Annual mortgage lending in Russia to reach record high level in 2017

More information on this topic is presented in the PMR report:

Preliminary results reveal that the number of new homes commissioned in 2016 decreased by around 3.4% year on year to 1.15 million, the second most substantial annual housing listing result ever recorded in Russia. The total floor space of residences listed in official records in 2016 contracted by 6.7% to 79.3 million m², which is the third highest figure ever recorded in Russia.

However, the results for housing space registration in Russia in recent years must be assessed cautiously, as it consists to an important extent of dwellings completed in the respective years, along with many residential properties completed a long time ago but listed in official records recently in accordance with Federal Law No. 93-FZ of 30 June 2006, which is commonly described as a “dacha amnesty”. In part, this law was intended to legalise the construction of houses built without the requesting of a building permit. The “dacha amnesty” was planned to end on 1 March 2015, and the public rushed to benefit from it in early 2015 in particular. Meanwhile, the deadline has been moved until March 2018.

It is thought that in 2016 about 219,300 detached houses were listed in official records in Russia based on the “dacha amnesty” edict. In the same time, Rosstat revealed that the floor space of self-build homes registered throughout the country in 2016 totalled 31.5 million m². Considering the size of garden houses (so-called dacha), it is obvious that the “dacha amnesty” decree had a substantial contribution on the Rosstat data tracking housing completion in Russia in 2016.

Regardless of the dubious result on the floor space of self-build homes listed in 2015 and 2016, registration of residences other than self-build homes was still remarkable in the last couple of years. In 2015, construction companies succeeded in placing on official records 5.1% more housing space than a year earlier, with more than 43% of the 2015 supply being activated in the last three months. Furthermore, irrespective of the lack of economic growth in Russia in 2015 and 2016, last year construction companies succeeded in placing on official records only 4.2% less housing space than in 2015.

The recent striking growth in construction of multi-dwelling buildings has been propelled to a considerable extent by the rapidly developing mortgage market. It is worthy of note that the effect of the mortgage market on residential construction activity in Russia has been constantly growing, but still it is less crucial than in developed countries. The ratio of mortgage debt outstanding to GDP expanded to only 5.23% in 2016, the highest figure on record, up from 4.78% in 2015 and 4.46% in 2014. Mortgage-backed transactions most likely accounted for only about 30% of all home sales transactions registered in Russia in 2016, up from 27% in 2015.

An upward trend returned to the mortgage market in 2016. About 855,500 mortgages were granted in Russia in 2016, 22.3% more than the amount recorded a year before. The total value of mortgages granted was RUB 1,471bn (€19.9bn), a 26.7% year-on-year surge, of which 99.9% was attributable to rouble-denominated loans. It should be noted that the total value of mortgages granted to the population in 2016 (RUB 1,471bn) accounted for 99.3% of the total value of loans for home purchases last year, whereas in 2015 the figure was 98.9% in 2015 and 96.9% in 2014.

As indicated in the chart above, without the government’s financial support channelled to offset the proportion of mortgage interest rates in excess of 12%, the mortgage market’s collapse could have exceeded 51% in 2015. According to the Central Bank, almost 699,300 mortgages were granted in Russia in 2015 (1.01 million in 2014), of which approximatively 209,800 loans were subsidised loans. Among the decisive factors in terms of the mortgage market’s collapse last year were the shortage of long-term resources in the banking industry and sizeable contraction in real personal income. In 2016, financial institutions in Russia granted to the population about 855,500 mortgages, whereas this year PMR estimates that 1-1.05 million loans will be approved, at a predicted record total value of RUB 1,800-1,900bn (€28bn).

It is worthy of note that without the government’s programme to offset the proportion of mortgage interest rates, last year’s rebound in the number of mortgage approvals would have been less substantial: 855,500 mortgages were granted in Russia in 2016, of which approximatively 303,500 loans were subsidised. Given, also, that about 209,800 subsidised mortgages were approved in 2015, this demonstrates that last year only about 13% more unsubsidised loans were granted to the population than in 2015.

In 2017, the mortgage market is expected to continue to grow, with an increase of about 20% in the number of mortgage approvals very likely to be achieved this year.

The upsurge will be fuelled by:

  • Less expensive lending costs (when compared to 2016). The Central Bank’s key rate has een gradually reduced since the beginning of 2016, from 11% in January 2016 to 9.75% by April 2017, and is projected to be reduced further, to about 8.5% by the end of 2017. This year, mortgage loans are expected to be granted with an average interest rate of 11.3%, whereas in 2016 the figure was 12.5%.
  • Very low default rate.
  • Relatively low proportion of payments more than 31 days overdue (3.2% in February 2017, against in 4.0% in February 2016, 3.3% in February 2015 and 2.7% in February 2014).

More information on this topic is presented in the PMR report:
Construction sector in Russia H1 2017. Market analysis and development forecasts for 2017-2022