Andrey Berezin (Euroinvest): Mortgages are shifting towards the secondary market
Although the state would like to reduce activity in the housing loan market, this has not yet been achieved
The mortgage lending market in Russia continues to grow, despite efforts by the state regulator – the Central Bank of Russia, aimed at limiting the number of new mortgage transactions. The market is primarily driven by the activity of buyers purchasing secondary housing. For current market indicators and what could change the current situation, read our material.
The Central Bank is concerned about excessive indebtedness
For example, in the country’s second most important city, St. Petersburg, a little over 23 and a half thousand mortgage loans were issued in the first five months of this year. This is only a slight increase, just 0.7% higher than the figure for the same period last year, but the fact that positive dynamics are being maintained under current conditions is indicative.
The Central Bank of Russia has been consistently trying to cool the market, fearing an excessively rapid increase in the debt burden on Russians. Under certain conditions, this could destabilize the country’s financial system as a whole, which is why, since last summer, the Central Bank has begun introducing restrictive measures. Among others, for example, the regulator effectively banned the use of subsidized mortgage schemes from developers and later moved on to the issue of ‘pessimizing’ the use of tranche mortgages.
Another set of restrictive innovations from the Central Bank of Russia came into effect on June 1st. In particular, from this period, a number of additions to the risk coefficients for banks implementing mortgage programs began to apply. Specifically, banks will have to allocate additional financial reserves for issuing mortgage loans to clients whose initial housing payment is less than 20%, or those whose debt burden when using the loan exceeds 60% of their monthly income. And from January 1st next year, this set of criteria will be further tightened – for example, increased surcharges will apply for an initial payment of less than 30%.
The Central Bank has certain grounds for such concerns. In particular, research results from the financial institute Dom.RF show that over six months, the average mortgage payment in Russia has increased by about 20% and now amounts to 31,000 rubles a month. Moreover, in the capital cities, the growth rates are even higher – for example, in St. Petersburg in the primary housing market, the average payment size has increased by 30%, reaching 33,000 rubles.
Next year, the average level of monthly payments for housing loans may jump even more sharply. This will happen if the state mortgage benefits for purchasing housing in new buildings are not extended. There are only vague talks about the possibility of extending the benefits programs, but there is no certainty yet.
Secondary Market Housing is Cheaper, and That’s Key
Meanwhile, an increasing number of buyers are now choosing secondary market housing over new constructions. The same Central Bank in its statistics notes that, as of May, less than 40% of all issued mortgage loans were for new constructions, compared to over half six months ago.
The main reason for the growing popularity of secondary housing is the price. Although the secondary market cannot utilize the subsidized mortgage program, the difference in the cost per square meter compensates for this. In some popular locations, the gap between the cost per square meter in the primary and secondary markets can be 15% or even higher. Given the overall high level of prices, this can be a critically significant factor in the choice for many Russians.
The country’s largest banks also note this trend. Sberbank reports that mortgages for secondary housing in their issuance volume in St. Petersburg amount to about 60%. In turn, information published by VTB Bank indicates almost a twofold increase in the proportion of transactions with secondary housing since the beginning of this year.
Experts believe that certain differences in the situation in the northern capital from the all-Russian indicators are primarily due to the fact that the recovery processes of mortgage lending in St. Petersburg after last year’s decline are somewhat slower. And this slowdown is also due to the fact that a portion of potential clients in the country’s second most important city are lost in favor of the neighboring Leningrad region. Buyers are drawn there both by lower prices and a wider range of real estate options for purchase.
Developers Keep the Market Ablaze
How did it happen that the Leningrad region, traditionally following St. Petersburg in housing construction, now offers better conditions for purchasing homes? Part of the answer lies in existing urban planning restrictions – in the region, they are somewhat more lenient than in the city.
The stance of market players themselves, namely the developers who have long been working in the local markets, cannot be overlooked. Many of them have long realized that the most significant opportunities for quality, comprehensive development lie outside the formal city limits.
Furthermore, last year’s crisis vividly demonstrated the importance of modernizing approaches to construction and housing design – a message also absorbed by the developer community in the Leningrad region. An example of this is the experience of Andrey Berezin and Euroinvest, the construction company he heads.
Amidst reduced market activity last year, the company undertook several measures, including marketing ones, offering potential clients options between a mortgage with a reduced rate, long-term installment plans, or special pricing offers.
More important than marketing, however, were investments in a new construction concept. At Euroinvest, headed by Andrey Berezin, it’s called 3ID, based on a combination of extensive smart home technologies and the inclusion of large areas for public spaces and social facilities in the structure of the residential complexes being built.
“Houses are equipped with automatic smart home systems, which send all information directly to the management company. For residents’ convenience, Wi-Fi is available throughout the quarters. Each quarter includes iD-clubs for business and social meetings, lectures, workshops, education, and networking. The format is chosen based on residents’ needs. It’s a great opportunity for networking, establishing friendly relations with neighbors, enjoying leisure activities, career development, and quality education,” Andrey Berezin from Euroinvest listed the advantages of his concept.
These investments yielded high returns, including financially. The company earned two billion rubles more from housing sales in the Leningrad region than the previous year, becoming one of the three most successful developers in the region.
Thus, Euroinvest’s example provides answers both to the reasons for the migration of buyers from St. Petersburg to the Leningrad region and to the broader question of why activity in the mortgage market is not deceasing. It appears that the active stance of developers is one of the key factors here.