Page 166 - RusRPTAug24

construction market is expected to contract considerably.
Disbursements of mortgage loans under market programs in Russia dropped by 60% in the first half of 2024, head of the division in DOM.RF Grigory Zhirnov said at the Financial Congress of the Bank of Russia. "The interest rate for the market-based mortgage loans was about 11% a year ago; now it is close to 18%. If we look at extension of mortgage loans in the first half of the last year and in the first half of this year - the drop is about 60%," Zhirnov said. The rise in mortgage loan rates in market-based mortgage programs resulted in the significant drop of lending in Russia, he added.
In 2020, banks offered mortgage applicants a preferential rate of around 6%, roughly two percentage points below the market rate, with the state making up the difference. Similar discounts, which had previously only been available to families, were then offered to it workers and people moving to places including the Arctic, Siberia and occupied Ukraine. Still, mortgage volumes did not begin to really rise until Russia’s economy went on a war footing. Banks issued mortgages worth 7.7trn roubles ($88bn, or 4% of gdp) last year, up from a total of 4.3trn in 2020. Most were supported by subsidies.
When the Central Bank of Russia (cbr) started raising interest rates, the scheme’s appeal grew. As the cbr lifted its benchmark rate to 16%, the government kept its preferential rate low, raising it to just 8%. In June there was a gap of more than ten percentage points between the government’s rate and the market rate for a mortgage.
As a consequence, the Kremlin is footing a hefty bill. The finance ministry has already spent nearly half a trillion roubles on the scheme.
The boom in subsidised loans has also caused a housing bubble. Last year 110m square metres of housing were built, compared with an average of just 59m a year since the end of communism. At the same time, prices are soaring. The Moscow-based Institute for Urban Economics reckons they climbed by 172% in the biggest cities between 2020 and 2023. Elvira Nabiullina, the cbr’s governor, is spooked. She has blamed the government’s subsidies for “overheating” the housing market and said that they would pose a “proinflationary risk” if the Kremlin failed to wind them down.
The government is phasing out the subsidized mortgage scheme. In December it hiked the minimum deposit required for a loan from 20% to 30%.
In July it ended its most popular scheme, which was for buyers of new-builds. The number of new mortgages could drop by some 50% in the second half of the year, according to one analyst quoted by state-affiliated media.
Russia’s construction industry will suffer as a result. So will banks, which have enjoyed record profits driven by rapid growth in mortgage portfolios.
166 RUSSIA Country Report August 2024 www.intellinews.com