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introduction of a threshold based on a project’s progress in order it to be exempt from the new regulations (we see it above 50%),” VTB Capital (VTBC) said in a note. The decline in completions reflects a cooling of the real estate sector in times of pressured demand as a result of lower household budgets and the high interest rate environment in 2015-16. VTBC notes that sales accelerated in 2017-18 and considers volumes to be supported in the medium term. The introduction of escrow schemes raises the requirements for developers. The upcoming regulatory changes represent downside risks to volumes, subject to the pace of sector consolidation, and favour the prospects of large scale homebuilders.
Mortgage rates in Moscow rise above the psychologically important 10% mark, will depress residential sales in 2019. Sberbank said it planned to raise mortgage rates 100-120bp in January. From 1 January 2019, VTB increased rates 60bp. The two leading banks account for some 75% of the market, and higher rates highlight the rebounding trend in the availability of mortgages. Rates had been on a declining trend for a number of years and reached a record low of 9.42% in October 2018. That underpinned the record origination, with new mortgages surging 1.5x y/y to RUB2.67tn in 11mo18. Strong mortgage dynamics provided support to residential demand, and primary sales added 49% y/y in 11mo18 (in the Moscow area). For listed homebuilders, the share of mortgages reached 41-65% of sales on the mass- market in 3Q18 vs. the 80% observed for peers on the developed markets. “The rise in rates to above the psychologically important 10% threshold creates downside risks to residential volumes. In 1H19, we think this could well be partially compensated for by clients' expectations of lower supply and higher prices for housing after the switch to escrow accounts from 1 July 2019, as well as mortgages rates potentially growing further. However, we anticipate those factors fading in 2H19 and a worsening operational outlook for listed developers,” VTB Capital (VTBC) said in a note.
The State Duma, Russian parliament lower chamber, passed a bill limiting retail debts and forbidding debt reclaim by underground creditors on December 18. Under the bill, interest and fines on retail loans taken for between 15 days and one year will be curtailed gradually with the highest payment limited to 2.5 times as high as the borrowed amount from the moment the bill enters in force, 2 times from July 1, 2019 and 1.5 times from January 1, 2020. The interest rate shall not exceed 1.5% daily from the entrance in force, 1% from July 1, 2019. From July 1, 2019 the full cost of a loan shall not exceed by more than a third the smaller of the two: 365% annually or an average market full cost of the loan in annual percentage calculated by the central bank. The maximum payment for loans taken for a term until 15 days not exceeding 10,000 rubles is 30,000 rubles. No penalties except a 0.1% daily finee for each day of delay shall be accrued. The daily payment shall not exceed 1/15 of the maximum payment.
Russia's Deposit Insurance Agency (DIA) will open a Moscow office that will sell the assets of failed Russian banks, Vedomosti daily reported on December 10 citing the head of DIA Yury Isaev. Reportedly DIA will consult both companies and private individuals on potential sales of assets. In November the number of banks in Russia has fallen below 500 for the first time since the fall of the Soviet Union, as the Central Bank of Russia (CBR) campaign to clean up the sector moves into its end game. The assets of failed banks that came under DIA control, as a result of the CBR’s campaign to shutter small dodgy banks, represent claims to borrowers, accounts in other banks, securities, equipment, vehicles, real estate, furniture, etc. Currently at
80 RUSSIA Country Report February 2019 www.intellinews.com