and feverish demand from buyers rushing to close transactions. Through the remainder of the year, the price growth will slow down, with expected gains of around 5–7% in Q3 and Q4 2021. Sales will also slow down, but will be supported by the subsidies provided by developers.

Average selling price per sq m of new comfort-class housing in Moscow, RUB thousand
Sources: newly built housing database, Rosreestr, Company’s proprietary databases

In terms of the demand structure, properties with an area of up to 50 sq m account for 50% of all demand, with another third attributable to those of 50–70 sq m. This is generally in line with the supply mix. The average area of sold properties tends to decrease without jeopardising functionality thanks to more ergonomic layouts.

When subsidised mortgage loans were available, buyers were mostly looking for small-sized flats (less than 30 sq m and 30–40 sq m). They were also seen as the most attractive investment target offering the best liquidity. Over a half of those looking for smaller properties chose to buy apartments.

Comfort-class housing with an integrated fit-out also enjoyed a strong demand, with the share of sold fitted-out properties increasing from 48% in Q1 2018 to 56% in Q1 2021.

Moscow’s market of new comfort-class housing is undergoing consolidation. In early 2021, the top 10 players accounted for over 65% of total sales, up from 60% back in 2018. In the medium term, the consolidation may intensify with small developers hardly able to enter the market and major players potentially offering partnership projects to landowners.