Apartments account for approximately 25% of all listings on the primary market. However, their legal status remains unclear: they are used for residential purposes, but legally they are not. Therefore, there are differences between apartments and flats in terms of utility bills, taxation, and other issues.
The main differences between apartments and flats
The main stumbling block for apartments, from which all other consequences flow, is their legal status. They are classified as non-residential real estate , like office space or cafes. Therefore, developers of such new buildings are not obligated to ensure residents have access to stores, kindergartens, schools, and other amenities. Furthermore, apartment construction is not regulated by the sanitary regulations applicable to residential real estate, which may impact the quality of lighting and soundproofing.
Since apartments are not considered residential property, it is impossible to register in them. This can lead to complications when registering children at preschools or schools. If it is not possible to register in another apartment or building, the apartment owner loses the right to benefits from the Moscow authorities, etc.
The difference between apartments and flats also lies in the amount of utility costs, again due to their non-residential status. Therefore, for a similar space, utility costs will be 15-20% higher for flats.
Apartment owners also face additional expenses when paying property taxes. While the tax rate for apartments is 0.1% of the cadastral value, it can reach 2% for condos, although in most cases it's 0.5%. However, the cadastral value of apartments, as non-residential real estate, is significantly lower than that of condos (sometimes two to three times lower). Therefore, the property tax rate for condos and apartments of similar size may not differ significantly.
However, the largest and most well-known apartment complexes located in Moscow City, marketed as luxury real estate, can cost over 100,000 rubles annually in taxes alone. This often prompts the sale of apartments in such a prestigious area, as not all owners are willing to bear such maintenance costs.
However, many apartment owners in the Moscow City towers are in no hurry to part with such prestigious properties, as the issue of changing the apartments' legal status has been under discussion at the government level for several years. This leaves hope that the apartments will soon be recognized as residential property, with all the ensuing benefits: the ability to register, and reduced taxes and utility bills.
However, the status of non-residential real estate gives apartments a significant advantage over similar-class apartments: price. In new buildings, apartments can be purchased for 10-30% less than an apartment of the same size in the same area. The situation is similar in the existing market, although housing prices vary significantly depending on the building's location.
What is more profitable to buy and then resell?
Both types of real estate have their advantages and disadvantages. Given current trends and the faster price increase per square meter in new-build apartments, when buying a home for resale, it's significantly more profitable to invest in an apartment. This position is based on several estimates showing that over the past year, the average price per square meter for apartments in new buildings has decreased by 2.6%, excluding the Moscow City skyscrapers, while for apartments, it has increased by 4.3%.
Experts attribute these changes in average prices per square meter in new-build properties to the high degree of project completion and relatively few sales launches. Therefore, if you purchase a new-build apartment at the foundation stage, you can earn 30-40% of your investment on resale once the building is completed. Furthermore, if you defer the sale for three years, you can receive an additional tax deduction, averaging approximately 260,000 rubles. Apartment owners are not eligible for such "bonuses." Given that not every buyer will risk purchasing a property with an uncertain legal status and high overhead costs, selling the apartment will be easier and faster.
However, unlike comfort-class apartment complexes, the prices of apartments in premium buildings remain stable. This allows them to compete confidently with apartments in terms of resale value.
However, when deciding to purchase real estate at the foundation stage, it's important to consider all possible risks and, above all, carefully select a developer. According to statistics for the past seven years, construction on every tenth apartment complex has been frozen. Meanwhile, the frozen construction rate for apartment buildings does not exceed 2.4%. Given this, many investors have turned their attention specifically to the elite apartments in Moscow City, as their developers are major companies, particularly Capital Group, which never leave projects unfinished even in challenging economic conditions.
What is more profitable to rent out?
While reselling apartments is generally more profitable, apartments are much more efficient for generating regular monthly rental income. This is where the notorious status of apartments as non-residential real estate plays into the investor's hands. The price per square meter of non-residential real estate is significantly lower, while rental rates are practically on par with those of apartments. Therefore, someone who decides to invest in apartments will recoup their investment much more quickly and retain ownership of the property.
However, if you're hoping to profit from your purchase by renting out your apartment, you need to understand that:
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they are not eligible for the preferential mortgage at 6.5% per annum;
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it is impossible to use maternity capital and other government subsidies to cover the cost of the transaction;
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They are not eligible for the tax deduction available after 3 years of property ownership (the average amount is approximately 260 thousand rubles).
Therefore, investors should be extremely careful when choosing an apartment complex, considering not only the layout and quality of renovation, but also its location, specifically the distance to the metro, convenient access, and access to Moscow's main highways. Infrastructure development, such as the proximity of supermarkets, shops, kindergartens, schools, etc., should also play a significant role when choosing a rental property. However, modern apartment complexes are being built in central locations with well-developed infrastructure and excellent transportation links, making their purchase for rental purposes even more convenient.
Thus, apartments can be purchased more affordably and rented out on par with apartments, since tenants are essentially indifferent to the legal status of the property they rent. For tenants, location, infrastructure, and quality of living conditions play a much greater role. Therefore, the yield on apartments when rented long-term will be approximately 7-9% per annum, while for apartments it typically does not exceed 5-7% due to the higher entry barrier. However, apartments rented out on a daily basis or through other short-term rental schemes can generate over 10% annual profit for their owners (apartments start at 8%).
It's important to remember that apartments have higher utility costs. However, modern new buildings utilize energy-efficient technologies and other systems that maximize resource savings. This is especially true for premium properties, where every engineering system is meticulously designed.
Therefore, choosing an apartment is worthwhile if you want to fully recoup your investment and earn up to 30-40% of your investment within 5 years. Apartments, however, are best purchased for long-term rental purposes. They can provide a stable, high passive income and a full return on investment within 10-15 years, whereas an apartment, under the same conditions, will only pay for itself after 25 years.
Whichever option you choose, consider the location, transportation links, price per square meter, and developer reliability. If you don't want to spend a lot of time analyzing the market and comparing dozens of options, consider Moscow City, whose towers offer both apartments and condos. Luxury real estate is among the most stable, City is being developed by major, reputable developers, and the area's infrastructure is considered one of the most developed in all of Moscow. Furthermore, the business center offers convenient access to the Third Transport Ring, Kutuzovsky Prospekt, and Presnenskaya Embankment. This option also offers excellent liquidity for both resale and rental purposes, as few people wouldn't want to live at a bird's eye view.
