Page 94 - RusRPTJul21

reversion in the near term, mostly on the lower mortgage limits in Moscow and St Petersburg as that is unlikely to be offset by the family mortgages.
· Stock performances have deviated YTD, with PIK and Samolet gaining 70-80% but LSR losing 10%. We see the former reflecting aggressive longer term strategies and portfolio additions for the sector leading investment profiles. The latter is an indication of pressured sales and the need for portfolio replenishment.
Kommersant reports that the National Credit Ratings (NCR) agency has increased its forecast for Russia's mortgage market in 2021. In March, the agency had expected the volume of mortgages issued would decline by 14-16% to R3.7-3.8 trillion in 2021. The new forecast implies an increase by 4.5-9.0% to R4.6-4.8 trillion. The NCR expects that the extension of the subsidized mortgage program for one more year and expansion of the family mortgage program for families with one child (born after January 1, 2018) should support the market this year. Despite the terms of new subsidized mortgage program being stricter that those of the program that is winding up, the market had initially expected that this program would terminate on July 1. Hence, the extension of the program was a positive surprise that should prevent the mortgage market from falling this year, although growth will slow.
The Audit Chamber finally has a review of the stimulus mortgage policy out and the most important takeaway is that it successfully stopped mass developer bankruptcies from taking place and propped up construction of housing at 2019 levels. Levels of mortgage indebtedness for multi-child families fell 30% thanks to support payments and the market saw the largest ever expansion of mortgage issuances in post-Soviet Russia. But as I’ve noted plenty of times, last year’s price increases for housing averaged 12% and 11% of the builders on the market went under. It seems that banks refused almost half of all the applications made for the rural home ownership scheme, which suggests that the equity benefits of owning property with rising values are clustered in cities socioeconomically and then again divided by relative levels of wealth and savings pre-COVID. Families who used all their savings to buy will be in much worse shape this year, for instance, compared to those who were more comfortable, didn’t work service jobs, and were already thinking about it before the program kicked in. The program for mortgages with new builds was extended through to next June with. a 0.5% rate hike, likely on the assumption that it’s necessary to sustain the construction sector to meet housing targets. We’ll see how that holds up as the key rate rises faster than expected and makes borrowing more attractive in relative terms compared to other forms of credit. Overall, the program worked at cushioning the blow from COVID. It seems that it’s set the stage for problems this year and next not directly addressed by authorities because they aren’t so much failings of the program as structural and systemic crises of the Russian economy and political system.
94 RUSSIA Country Report July 2021 www.intellinews.com