Project-tied lending in construction
The housing market’s transition to project financing, as well as individual housing construction and mortgage lending for private construction projects have been discussed at the expert session on Housing Market: Development Trends during the 11th Gaidar Forum at the Russian Presidential Academy.
The housing market in Russia has seen significant changes in 2019: the mortgage rates decreased, and banks began to provide mortgages for private construction. The recent amendments to Federal Law No. 214-FZ of December 30, 2004 regulating cost-shared construction of apartment buildings and other regulatory acts have changed the market’s rules and mechanisms. The question now is how quickly market participants can adapt to these changes, and how the industry will develop in the new decade.
Today, the banking sector is in the process of transitioning to project financing. “The pace of this transition is exceeding our expectations. Developers have been applying more and more frequently over the past six months,” said Olga Polyakova, Deputy Governor and member of the Central Bank board. The question is whether banks are ready to issue loans to all developers. The main factor hindering this process remains some of the developers’ unsatisfactory business reputation, she added. “About 30% of projects are either receiving funding or will soon be funded under the new plan. Banks have already approved loans worth more than 900 billion. Escrow accounts are being opened,” she said.
According to Artyom Fedorko, Chairman of the DOM.RF Bank, an exceptional situation has now developed where a record volume of residential property is being built, while the mortgage rates are low. “The market now offers unique opportunities for both construction companies and property buyers through an affordable mortgage. These are good prerequisites for a growing stable and healthy market,” he added.
The participants noted that there are no problems with financing construction projects in Moscow due to their good profitability. They also discussed the steady growth in banks’ portfolios of loans for residential projects. “As of January 1, 2019, our portfolio was 230 billion rubles. As of January 1, 2020, it reached 440 billion rubles,” said Sergei Bessonov, Vice President and Director of the Credit Products and Processes Division at Sberbank.
11th Gaidar Forum Organizers:
The Russian Presidential Academy of National Economy and Public Administration (RANEPA);
The Gaidar Institute for Economic Policy (Gaidar Institute);
The Association of Innovative Regions of Russia (AIRR).
General partners: Gazprom, Gazprombank. Strategic partners: Coca-Cola, Mastercard, Russian Railways, Pharmstandard group, Johnson & Johnson, Sanofi, Novartis Group, MSD, ACIG Group, EF Education First. Partners: Prosveshcheniye Group, EY, Huawei, RVC, Russian Agricultural Bank.
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