The real estate market has always been an indicator of the country’s economic stability. Today, in the conditions of high mortgage rates and a significant increase in inflation, purchasing a home is becoming a more difficult task for most citizens. The main reason is the increase in monthly payments on mortgage loans, which reduces the availability of real estate for broad segments of the population. Mortgage rates, which have increased significantly in recent months, make buying a home a less attractive option, especially for those who did not have time to take advantage of the soft loan programs.
At the same time, renting housing also continues to become more expensive, and many people are beginning to consider buying an apartment as a more long-term and profitable solution. Rising rental prices are linked to general economic pressures: inflation, rising costs of building materials and housing maintenance costs push landlords to raise prices. In the past, renting was seen as a more cost-effective option compared to buying, but with rising mortgage rates and increased rental costs, that picture is starting to change.
The current situation forces real estate market participants to look for new solutions and devices. One such solution is the tranche mortgage, which is becoming increasingly popular among home buyers, especially during the construction phase. Tranche mortgage allows the borrower to receive a loan not immediately in full, but in stages, as the construction of real estate is completed. This can significantly reduce the initial financial burden and distribute payments over time, which becomes especially relevant in conditions of high interest rates.
What is a tranche mortgage?
Installment mortgage is a form of mortgage loan in which money is provided to the borrower not all at once, but in parts (tranches) depending on the stage of construction of the real estate object. This type of mortgage allows you to finance the purchase of a home under construction. Usually, the borrower makes a down payment and takes out insurance, after which the bank transfers the first tranche to the developer, which is used for the initial construction phase. Then, as construction is completed, the developer receives subsequent installments.
It is predicted that the minimum input of housing will start only from 2026, which will create difficulties for speculators. Mortgage rates are rising, and that’s a cause for concern. However, in the first quarter of 2024, demand for new construction fell, and in the second quarter there was an increase in mortgages for ready-made housing and studios.
The second quarter of 2024 became a record for the number of issued mortgages, as many managed to take advantage of preferential programs. Now, rising property prices are driven by inflation, and while deposits may seem profitable, in the long term, investing in assets such as real estate may be more promising.
It is important to make decisions based on current conditions and your own goals. Sometimes a mortgage such as a tranche can be a suitable option, but it is important to consult an expert for the optimal choice.
Real estate market: lwaves and adapt strategies
There are “investment waves” on the real estate market. While the segment of new buildings shows a decrease in demand, the apartment market shows active growth. Despite the fact that apartments occupy a relatively small share in the total volume of transactions, interest in them is steadily increasing. More and more buyers are considering this option as a more profitable alternative, preferring apartments with a more affordable price than traditional studios, which are often more expensive.
Therefore, the real estate market remains attractive for investment, regardless of the mortgage rate. When the rate increases to 25%, there may be new opportunities to buy real estate from those who cannot cope with their debts. In history, there were cases when funders successfully bought apartments at low rates and rented them out.
Demand for secondary housing is growing, as buyers prefer ready-made housing to waiting for new construction. If investors and citizens continue to look for ways to preserve capital, real estate will remain in demand.
It is important to develop a strategy and analyze the portfolio to minimize the risks. The real estate market is prone to waves, and successful investors know how to “catch” them. For example, investors who buy inexpensive apartments in proven complexes and skillfully use mortgages can benefit.
Investing in real estate is a way to preserve capital, not to multiply it quickly. Choosing the right strategy, monitoring the market and understanding current trends will help avoid problems such as with tranche mortgages. Options may include renting, reinvesting, or buying on sale.
Tranche mortgage: on the wave or under the wave
In the next few years, there is no need to count on the possibility of refinancing the mortgage, especially in the current conditions. When taking out a tranche mortgage, buyers may face significant monthly payments that may turn out to be higher than expected, depending on the size of the debt and the terms of the loan. More affordable housing options can also require significant down payments, adding to the uncertainty in the current economic climate.
There is a risk that with price volatility in the real estate market, buying an apartment with a tranche mortgage can be a risky investment, especially if housing prices begin to decline in the coming months. Nevertheless, developers are already responding to the changed conditions, offering various promotions and discounts to attract buyers.
The principle of a tranche mortgage is that the borrower first makes a down payment and completes the necessary documents. The bank, in turn, transfers the first tranche to the developer, which covers part of the construction. Until the facility is completed, the borrower pays interest only on that portion of the amount. At the end of the construction and transfer of the house, the remaining amount is paid, and the monthly payments can increase dramatically, since the interest will be calculated on the entire amount of the loan.
In the conditions of possible hyperinflation and high rates of the Central Bank, borrowers may find themselves in a situation where the debt will lose its value over time. However, in the face of economic uncertainty, it is better to avoid risks and think carefully about your financial decisions.
The real estate market continues to adapt to new realities. Demand for investment in real estate is not decreasing and will likely continue to grow, despite difficult credit conditions. The market is expected to gradually change direction with an emphasis on rentals and reinvestments. More and more funders are starting to use installment programs and tranche mortgages as a way of investing.
In the coming years, a change in market trends is possible, especially if government support does not have a significant impact on the market. Inflationary processes and the dynamics of Central Bank rates indicate the need for a reasonable approach to real estate selection.