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acceleration. The prime question is to what extent the programme might influence the commercial segment and how aggressively the city can offer land plots and housing to the market, if any, to finance the programme. Developers can benefit in the near term from a higher supply of quality land plots already connected to utilities infrastructure; however, we would see operational downside risks to long-term sales and prices if state volumes were to significantly increase.
The government sees 2019 residential completions reaching 78-80mn sqm . The volumes imply a 5% y/y increase after three years of decline. In 9mo19, completions added 8% y/y to 42mn sqm and we note the seasonal switch to the fourth quarter, which accounts for the most significant share of annual results. In 2017-18, residential sales were robust, supported by declining mortgage rates as well as client concerns over both prices and the supply of housing after the implementation of escrow accounts. Those sales are to have a positive impact on completions in the coming years, which are also going to see a gradual transition to escrow accounts due to the proposed amendments for projects. At the moment, escrow accounts account for RUB47.5bn, or some 2% of the annual construction cost, we estimate.
The Ministry for Construction has presented its strategy for the housing market through 2030. The strategy assumes overall progress in construction activities and its growing contribution to the country's GDP, from 6% at present to 7.8%, as its base case. Housing per capita is to increase from 25.8sqm to 30sqm by 2030, and we think this is achievable even at the current completions rate of 75.6mn sqm per year (while the programme envisages an acceleration). The demand side is seeing support from lower mortgage rates, that we forecast going from 9.9% as of August 2019 to below 7% in our terminal period. In our forecast, we see the key rate at 6.5% by YE20F, which brings the mortgage rate to 8.0-8.5% in a year. On the mass market, the key participants estimate a 50bp cut in the mortgage rate would raise the number of eligible takers 10-20%. Overall, analysts see the sector positioned for short-term cooling after a number of quarters of aggressive demand, while the subsequent recovery is subject to consumer budgets and mortgage availability. The supply side sees a medium-term transition to escrow that places downside risks in 3-5 years with subsequent sector consolidation.
DOM.RF does not require developers to meet the own funds threshold of 15% of future construction costs to obtain project financing . Under the new regulations with sales through escrow accounts, project financing becomes vital and access to capital is the key uncertainty as concerns medium-term volumes and sector consolidation. Own funds amounting to 15% of future construction costs represents a sizable and pricy amount: we estimate the blended cost of equity across listed developers at 19%, and even higher for other industry players. The paper writes that other leading banks could also lower their own funds thresholds, as the land and construction permit generally represent 10-15% of total costs and are sufficient for the initial contribution for banks.
9.1.5 Retail sector news
Beer back in football stadiums. The government has responded positively to a draft law to return beer sales to stadiums during football games. Presently under consideration is the portion of sales that could be attributed to sport
106 RUSSIA Country Report November 2019 www.intellinews.o