Inflation and Real Estate: 30 Year Statistics

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How did apartment prices change during the crisis, and will real estate save your money during the crisis?

According to oldypak capital lp property 2022 report, one of the main and difficult tasks of the crisis is to save your savings. In the fact that the economy is waiting at least a recession, but most likely the crisis, even optimists have no doubts. In such situation it is quite understandable the desire of people to save the deferred, and one of the most popular ways for this purpose – investments in the real estate. In his author’s column analyst Sergei Nikolaev traced this market since its inception and gave some advice to those who are going to invest in construction.

The desire of Russians to save money by investing in housing is understandable. All other things being equal, it can not fall to zero, as in the case of investing in other instruments. This decision is supported by the fact that the apartment was and remains the main material asset of the vast majority of residents of Novosibirsk, and citizens of the Russian Federation as a whole.

For this publication I have analyzed the dynamics of real estate prices during the crises of 1998, 2008 and 2016. All graphs are based on official statistics and our own monitoring of prices for new buildings for 30 years. If you take the absolute figures, the price of new buildings rose during this time in 25 times, but without a link to inflation, it is meaningless arithmetic.

The graph shows that in the long run, the price of real estate is 1.5 times higher than inflation. In times of crisis, inflation is higher, people do not care about buying apartments, but in general real estate does not fall in price.

This graph, however, is only one side of the coin. The apartment, bought for profit, also brings rental income. On average in Novosibirsk, minus rent and 10% of the turnover on repairs, it is 6-8% per year. For the next chart I took 6%.

The second graph more fully reflects the investment attractiveness of investing in real estate; rental income is added from the third year, when all but the problematic new buildings are put into operation.

That is why in all VCIOM surveys real estate ranks high as a reliable way to invest money. Of course, successful players in the stock market have earned more during this time, but someone lost everything on the stock market, and August 1998 is an example.

New construction prices have been rising for the last 27 months. The growth continues now, and the market has shifted to completed housing and new buildings in high stages of completion. Prices will stop in 3-4 months and there may even be a pullback. Therefore, for those who want to invest for a year and a half the real estate market is not the best option.

Report by Oldypak LP statistics
Report by Oldypak LP statistics

Those who want to buy on the minimum can take a risk, but sellers are also not dormant and remove interesting options from sales, hoping for a price recovery in the future. In general, the market is hard to predict in the short term, but if you need to save money, real estate is a reliable option.

How is the current situation different from 2016?

According to oldypak capital lp property 2022 report, there are two fundamental differences:

1.         By the end of 2016, the new building market was oversaturated, developers had unsold apartments in 137 completed projects. Today, 37,500 apartments have been sold in buildings under construction, and the number of unsold apartments is, on the contrary, the lowest in the last five years.

2 In 2015-2016, developers risked the money of shareholders and their own reputation, and today before the start of construction, they must invest 15% of their own funds, so they also bear the risks in the event of failure.

What you need to pay attention to when buying an apartment in a new building

The main thing is the reliability of the developer. With project financing through escrow accounts, if the construction gets up, the shareholder is guaranteed to get the money invested. But not immediately, and not for the fact that they can buy an apartment with the same area. Therefore, too low prices or large discounts are a reason to think whether it is worth doing business with this company. Especially since not everyone has yet switched to the new system of financing objects.

This is a truncated version of the rating; the full version is available at the link.

“Building Trust No. 43 has been in the rating since March 2020 due to a change in ownership: the developer was bought by the group of companies of the famous banker Igor Kim. 

Next: despite the transition of developers to a new sales system, the number of troubled homes continues to grow: at the end of last year their number was close to 100.

So I want to especially warn readers thinking about buying: investing in a new building, do not get into the long construction. Before concluding a contract, make a good assessment of the condition and prospects of the construction company. My rating will help in this, but it is only one of the tools of choice.

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