Page 11 - RusRPTOct19

subsidies then stopped and rates have followed the Central Bank of Russia (CBR) cuts to the monetary policy rate downwards.
The falling interest rates have caused a booming in the use of mortgage financing to buy apartments. This impetuous was given a fillip by the impending imposition of a ban on pre-selling apartments to customers as a way of financing development. Starting this summer would be buyers place their money on escrow accounts forcing the developers to raise funding for development, secure on the deposits in the escrow accounts.
The criteria to exempt a company from using escrow accounts based on the completion status (above 30%) and sales (10%) expired from 1 October.
However, raising funding to finances the completion of projects is not easier. VTB Capital (VTBC) said in a note that 28.5mn sqm, or 24% of the total area under construction, has either not met the criteria for an exemption to using escrow accounts (and so can spend the money it receives in pre-sales) and has failed to raise project financing to complete the construction.
Analysts are expecting the new rules to cause a consolidation in the residential real estate development segment as only the very biggest companies will be able to raise project financing from banks and smaller companies are likely to either merge, sell or go bust.
In early September, the CBR cut the key rate 0.25bp to 7.0%, which has resulted in a new wave of mortgage rate cuts among banks. In August, the blended market mortgage rate declined 30bp m/m to 9.92%, compared with the record low of 9.41% in October 2018.
“We see further downward pressure in the coming quarters, while our key rate forecast for 6.5% by YE20F implies a mortgage rate of 8.0-8.5%. Across the mass-market segment, developers have estimated that a 50bp decline in mortgage rates would result in a 10-20% increase in the number of eligible takers. Lower rates could become a notable support factor in the short term and support the share of credit sales at an impressive 37-65% for listed developers,” VTBC said.
2.8 Russian business and consumer confidence
Rosstat’s business consumer index, which has dramatically improved this year, posting a result of -1 for the last three months, but slipped to -2 in August and stayed there is September.
Still, business is much more optimistic following several years of pessimism, during the silent crisis years of 2014-2016 when the business confidence index fell to a low of -8 as recently as December 2018.
11 RUSSIA Country Report October 2019 ww.intellinews.com