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Today, I want to discuss why rents warn of a bubble earlier than the prices of apartments being sold. When a landlord says their apartment has been copied, I want to know who exactly confirmed this new price. A buyer who has already
Rents signal real estate bubbles earlier than sale prices by reflecting true demand; Moscow's rental market shows affordability trends and investment risks.
Key Takeaways
- Rental prices provide earlier and more reliable signals of real estate market bubbles than sale prices.
- Rent-to-income ratios in Moscow have improved, making renting more affordable relative to buying.
- Increasing supply of rental apartments can reduce rental yields and investor profitability.
- High mortgage rates discourage buying, making renting a more economically viable option currently.
- Investors should carefully analyze rental income versus purchase price and expenses to avoid overvaluation risks.
What the video covers
- Rents act as a leading indicator of real estate market bubbles, often signaling issues before apartment sale prices adjust.
- Listing prices can be misleading as they may be set without confirmed buyers, unlike rental prices which reflect actual demand due to monthly income loss if unrented.
- Rental affordability in Moscow has improved significantly since 2006, with rent-to-income ratios decreasing despite rising absolute rents.
- Improvements in transportation and new housing stock have increased rental market competition, reducing premiums for better quality apartments.
- Investment buyers face risks as increasing rental apartment supply can reduce profitability and intensify competition among landlords.
- Current rental yields in Moscow are low compared to high purchase prices, indicating a potential price bubble and poor investment returns.
- High mortgage interest rates make buying less attractive compared to renting, further impacting demand for apartment purchases.
- Rental market dynamics reveal demand changes faster than sales market, making rent trends a critical signal for price adjustments.
- Economic factors such as financing costs, expenses, and potential price appreciation must be considered alongside rental income to assess market health.
- The video emphasizes the importance of understanding rental market signals to anticipate real estate market risks and investment decisions.
Chapters
- 00:00Introduction to rental market as a bubble indicator
- 00:50Importance of tenants and rental income in market signals
- 01:38Vysotsky Estate's market experience and sales overview
- 02:25Differences between sale price listings and rental pricing
- 03:05Rental market dynamics and demand signals
- 03:48Rental affordability comparison: Moscow 2006 vs 2026
- 04:44Impact of transportation and new housing on rental competition
- 05:44Investment risks from increased rental supply
- 07:19Rental yield analysis and price growth signals
- 08:05Mortgage costs vs rental income comparison
Full Transcript — Download SRT & Markdown
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brought in cash, a neighbor who has listed a similar apartment for even more, or a developer selling a new building nearby who has once again rewritten the price listing for the remaining apartments. Putting a new price in an ad is much easier than
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finding someone willing to pay it. And if we're talking about an investment apartment, there's another person whose opinion is constantly overlooked, even though they're the one who should be providing the owner with an income. I'm talking about the tenant, who, with
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their monthly payments, tests the extent to which the price of the apartment is linked to the actual demand for living in it. Rents are one of the most important leading indicators of the real estate market.
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Rental rates can indicate that the economics of buying an apartment have already worsened, even when owners are still telling each other about price increases, while the ads still list the same attractive prices. This is precisely the signal I want to explore
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in today's video: how the rental market is signaling mounting problems. And a drop in rental rates isn't the only signal. It's enough that the price of an apartment continues to rise, and the income it can generate can't keep up.
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Over the past three years, our Vysotsky Steak chain has conducted real estate transactions totaling 31 billion rubles. We've helped property owners earn over 20 billion rubles. Even in such a challenging market, after mortgage rates have risen, we continue to sell
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properties profitably. Let's imagine that an owner has listed an apartment for 20 million rubles, but there are no buyers at that price. They can take down the ad, wait, then re-enter the market and explain to everyone that they have no intention of selling for
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less. You can stand there and believe the 20 million ruble price for a long time, but the ad doesn't confirm the 20 million ruble price. As long as the ad remains advertised without a deal, it indicates there is no buyer for the
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proposed terms. The developer has even more opportunity to maintain the appearance of a high price because they can maintain the official price list but change the terms of the deal, offer a discount, installment plan, or finishing work. This isn't possible
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with rentals. It's harder for the owner to engage in such self-deception, because every month of waiting means lost income. They were hoping to rent the apartment for 70,000 rubles, but after two months without finding a tenant, they're already missing out on
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140,000 rubles in potential rent. Meanwhile, they were trying to convince themselves that they couldn't lower the rent. Rentals are a dynamic market.
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Therefore, a new lease agreement, negotiating, and the time it takes to find a tenant can reveal changes in demand before the real estate market does. Now let's look at why this issue is much more serious for Moscow than a
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single owner's unsuccessfully rented apartment. Let's look at a very specific life problem. Only in different periods: 2006 and 2026. A young couple comes to Moscow to work.
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Both people earn an income and want to rent a separate one-room apartment. I understand this approach because we are not assessing an abstract average rate, but rather the share of their labor people are forced to give up for the
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opportunity to live a normal life. In the 2006 model, the couple's combined income is 33,000 rubles. An older one-room apartment costs 16,250.50 rubles. A more modern apartment costs 20,000 rubles. Dividing the rent by the income yields approximately 49% of the
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family income for the older housing stock and 61% for the more modern one. It turns out that in 2006, almost half of the income had to be paid simply for a separate apartment, and improving living conditions took up more than
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half of the combined income. Now let's fast forward to today. The average income of a couple in Moscow is 170,000 rubles. An apartment in the housing stock that could be rented back then, in 2006, today costs 52,500 rubles per
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month. A modern apartment in the outskirts or New Moscow costs 65,000 rubles. Now, dividing these amounts by family income yields approximately 31% for older housing and 38% for modern housing. It turns out that in the scenarios considered, renting has not
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only become more affordable relative to income, but has also not kept pace with cumulative inflation. Most importantly, with such affordability, renting makes buying pointless, especially during a period of high mortgage rates. Thus, it turns out that affordable rent predicts
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potential demand for apartments. Why did we have such an unexpectedly affordable rental market? Over the past 20 years, renters in Moscow have had a greater choice of high-quality housing, hundreds of metro stations have opened, transportation accessibility to outlying areas has improved, and
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millions of new apartments have been built. An apartment that was previously inferior in terms of commute time now competes with older housing in a more familiar area after the addition of transportation links. The owner may continue to consider the location
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within the Moscow Ring Road (MKAD) the main advantage of their apartment, but the tenant compares the competitive conditions. They're interested in how much they'll spend on travel, what kind of building they'll live in, what kind of renovations they'll receive, and how
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much they'll pay for all of this. The premium for upgrading the quality of the housing stock by overpaying for a more fully furnished apartment has decreased from 11.4% to 7.4% of the family budget. Therefore, improving the quality of living has become more
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accessible to any family. This raises a problem that investment buyers should consider in advance. When multiple people simultaneously purchase apartments for rent, they finance not only their own future income but also future competition among themselves.
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This means they reduce the profitability of both their own apartment and their competitors'. A one-bedroom apartment in a new building costing 17.9 million rubles can be rented for 60,500 rubles per month.
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Multiply 60,500 by 12 and you get 726,000 rubles in annual rent. Divide 726,000 by 17.9 million and you get a 4.6% gross yield. If you divide the apartment price by the annual rent, you get a simple payback period of 24.7
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years, before deducting expenses for repairs, furniture, taxes, insurance, management, and downtime. The rental rate is a good indicator of price growth. Cash income has not kept pace with the purchase price. Rent in Moscow has continued to rise in rubles over
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the past five years, but at a slower rate than the apartment price. A risk signal of a price bubble arises when the current high apartment price is increasingly difficult to explain by rental income. The signal is not found
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in a single yield figure, but in the combination of the purchase price, actual rent, expenses, financing costs, and the potential for further appreciation. A mortgage has always served as an alternative to renting.
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Let's take an apartment for 17.9 million rubles. The down payment is 20% and the interest rate is 17.8%. The loan amount is 14.32 million rubles. At these rates, we will pay the bank 2.55 million rubles in interest per year,
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while the total annual rent for such a lot is only 726,000. Renting is so much more profitable than buying today that it's not even worth proving its effectiveness. A cheaper loan may change the calculation, but it still won't convince a tenant to pay more.
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Tenants choose between apartments based on their income, the quality of the housing, and alternatives, not on how attractive the owner finds the mortgage program. Now let's imagine a situation in which the supply of apartments for rent begins to grow faster than the
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number of people willing to rent them.
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statistics. Let's add another problem here. The demographic overhang of inherited apartments in old panel buildings can increase the number of offers on the rental market. At least 11%of the heirs of old buildings we surveyed plan to rent out their
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apartments after receiving their inheritance, and 70%plan to sell them. Therefore, this factor will also put pressure on both rents in the city and the volume of lots being sold, which could impact prices. However, a leading indicator doesn't predict a timetable
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for future declines. My figures don't specify a timeframe that would indicate how many months it would take for a rent change to translate into a price decline. I analyze the economic mechanism and risk indicators, so I look at a combination of indicators,
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including how many properties are offered for rent, how long they're looking for a tenant, and the rate at which actual contracts are concluded.
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Rent is a leading indicator precisely because it can reveal the gap between owner expectations and end-user finances early. Today, the rental market is signaling a CIN bubble in the new-build market and potential problems for investors planning to rent out
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apartments after purchase. And when the purchase price continues to rise, and this cash flow can't keep up, the risk of overvaluation must be considered, even if the price per square meter chart looks excellent. It's important for a buyer to see this signal before
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the transaction, not after it becomes clear that the tenant isn't going to pay for their belief in further price increases. That's all I have for you.
Speaker A
This was Tamara Vysotskaya. I'm smart and beautiful. Subscribe to our channel , like it, and don't forget to subscribe to my Telegram channel, "Real Estate Work." Bye everyone. M.
Topics:real estate marketrental marketMoscow apartmentshousing affordabilityreal estate bubblerental yieldmortgage ratesinvestment risksproperty pricesrental demand
