Price Gap: Why New Builds Cost More Than Resale Properties

The residential property market plays a sizeable role in the Russian economy, impacting living standards and economic activity. In the first quarter of 2025, construction and real-estate transactions accounted for 15.3% of GDP (link in Russian). Since 2022, the annual volume of new builds has steadily exceeded 100 million sq m (link in Russian), though the numbers vary considerably across regions.

The housing market is far from homogeneous: buyers choose between new builds and resale properties, having to look at the advantages and drawbacks of the two options.

New builds come with modern layouts, new utility infrastructure, high energy efficiency and – thanks to subsidised mortgages, government-backed or offered as joint bank-developer programmes – greater affordability. Yet, the purchase of a flat in a yet-to-be-completed block involves the risk of construction delays, and new flat owners often have to put up with their neighbours’ refurbishment works and often incomplete local infrastructure. Resale homes are free from such risks: an existing home can be inspected and is fit for immediate occupation. But then again, mortgage terms tend to be more favourable for the new-build market – the focus of the main subsidised loan programmes.

These differences are pricing factors, making it impossible to say beforehand which property, in a new-build or resale market, will be more expensive. Moreover, the two markets are interlinked, so price increases in one can spill over into the other through migrating households and the redistribution of demand (1, 2).

Our previous research has found that pricing varies markedly across Russian regions. In some, a new-build premium is high and in others it is minimal, and sometimes resale flats even sell at a premium. For example, new-build homes are more expensive than their resale equivalents in Moscow, Krasnodar Territory and St Petersburg. In the Vladimir Region, by contrast, a resale property may well cost more.

Our new study, published in the Russian Journal of Money and Finance, builds on those earlier findings to highlight the factors that influence the magnitude of this price gap – the difference in price between two flats with the same characteristics: one from the new-build market and the other from the resale market. Our analysis shows that the magnitude of the gap is not only determined by macroeconomic conditions. It is driven, to a significant degree, by the structure of property developers and the accessibility of banking services.

The ‘twin’ method

The baseline level of prices (1, 2, 3) is set by the qualitative and infrastructure attributes of properties. However, simply comparing average prices between new builds and resale homes does not show which share of the price difference is attributable to the property’s market status and what share is explained by other attributes. To handle this problem, it was necessary to ensure properties are compared correctly, and we developed a two-stage procedure for pairing the most closely comparable flats.

First, blocks of flats were compared. For each developer-offered block, we identified an equivalent block, within a 300-metre radius, in which flats were being sold by individual owners. This proximity condition helped minimise differences related to location (transport accessibility, neighbourhood infrastructure and other environmental characteristics). A wider radius increased the number of pairs to estimate the gap, but reduced the degree of similarity between them.

Moreover, to eliminate the risk of non-completion, we considered only housing that was commissioned and fit for occupation, or was in the final stages of construction.

Within each pair, we then selected ‘twin flats’ – those with a similar floor area and the same number of rooms – so that the only differentiating attribute left is the market type: new-build or resale.

By doing so, we neutralised differences in infrastructure, transport accessibility and other factors related to location. To the best of our knowledge, this two-step methodology is unique in the context of Russian real estate research.

The study of determinants of the price gap between new-build and resale housing markets covers 78 Russian regions, with the remainder being excluded owing to data limitations in the period from 2022 Q1 to 2025 Q1. We collected regional macroeconomic indicators with a potential bearing on the price gap between the new-build and resale markets: gross regional product (GRP), levels of household income, inflation, mortgage rates and households’ debt burdens. Together, these indicators capture the economic environment of a housing market, and shape the level of demand and accessibility of mortgage finance.

We also took into account the volume and pace of housing construction, the structure of the developer sector and the intensity of competition, as well as the prevalence of subsidised mortgage programmes.

Given the large number of mortgage programmes and frequent changes to their conditions, we did not attempt to estimate the effect of each individual programme. Instead, we focused on the two most significant policy shifts: the limitation of high-risk near-zero-interest mortgages from May 2023, and the rollback (link in Russian) of the mass-market Subsidised Mortgage scheme in July 2024. These events were incorporated into the model as indicators representing the periods during which the restrictions were in place.

The volume and composition of housing demand is also determined (1, 2) (links in Russian) by demographic factors (migration, population ageing and changes in household structure). However, within the framework of our methodology, these factors did not deliver a statistically significant effect.

Price gap drivers

Our estimates suggest that the price gap between new-build and resale markets depends not only on regional macroeconomic conditions, but also on the market structure and institutional characteristics of the regions.

• New builds are more expensive in a market dominated by one or a few developers

The state of the development industry (construction costs, project lead times and the level of competition among developers) can both widen and narrow the price gap. For example, high costs and long construction periods tend to push up property prices.

We find that intense competition makes property developers increasingly adopt flexible pricing strategies, which constrains price growth. Conversely, high prices tend to persist in a market dominated by one or a few major players, even when demand decreases. According to our estimates, a one percentage-point increase in the market share of a major developer adds about 0.5 million rubles to the price gap on average.

As a result, the fewer developers there are in a region and the larger the share of the dominant player, the wider is the gap between new and resale prices. Conversely, more intense competition among developers narrows the gap – an effect in evidence in the regions that were previously dominated by one large company.

• Competition among banks reduces the price differential between new builds and resale properties

An increase in the number of lenders offering mortgages tends to lower mortgage rates (link in Russian). Tougher competition means that buyers have a wider choice of mortgage products. This leads to demand spreading more evenly across the two markets, which helps even up new-build and resale market prices. Our calculations further show that each new mortgage lender (per one million residents) reduces the gap by about 270,000 rubles on average.

• The price gap gained a notable boost from the Family Mortgage programme

Subsidised mortgages change the balance between the two markets and can widen the price differential.

A statistically significant positive contribution to the gap was made by the Family Mortgage programme: the larger the regional volume of loans issued under this scheme, the wider the gap between twin flats in the new-build and resale markets. Based on our computations, each 10 billion ruble increase in the regional Family Mortgage volume delivers a 0.4 million ruble rise in the gap between similar flats. This does not mean that the nationwide volume of loan disbursements can be directly converted to the price of an individual flat. It is rather an estimate derived from regional data while controlling for other factors.

In substantive terms, this means that a mortgage programme primarily targeted at new builds works to sustain demand in the new-build market, preserving its premium relative to resale properties. According to our model decomposition, an increase in Family Mortgage volumes raises the price gap by 16.7% on average across regions.

By contrast, the decision to rollback the universally available Subsidised Mortgage scheme in summer 2024 had changed almost nothing: we found no statistically significant effects. This is not to say that its market impact was zero: rather, the effect was moderated by other demand incentives such as extended instalment plans from developers, discounts and subsidies for lending programmes. Furthermore, other subsidised schemes continued to operate – notably the Family Mortgage programme along with the Far Eastern and Arctic Mortgage, the IT Mortgage and the Rural Mortgage.

Taken together, our findings confirm that large-scale subsidised mortgage programmes add to an overheating property market (1, 2, 3) (links in Russian).

This finding is also consistent with an earlier study by Yanina Roshchina of Moscow State University and her co-author on housing affordability effects of government mortgage support. This study relies on data on subsidised mortgages for 2020–2021 to show that the effect of subsidised rates is ambiguous: the borrower initially benefits from a lower monthly payment, but it is gradually offset by rising house prices.

This time, we clarify how this mechanism impacts the gap between the new-build and resale markets. When subsidised demand is concentrated on new builds, it sustains new-build market prices and widens the price differential between new and resale properties.

A wide gap between new-build and resale prices adds to risks for the mortgage system. A borrower who bought a new build and needs to sell it quickly may well see its resale price below the outstanding mortgage.

This is why a government policy must take account of the attributes of the housing market. Mortgage parameters may need to be tempered in regions showing a particularly wide price gap. Conversely, a policy in regions where resale properties are more expensive than new builds may involve extending support measures to the resale market.

The full text of this research is published in the Russian Journal of Money and Finance, 2026, No. 2.