Housing market in Russia: Demand potential shaping future market dynamics

While in the EECFA Forecast Report Russia we estimate/forecast residential output, this article is looking at another angle of predicting housing market developments: demand potential in the Russian housing market (the number of households able to buy housing) as the main indicator of further market dynamics. Positive macroeconomic indicators in Russia currently are suggesting growth in real incomes and an increase in the population’s solvency, which in the near-term future is set to raise the number of households able to buy housing. This growth in demand potential will have a positive impact on residential output, yet, this is not something that will happen overnight: the Russian housing market is predicted to continue to slump for the time being. Nevertheless, the predicted growth in demand potential will play a major role in halting this drop, leading to an expansion in the housing market in 2019.

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

‘North Valley’ Residential Complex in St. Petersburg – Source: http://www.severdol.ru

Having the largest share in total construction both in value and volume terms, the housing market is the engine of the whole Russian construction market. Any change – decline or growth – in the housing subsector may have a decisive effect on the Russian construction industry as a whole; as it was the case, in particular, during the crisis of the Russian economy in 2015-2016. In this period, the housing sector enjoyed an unprecedented level of state support (more details in the current/previous EECFA reports), which prevented the entire construction industry from collapsing.

The state of the housing market primarily depends on the ability of the population to purchase housing. Other market factors, such as the volume of supply in the market, the level of competition or the cost of housing are secondary. It is the ability of citizens to buy housing that ultimately determines the total volume of effective demand, which in turn regulates development activity and price trends in the local housing market. At the same time, the indicators of the population’s need for housing are also secondary in terms of the dynamics of the market situation; they are of an abstract nature and cannot be used to predict the situation in the market. The need for housing is a conditional market potential, which, without the ability to buy housing is never realized. The ability of the population to purchase housing is the real market potential, which – in most cases – is realized in transactions. The level of housing provision (need) affects only the nature of demand: investment purchase, purchase of a first home, improvement of housing conditions, among others. Continue reading Housing market in Russia: Demand potential shaping future market dynamics

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