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bne November 2019 Eastern Europe I 37
PIK, but the company is growing much faster, says Shekshnya. Today Samolet has delivered more than 1.5msqm of apartments and is the second biggest developer in the Moscow region. While the leading publicly-traded residential developers PIK, Etalon and LSR Group are growing in single digits, Samolet saw its revenues grow by 38% year-on-year in 2018. Now the company is moving
up a gear and targeting projects that have more than $1bn of sales volumes from a portfolio that is already worth RUB107bn ($1.6bn).
“And we can maintain that rate of growth for another five years,” says Shekshnya, who adds that while the market is not booming, it is already “healthy” and there is plenty of work in just Moscow and
St Petersburg – the two largest cities in Europe – so he has no plans yet to move into the regional market or go to one of Russia’s near-neighbours.
Middle class expanding
“We are focusing on building affordable housing on the open market to offer
to new stratifications of the Russian population. With the falling interest rates people can finally afford mortgages and that is opening up new opportunities,” says Shekshnya.
Stanislav Shekshnya, chairman of the board of directors of Samolet since June 2018.
Mortgages have been around since about 2013, but they really took off from around 2008 and now they account for the largest share of financing purchases for would-be homeowners.
Samolet targets Russians who earn between RUB90,000 and RUB120,000 a month ($1,387 and $1,850) as they can afford to service the mortgage pay- ments. But price remains an important factor for this group, says Shekshnya, and a change in rates of as little 0.4%
can swing the buy/don't buy decision.
Mortgages have been falling steadily
in recent years with the Central Bank
of Russia (CBR) cutting rates following the emergency rate hike to 17% at the end of 2014. Last year the government was subsidising mortgage rates over 12% to broaden the pool of purchasers but the subsidies stopped earlier this year after the average mortgage rate fell below 10% for the first time. The CBR has cut rates three times this year, most recently in September by 25bp bringing the monetary policy rate to 7%, and the average mortgage has followed it down: at the start of October some banks were offering mortgages for a record low 8.5% if customers did things like open
a bank account and took out insurance on the loan. And with inflation falling back to the CBR target rate of 4% in September analysts speculate there may be one more rate cut this year, but even if there is no cut in October there will almost certainly be more cuts next year.
“Each 1% fall in interest rates lowers the salary threshold where people can afford a mortgage by about RUB10,000. So if rates are cut again by 1% we can sell apartments to people that are earning RUB80,000 a month,” says Shekshnya,
plete. That has made life more difficult for developers who now have to organise financing to complete projects.
“The change caused some anxiety as we didn't really know what was going to happen,” says Shekshnya. “But at the end of the day it didn't have a negative impact on sales.
Samolet can fund its new developments from the cashflow of previous ones. Shekshnya says they have different sized projects that mature at different rates, all of which contributes to a strong cashflow. Most of the financing for new projects
is paid for out of retained earnings, but the company has also issued bonds on the domestic market and can tap local banks for credits. However, about 70% of the funding for developing a new project comes from retained earnings and the rest from debt.
ESG's growing importance
Like many of its peers Samolet follows best business practises and in an increas- ingly popular trend is hiring professional managers and adopting an environmen- tal, social and governance (ESG) strategy.
Shekshnya himself is a professional manager and not an oligarch. He has
“While Russia’s residential real estate market is not booming, it is already “healthy” and there is plenty of work in just Moscow and
St Petersburg”
adding that each one percent cut adds at least 100,000 new customers or more to the potential customer base in Russia’s twin capitals and several million new customers for developers nationwide.
Funding from revenues
The big change in the real estate busi- ness this year is that the government has banned pre-selling apartments as of July 1 and now pre-payments for unfin- ished projects have to be kept in escrow accounts until the construction is com-
previously served as chairman of some of the largest Russian companies, including coal miner SUEK and telecoms giant VEON. Big companies are increasingly turning to the growing number of professional managers that are building up Russia’s businesses to international standards.
Samolet has already put the corporate governance in place in the form of several independent directors on the board and things like remuneration
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