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- The era of construction: apartments under demolition are overvalued by an average of 2 million rubles
The era of construction: apartments under demolition are overvalued by an average of 2 million rubles
Sellers of apartments in five-storey buildings undergoing renovation inflate prices by an average of 1.9 million rubles, the market has calculated. Izvestia analyzed the data. The proportion of such houses is decreasing. At the same time, the price per square meter in them has increased by a third in a year, and more than doubled in five years. By purchasing such real estate, people expect to get an apartment in a new building later, but the waiting time for demolition can be long. In addition, to sell the received housing tax-free, you need to own it for at least five years. What will happen to prices next and whether it is profitable to buy apartments for demolition — in the Izvestia article.
Why are the prices of apartments for demolition overestimated
Apartments in buildings participating in the renovation program are currently being sold at a significant margin. About 87% of such properties are priced at an inflated price — the average overpayment is 1.9 million rubles, analysts at Flip, an investment company in the real estate market, calculated based on open market data. More than a third of such apartments (39%) are above the market by 1-1.4 million rubles, about another quarter — by 1.5–2 million, and 19% — by more than 2 million rubles.
The renovation program in Moscow was launched in 2017, it provides for the relocation of residents of more than 5,000 old houses to new apartments. The first stage took place in 2020-2024. The second one is currently underway — it is designed until the end of 2028. And in the third, in 2029-2032, it is planned to resettle houses with later dates of demolition.
In total, the renovation program should affect about 350 thousand apartments. The inhabitants of about 3.9 thousand of them have not yet been settled, it follows from the data mos.ru .
The main reason for the overpricing of housing for demolition is that sellers pre-price the future benefits of renovation. The "premium" is influenced by the estimated timing of the relocation and the area in which the house is located, said Flip CEO Evgeny Shavnev.
In Moscow, a square meter in such apartments has risen in price by an average of 115% in five years, to 434 thousand rubles, and in the last year alone the increase was 36%, the expert noted. On average, the cost of housing in the capital increased by only 7%, said Valery Tumin, Director of Russian and CIS Markets at Pham Properties.
The increased growth in housing for demolition is also due to the fact that the average apartment after relocation becomes larger by 10-14 sq. m. m due to non-residential space, which also adds value. This expansion corresponds to about 3-4 million rubles, Evgeny Shavnev added.
The area of a new apartment can actually be 16-35% larger, depending on the type of housing, Valery Tumin noted. However, according to him, the cost of future real estate can not always be fully included in the price of the old one. The difference depends on the area, the stage of relocation, the condition of the house and the general market situation.
The shortage of supply additionally supports price growth. About 400 apartments in buildings for demolition are currently on display in Moscow, compared to 550-600 a year earlier, Evgeny Shavnev noted. Owners of such lots often hold them until the moment of relocation, hoping to get more expensive real estate, explained Kirill Agapov, managing partner of Umbrella Consulting Group.
The supply situation may change significantly closer to 2028, when apartments in houses with later settlement dates will potentially enter the market, said Natalia Milchakova, a leading analyst at Freedom Global. With a significant increase in the number of such facilities, prices may begin to decline.
In the meantime, there are few prerequisites for a sharp reduction in the cost of apartments in houses for demolition. The terms of relocation for some of them are already quite close, so sellers retain the opportunity to claim a premium for the prospect of obtaining new housing, the expert concluded.
What is the buyer's risk?
Buying an apartment in a house for demolition at an inflated price is dangerous because a person actually pays in advance for a benefit that is not yet fully guaranteed. The terms of relocation may change, and new housing may differ from expectations in terms of area, layout, floor or location, Kirill Agapov from Umbrella Consulting Group warned.
Already, some ads have not found buyers for months, as they compare the potential benefits with the risks of waiting, Valery Tumin added.
The main problem really remains the postponement of the renovation program, since in this case the buyer's investment plans may be disrupted, Evgeny Shavnev agreed. This scenario becomes especially sensitive for a family that purchases housing with a mortgage and expects to move into a new apartment at a certain time.
Additional repair costs and monthly payments can significantly reduce the potential profitability of such a purchase. If a person decides to sell the received apartment in a new building, he has no guarantee that the object will be able to give away with the same margin, Kirill Agapov added.
The cost of such an investment is also affected by the period of ownership. In order to sell it without personal income tax after receiving a new apartment, as a rule, it is necessary to own real estate for at least five years, said Evgeny Shavnev.
What will happen to the prices next
Further price dynamics will depend primarily on the timing of the settlement of a particular house. Apartments from the first wave of houses have a mark-up due to limited supply and imminent relocation, while objects with more distant dates can be sold for longer and at a large discount, Kirill Agapov believes.
The previous pace of price growth in the segment is unlikely to last long. Already, a significant part of the future benefits is included in the cost of apartments, the expert added.
An additional factor in the future may be a reduction in mortgage rates. If the cost of loans drops to single digits, demand may shift towards new buildings and high-quality secondary housing, which will reduce the attractiveness of apartments for demolition, Natalia Milchakova added.
In general, the market for such real estate is likely to become more selective. Buyers will begin to take into account not the fact of the house's participation in the renovation, but the period of relocation, the area, the amount of possible increase to the area and the amount of overpayment, said Kristina Gudym, an analyst at Finam.
Inflated prices do not mean that all such apartments are a bad investment. Individual objects, even at a moderate premium, can remain attractive due to their location, Natalia Milchakova believes.
However, if the cost of buying, mortgaging and waiting turns out to be higher than the cost of the received housing, the investment may turn out to be unprofitable, experts warn. Therefore, it is worth approaching the purchase of such apartments carefully.
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