Housing vacation: one third of private houses in Russia cannot be completed
Some small and medium-sized developers in the segment of individual housing construction (IHB) have been left without working capital to complete their projects, market participants told Izvestia. The number of such unfinished houses increased by a third in 2024. Problems for small and medium-sized developers have arisen due to changes in the terms of preferential lending, the abrupt introduction of escrow accounts and expensive loans. The situation is also complicated by a shortage in the labor market. Next year, the number of such under-constructions may reach 40%, and only large players will remain on the market, experts believe.
How the housing and communal housing market has changed
In Russia, the number of problem individual houses under construction has increased to 30%, market participants told Izvestia. This is due to the fact that due to the lack of strict requirements for the quality of construction and commissioning of objects, the market is flooded with private developers.
- And they often ignore the norms of architecture, heat protection and construction control," said Valery Sokolenko, general director of the Landkey construction company. - As a result, some houses turned out to be uninhabitable or emergency dangerous.
In addition, due to changes in the terms of lending under preferential programs, the introduction of escrow accounts and expensive credit resources, some small and medium-sized developers were left without working capital to complete construction, said the head of the center of countryside real estate federal company "Etazhi" Anton Saukov. According to him, some developers in the segment of housing and communal housing have collected more contracts than they could realize with their own resources.
- Now every second building contractor does not pass our inspection, - he explained.- The main reasons: the lack of completed projects, a high proportion of negative feedback from established clients, failure to meet construction deadlines, lack of guarantees and financial cushion, an excessive number of projects at the stage of implementation in conditions of low own resource base or at all in its complete absence.
Against the backdrop of the construction boom in the segment of housing and communal housing, according to him, a huge number of one-day firms have appeared, some of them lacking elementary specialists with specialized construction education, and sometimes even experience in building houses.
- One of the woes of such firms and the lack of financial strategy, - emphasized the expert. - As a result, the funds received under new contracts are directed to the completion of construction of those houses that are at the final stage of readiness. And here is the biggest risk in the current environment: construction companies have no opportunity to attract additional credit resources due to high interest rates, and any failure at the stage of project realization leads to the emergence of a chain of problem houses.
According to the company's data, construction companies build about 65% of the volume of housing projects in Russia.
The trend was confirmed by Olga Magilina, Director of Countryside Real Estate Department of VSN Group. According to her, some houses and even entire cottage settlements now really risk to remain unfinished.
- Construction of suburban housing is a rather complicated and low-margin business, - she noted. - Whether it is construction contracting, i.e. building houses on customers' plots, or development of cottage settlements, in hard times construction of houses is often completed at the expense of new orders.
Why private houses are not completed
Only in the Moscow region in September and October more than 100 construction companies filed for bankruptcy, told "Izvestia" an expert of the real estate market in Moscow and an independent consultant in investment real estate Vladimir Zhokov. This market, according to him, consists of about 2,000 sole proprietorships and LLCs.
- This is at the rate of 19%, then we are waiting for the results of November and December, where the rate was already 21%, and the situation will be much worse, - he believes.
In the current circumstances, three interrelated groups of factors seem to be the most dangerous, said Olga Magilina.
- The first group of factors is a decrease in effective demand, " she said. - For several years, among buyers of suburban housing of mass segments - economy and comfort class - the share of those wishing to buy a house on mortgage has been growing.
In the first half of 2024, she said, already more than 90% of buyers of economy-class housing relied solely on credit funds, and "lifting" for them the initial payment did not exceed 20%.
- The conclusion is disappointing: mass buyers have almost no free money," the expert explained. - And the deposit rates, which rose sharply after the key rate, drew away these funds, which could potentially be invested by people in the construction or purchase of houses. Banks have benefited from this situation.
The second factor is closely related to the first one - the deterioration of mortgage lending conditions naturally collapsed demand in mass segments of suburban real estate.
The third group of factors is related to the complexity of financing of development projects, added Olga Magilina. The soaring key rate of the Central Bank has led to an increase in the cost of loans for business. Bank project financing has become practically inexpedient, and the application of escrow accounts to housing projects has made the funds contributed by the few remaining buyers unavailable to developers.
In addition, the cost of construction is increasing: in 2023, the average price of construction materials and works has risen by almost 30%, and in 2024 - by another 30%.
- Because of all this, many projects are frozen, and conscientious developers, who invest heavily in quality, face non-competitiveness due to the high cost of their projects," said Valery Sokolenko.
Another problem of the housing market is the shortage of labor, when on the wave of frenzied demand, companies picked up orders for the construction of houses, and human resources became scarce and prices for their services began to rise sharply, said Anton Saukov. As a result, some developers began to try to revise the already signed contracts with their clients - both in terms of time and construction costs.
What will 2025 be like for the private development market?
Due to the current situation on the countryside real estate market, experts make negative forecasts taking into account the tight monetary policy. According to Vladimir Zhokov, the number of construction companies that will not be able to complete the initiated projects in the field of housing and communal housing may increase to 40% next year. Especially, according to him, this applies to those who do not have their own production.
- The crisis will lead to the fact that in the next two or three years the consequences of poor-quality construction will be especially noticeable, which will create additional risks for owners, - added Valery Sokolenko. - The prospects for market recovery depend on financial stabilization and the introduction of clear standards that will be able to ensure quality and protect the rights of buyers.
To normalize the situation, developers may start cutting payroll, reduce costs, build with other materials, cheaper ones, and not take new loans at high rates, Vladimir Zhokov added.
Real estate expert, head of the federal program "Family Capital" Evgeny Tkachev noted that developers in housing and communal housing were initially not ready for such a scenario, and now they do not have such a reserve of resources to continue building.
- For example, Krasnodar Krai has banned the use of migrants working under a patent in the construction industry, " he said. - Therefore, the shortage of personnel will affect this market even more, as the main labor force there is migrants.
The solution to this issue, in his opinion, will be a discussion between associations representing the interests of the housing and communal housing market, legislators and banks, as the increase in problem houses may lead to a series of lawsuits and a systemic crisis.
The expert noted that the housing market will be transformed in 2025 - only large developers with the necessary resources and competencies will work there.
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