In one of the last articles published on the blog of the company Acces Imobil we talked about the evolution of apartment prices in Chisinau from 2008 to 2021. We analyzed the factors that have contributed to the increase in apartment prices recently, and gave a perspective about the apartment price trend for 2022.
We discussed the fact that apartment prices in Chisinau are dictated primarily by supply and demand. The higher the demand, the higher the prices, the lower the demand, the lower the prices.
We discussed how the accessibility of mortgages, the effects of the Covid-19 pandemic on demand, rising prices for building materials and land, and rising average gross wages in the economy have contributed to rising apartment prices.
However, there are certain factors that could dampen demand for real estate and help balance or even lower apartment prices.
Why could apartment prices fall in 2022?
The National Bank of Moldova has announced an inflation rate of just 14% for this year. This would mean a general increase in the prices of goods and services, accompanied by a decrease in the purchasing power of the national currency.
Inflation is an imbalance between supply and demand. When demand is too high compared to supply, producers raise prices and inflation occurs.
Although official inflation was announced at only 14%, real inflation could be much higher if we look at rising prices in certain sectors, including the real estate sector.
One mechanism that the National Bank has to stop such high inflation is to increase the reference rate on loans for commercial banks. As a result, commercial banks will increase the interest rate on mortgages offered to citizens by reducing their attractiveness to the population (in recent years due to improved lending conditions about 30% of the total volume of apartments were sold through a mortgage).
If the interest rate rises, then mortgages will become more expensive, and the population will not buy so many apartments with a bank loan.
If the population does not use mortgages to buy a home again this year, then the total demand for apartments as a whole will fall, and as a result apartment prices will balance or even fall slightly.
What's next?
Some commercial banks have already announced a 0.5% - 1.9% increase in the interest rate on mortgages in January 2022 depending on the monetary liquidity they currently have. It is possible that in the next period, depending on how things turn out, the interest rate will continue to rise, mortgages will become more expensive and the attractiveness of loans will be low among the population.
As a result, demand for apartments may fall and apartment prices may balance out and a possible correction may occur in certain market segments.
