Citizens took out 1 trillion rubles worth of soft loans last year. Evil or blessing preferential mortgage, studied Novye Izvestia.
Yelena Ivanova, Natalia Seibil
Record year
More than 345 thousand soft loans totaling 1 trillion 250 billion rubles were issued by banks in 8 months of 2020. Lending conditions were changed by banks in favor of borrowers. If in May citizens could receive no more than 8 million rubles in Moscow and St. Petersburg and the capital regions, a month later the limit was raised to 12 million . In other Russian regions, the amount borrowed from banks has doubled from 3 million to 6 million rubles. Banks tried to attract citizens not only with interest on mortgages of 6.5% , but also reduced the initial payment. In August 2020, borrowers could pay 15% of the apartment price instead of 20%.
"The government also increased the total limit of the program from 740 billion to 900 billion rubles. As a result, every second apartment in Moscow was bought on a mortgage", - says Yulia Lurie, director of the Mayak real estate agency, real estate market analyst.
"Today mortgage is the most important social indicator. As an aid to the low-income population, this is a very important point, especially since we are not spoiled by housing. We have very little housing. The average area in Russia is 22-23 meters per person, while in Germany it is 50-60 meters per person. And everywhere it is more than 30 meters per person. We have a problem with housing. It stood for a long time, and only in recent years have we begun to address this problem”, - states HSE professor Georgy Ostapkovich.
Rosreestr every month keeps statistics on the number of real estate transactions and, in particular, mortgage transactions. In total, the number of loans for the purchase of housing increased in the country by more than a third - to 1.7 million, and the volume of lending increased even more, twice. The last 4 months of the year were the peak of demand.
Citizens rushed to buy real estate. The reasons for this were: this is the deferred demand due to the pandemic, and a decrease in mortgage rates, and an increase in the price of foreign exchange, and distrust of other economic and financial instruments. All this led to "placing funds in stone or concrete", as Julia Lurie aptly described what is happening on the real estate market:
"We closed the year plan in September. What was planned before December, we made all these transactions before September. In October there was just hysteria".
Experts of the real estate market see the consequences of a covid quarantine in a hype. Natalya Slovesnikova, head of the Center for Right Decisions, believes that it was not just a surge in demand:
"For a long time people were limited in their movements, in the opportunity to see what they were planning to buy. When the lockdown was filmed, it was time to rest, go somewhere. At the time of deferred demand, hardly anyone got rich and found money for new investments while sitting at home during quarantine".
Prices and meters
Builders themselves admit that housing prices are rising. Both in Moscow and throughout Russia, a square meter has risen in price by 20% over the year. Aleksey Perlin, general director of SMU-6 Investments, disagrees with the fact that preferential mortgages have pushed up housing prices:
"The rise in price of everything - all products, all goods on the Russian market - played a certain role. Including the rise in the cost of building materials, labor, which led to a rise in the cost of construction, a rise in the price of a meter. All this together gave an impetus to the rush demand and an increase in the cost of a meter of housing".
If the Russian currency becomes cheaper, then due to the large share of imports in construction, construction costs rise in price. Construction companies have their own labor force and gravel. The equipment is imported, in building materials there is a large share of imports. Economists point to another reason: the top 10% of the largest construction companies are monopolists in their regional markets. Georgy Ostapkovich believes:
"In our country, especially in highly profitable regions, monopolists prevail, and they dictate, or at least influence the price. They dictate prices. They see that mortgages are falling, demand is increasing, and they charge higher prices to that demand. We have little competition in construction, we need to expand competition. Monopolists drive the price down to a low mortgage, and in fact for people it is zeroed out. The mortgage is falling and the price is rising. As a result, the effect becomes exactly zero".
In Moscow, statistics are such that 1,600 new addresses will be opened in 2021, says Yulia Lurie. And who will buy it if there is no preferential mortgage, realtors ask themselves. In addition, very small apartments have appeared, for example, one-room apartments of 16 sq. m.:
"When we were told two years ago that one-room apartments with an area of 25 sq. m., we laughed and wondered who would take them. Now people are looking for apartments of 24-25 sq. m. This is considered a large apartment. They take kennel, 20 meters each. This is the whole apartment, 20 meters with a toilet and a kitchen. Now a whole galaxy of designers has risen who know how to plan 20 sq. m. As a rule, the windows are panoramic, that is, one wall cannot be used at all. The entire wall is a window, that is, everything else needs to be shielded somehow. One person or two live in them. When a child appears, they take kopeck pieces. The kopeck pieces are now 40-42 meters long".
As a rule, such apartments are bought, for example, by parents for a student son, says Yulia Lurie. Either they will pay 30 thousand for rent a month, or they will invest in a clean new apartment near the metro.
Banks, developers and prospects
However, housing supply is declining. When asked whether the availability of a cheap mortgage increases the cost of housing, Alexey Perlin answers directly:
"Preferential mortgages naturally pushed demand. It made it possible for more people to buy an apartment, to satisfy their need to improve their living conditions".
This, of course, is true, but not all. Analysts of the National Expert Agency in their report on the increasing risks of preferential mortgages note that it is extremely beneficial for developers, because it provides income growth due to higher prices, and not due to an increase in volume and improvement of the quality of new housing. As a consequence of the rise in real estate prices, inflation risks are also growing.
Elvira Nabiullina, the head of the Central Bank, also warned about this in the fall. Subsidized rates have already begun to affect the cost of housing, says the country's chief banker. Preferential mortgage loans are taken not only by citizens with low incomes, but also by those who buy an apartment as a means of protecting their income. Economist Ostapkovich believes:
"The Central Bank does not want such investors, because the deposit rate has dropped to the level of inflation. Now the deposit in the bank is 4.5 - 5%, and inflation is also 5%. Previously, people went to the bank, put money on deposits and won on this. Now Sberbank offers 2.65% per annum for replenished deposits. The rate on bank deposits does not fight inflation, so people start looking for some other sources".
The central bank is afraid that this could hit the banking system, and banks' liquidity will fall. Georgy Ostapkovich does not expect an explosion in the near future, but the cumulative effect may come in two to three years. If builders from last year's 48 million square meters in a few years really approach the 120 million named by President Putin as a goal in the Housing national project, then people will have to spend 9 trillion rubles a year on the purchase. Most will be financed by banks. But mortgages are consumption, not capital creation.
But I say it again - housing is consumption, not capital creation, so I am afraid that banks will have to lend to consumption. The economist explains:
"If I take money for the construction of a turbine, then this turbine will continue to work. And built a house is consumption. And then there will not be enough money for capital items, for turbines, for tower cranes, for nuclear boilers, because this money will begin to go into construction. This is a problem for the next 5 years, but such a problem may also arise that banks simply do not have enough money to lend to the real sector, because all the money will go to mortgages".
The general director of SMU-6 Investments disagrees with this. People buy apartments, including for themselves. Just the depreciation of the ruble and the decline in deposit rates pushed some not to postpone the purchase of real estate.
It is very easy to understand which houses are bought for investment purposes, and which ones for oneself, says Yulia Lurie. There are new buildings where nothing is for rent or for sale, and then it is clear that people bought apartments in order to live in them. And there are houses with 600 apartments, and 400 are for sale:
"This suggests that the house is ready, but no one was going to live in it, but you can make money on it, because there are regionals who buy everything in the Moscow market, they don’t know Moscow... There are simply outrageous addresses".
The danger of a mortgage bubble, as it was in the US in 2008, was dismissed by all market participants and experts surveyed as unlikely. Therefore, many are in favor of extending the preferential mortgage. Economist Ostapkovich believes that leaving it for low-income citizens will stimulate investors to turn to new financial instruments in the market. But you can't do without education. If the Governor of the Central Bank Nabiullina and Finance Minister Siluanov received at least 10% of the airtime from the Malakhov or Let's Get Married program and tell citizens about how they need to invest, everyone would benefit: both citizens and the Russian economy.
Meanwhile, Russians themselves have little faith in the state's ability to solve their problems. Mortgage borrowers, amid instability during the pandemic, were 1.7 times more likely to repay their loans in 2020 and gave banks almost 2 trillion rubles ahead of schedule. Many do not want risks in the future. But in 2021 there will be fewer such returns, according to the project "For the rights of borrowers" - the level of income is falling rapidly.