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bne June 2021 Companies & Markets I 9
Share of mortgages in sales
Residential completions*
Source: Company data, VTB Capital Research
promoting democracy by the US government for many of the same reasons that appeals to the Kremlin – the market really only took off in around 2008 and has been growing very strongly ever since.
Initially Russians used a mortgage credit as a bridge loan between buying a bigger place and being able to sell their old place to pay for it. Mortgages were often paid off in full within a few years or less. Few held their mortgages to term.
That has changed dramatically now. Developers report as much as half to three quarter of their sales are now paid for with a mortgage and that the borrower intends to keep the credit to term.
The mortgage market has proved a boon for the four market leaders, PIK, Etalon, LSR and Samolet Group, which have seen steady growth and a steadily expanding pool of potential customers.
PIK is the stand-out front-runner in the business and an investors’ darling, putting in strong results quarter after quarter. Samolet is the new kid on the block, profiled by bne IntelliNews just before its IPO last year, having listed on Moscow Exchange (MOEX) in October with a valuation of $750mn, and has seen its share price soar by a third in the first quarter of trading this year. PIK was also profiled by bne IntelliNews in 2017 at the start of its run and has seen its share price go up by 60% in the same period.
All in all, Moscow housing sales were up a robust 22% last year, despite the coronacrisis, and residential sales soared across the country thanks to the government subsidy programme. The market leaders saw their profits rise even faster, with Samolet seeing revenues up by a third (36%) in the first quarter this year alone, its first financial results since going public.
“The sector results were mostly strong in 1Q21, potentially featuring one of the last periods of full support from subsidised mortgages and an outperformance by leading developers
Source: Rosstat, VTB Capital Research;* 1Q21 vs. 1Q20; Figures include housing, constructed by individuals in locations designated for gardening
with wide market offers,” VTB Capital (VTBC) said in a note. “Quarterly mortgage origination was up 53% y/y to RUB1.2 trillion, while the [interest] rate hit a record low 7.0%.”
As a group the listed developers guide for a blended volume uplift of 25% y/y for this year, reports VTBC, ahead of analysts' expectations, although that result may come in lower if the government chooses to end the subsidy programme.
But even if the programme is ended the rates may come down anyway. The previous programme subsidised rates
to bring them down to 10% when the market rate was 12% but following the CBR cuts they fell below 10% on their own and that programme was ended. While the CBR rates are anticipated to climb to 5.5% this year, crisis-induced inflation pressure is expected to fade as the year wears on and the CBR could go back to cutting rates next year that will bring them down again to the 6.5% level or lower.
Housing bubble?
The decision on ending the programme has not been made and the big increase in demand it has created has led to the increase in housing prices to the point where the CBR has said out loud that it is worried about the appearance of a housing bubble. The regulator is against extending the programme again.
“Primary market prices have been climbing in the last twelve months, driven by developers’ price over volume strategy, their desire to maximise returns for projects under pre-escrow regulation and elevated demand, particularly due to tailwinds from the subsidised mortgage programme. As primary deals added 30% y/y in 1Q21 in Moscow, prices climbed 20% y/y,” VTBC reports.
This supported the primary market, with prices in Moscow adding 21% y/y in 1Q21, according to Metrium, while in
St Petersburg prices added 26% y/y in 1Q21, according
to Real Estate Bulletin. Secondary markets in both cities saw a comparable advance in prices (up 18- 23% in 1Q21), according to R&D Centre ‘City Development’ and Real Estate Bulletin.
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