Russia‘s housing Market Faces Headwinds Amid High Interest Rates and Shifting Mortgage landscape
Russia’s real estate sector is experiencing a downturn, marked by declining sales and revenue drops among major developers, fueled by high interest rates and the phasing out of government mortgage subsidies. While the sector initially benefited from a boom spurred by a previous preferential mortgage program, the current environment presents critically important challenges.
According too an analysis cited in the article, the true cost of a mortgage in Russia, factoring in insurance and commissions, reaches at least 25 percent annually. This burden is exacerbated by the current interest rate environment. The Russian Central Bank (CBR) raised it’s key interest rate to a peak of 21 percent to combat inflation driven by increased government spending on the military and a labor shortage. Though the rate has as been lowered to 17 percent, it remains high enough to make home loans unaffordable for many Russians.
The end of a four-year preferential mortgage program in July 2024, which had offered rates as low as 8 percent, triggered the current difficulties. Following the program’s termination,the market shifted dramatically. As of August 2024, 80 percent of mortgages were being issued under targeted government initiatives – such as programs for families with children – while only 20 percent were being offered on market terms, according to Deputy Prime Minister Marat Khusnullin.
This shift has impacted developer revenue. Nine of Russia’s 20 largest residential developers reported significant revenue declines in the first half of 2025. YugStroyInvest saw a 45 percent year-on-year drop in sales to 29 billion rubles ($348 million), GK Tochno’s revenue fell 43 percent to 10 billion rubles, and Setl Group’s income slumped by 41 percent.
Economists attribute the sector’s struggles to the tight monetary policy. Vasily Astrov,an expert on the Russian economy,explained that high interest rates suppress credit expansion,including mortgage lending. He also noted the termination of subsidized mortgages as a contributing factor. however, Astrov emphasized that high interest rates are only indirectly linked to the war economy, as the CBR prioritized controlling inflation even at the potential cost of slower economic growth and increased bankruptcy risk.
Ukraine’s Foreign Intelligence Service attributes the industry’s woes to low demand, limited state support, and the diversion of resources to the war. Khusnullin warned that around 20 percent of developers are facing serious risks, and that figure coudl rise above 30 percent if high interest rates persist and investment in real estate declines.
Pressure is mounting on the CBR to further reduce the key interest rate. German Gref, CEO of Sberbank, recently called for a reduction to 14 percent by the end of the year. Though, with annual inflation currently at 8.1 percent – well above the CBR’s 4 percent target – further rate cuts might potentially be stalled, possibly prolonging the challenges facing the construction sector.
