By Eugene Vorotnikov

The real estate services industry in Russia is on the verge of a crisis, due to a massive outflow of local agents from the business and the stagnation of the real estate market.

According to the latest data of the Russian Ministry of Economy, in the last 12 months more than 4,000 real estate agencies were closed. Going back to the second half of 2015, 6,000 agencies have shut down and few new agencies have opened.



The Russian real estate market is stagnating because people are no longer interested in buying housing on credit, due to the ongoing financial uncertainty in the country and high interest rates, which are the range of 18 to 19 per cent.

Earlier this year the Russian government launched a program to subsidize the mortgage rate, which reduced the demand for resale homes and shifted demand to new housing. Most apartments in new buildings are purchased by clients directly from builders through their sales offices, without the participation of real estate agents.

Another reason for the decline of real estate agents in Russia is an initiative of Russian banks to promote online registration services for securing deals. Many banks provide discounts on the mortgage to borrowers who use this service.

In the long term, banks plan to attract resale home buyers and start working with them directly, without using real estate agents.

Maxim Oreshkin of the Russian Ministry of Economy (who is responsible for the development of the real estate industry) says this will pose another threat to real estate brokers because large banks have many more resources to check the legality of the deal than a small real estate firm or a private broker.

Oreshkin says the financial downturn in Russia, caused by Western sanctions, has made sellers less likely to use the services of real estate brokers.

“Due to economy concerns, many homeowners in Russia have become increasingly engaged in finding (buyers), conducting showings and negotiating by themselves without the participation of real estate brokers, which has resulted in a significant decline of the demand for services of the latter,” says Oreshkin.

When signing the deal, the sides usually get legal support, which costs significantly less than the services of a real estate agent.

There’s a similar trend in the rental market. There are many web resources where homeowners and tenants can find each other, for those who prefer to secure a deal by their own means without agents.

In the rental market, there has been a significant reduction of real estate agents’ fees, to half of what they made in the past.

Still, analysts at the Russian Ministry of Economy predict the market for real estate services will improve next year. It says only small companies and those that operated on the franchising model left the market and that there are fewer less reliable and stable players.

Ivan Saveliev, head of Saveliev and Partners, one of Russia’s leading real estate agencies, says real estate brokers will soon return to the Russian market and will be in high demand.

“Deals (for resale housing are) often associated with a lack of funds and apartments and houses with some problems and encumbrances. Almost always, deals in this market segment are executed on the chain basis, when one client waits for another to start his deal.” These complex chains usually need real estate professionals to sort them out, he says.

Saveliev says many real estate brokers in Russia lost their jobs because their clients are not willing to adapt to the new market conditions. In most regions, resale housing prices are dropping but sellers are not ready to accept this.

New home developers are reducing prices faster, realizing that it is more profitable to sell at a discount than keep paying the banks on their own loans. At the same time, private homeowners still have pre-crisis prices in mind and are not ready to seriously bargain.