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18 I Companies & Markets bne April 2019
Uncertainty in Russia’s residential real estate about to end and boost the sector’s growth
Ben Aris in Berlin
Russia’s residential real estate market is flourishing, driven by the boom in mortgage credits. But changes in the regulations have caused uncertainty, which has held down the share value of the leading developers. That should start to change this summer.
Demand for new apartments in Russia remains very strong. Last year saw record demand – registered deals surged by 18% in St Petersburg and 30% in Moscow, BCS Global Markets said in a report released at the start of March.
While real incomes have been falling slowly for the last five years, that is more than offset by the faster fall in the cost of borrowing, which has seen the stock of mortgages double every two years since 2013 when the mortgage business took off.
However, some big rule changes come into effect this summer that will, amongst other things, ban pre-selling apartments, which has been a favourite way to finance the construction
of buildings. Now would be homeowners pay their money into escrow accounts that the developer can only tap once the building is complete. That is going to hurt smaller developers who don't have the clout to raise the hundreds of millions
of dollars needed to build a large complex in one of Russia’s larger cities so the sector is expected to consolidate. Moreover, the cost of raising large scale project finances is also expected to drive up real estate prices by 15-20%, says BCS GM.
Unsaturated market
Russia’s residential real estate market remains very under- developed and should grow for years to come. Although real incomes in Russia fell again slightly in 2018, down for the fifth year in a row, demand for new housing is high.
The recovery in real disposable income expected this year will only pour fuel on the fire as Russia has just 25.2sqm housing space per capita, according to BCS, about half of the norm in western Europe.
As bne IntelliNews reported recently, mortgages have exploded in Russia as they become more affordable; in 2013 the monthly payments were equivalent to 80% of the borrower's wage, but since then the share of payments has fallen to 45% in 2018.
In the early days of the mortgage market, borrowers would often take out a mortgage and in effect use it as a bridge
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loan while they sold their old apartment to cover the cost of buying a new one. The credit was paid back very quickly. But increasingly Russians are taking out mortgages and keeping them to maturity in the traditional use of a housing credit.
At the end of 2018 the total stock of outstanding mortgages topped RUB6.4 trillion ($97.4bn) with the number of deals closed in Moscow in 2018 up 30% and those in St Petersburg up 18%, according to BCS GM.
“Russia’s residential real estate market remains very underdeveloped and should grow for years to come”
The government, keen to get people into their own homes, just launched a fresh round of initiatives to make mortgages cheaper and President Vladimir Putin called on the banks to lower interest rates from the current record low 10%
by another two percentage points to 8%, which will make payments even more affordable. Today Russians with
a mortgage pay up to half their income on meeting the payments, whereas in Western Europe those payments account for between 20% and 30% of incomes.
Read the rest of this piece here.
Demand for residential real estate is flourishing, driving the growth of mortgage loans.


































































































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