Expert Tatiana Polidi: Banks may change crediting conditions, developers are afraid of it

The Institute of Urban Economy has presented the results of the housing availability research in Russia in 2015 and the first quarter of 2016. Tatiana POLIDI, Executive Director, Director of the “Realty market” Department of the “Institute of Urban Economy” Foundation, spoke of the results of the work to our journal.

 

— Ms Polidi, your Institute has been researching this issue for several years. What tendencies have been revealed in your latest work?

— Estimations of 2015 showed that on average housing availability did not changed. It increased a little bit within one percentage point: if in 2014 29.6% of Russian families could afford buying housing with the help of mortgage loan, in 2015 they were 30.8%.

Regarding the correlation of a flat cost and per capita income housing availability has also grown: if 2014 a family consisting of 3 people had to save their income for 3.8 years to buy a standard flat of 54 m2, in 2015 this period shortened by 3.6 months and equaled 3.5 years.

 

— Sorry for interrupting… You have said that housing availability has not changed. But the economic situation in the country became worse. So, the population’s incomes are decreasing, so housing availability is to decrease as well. Isn’t it? How would you explain such counterintuitive results?

— You are right to ask this question. The given data should be interpreted adequately. On the one hand, housing availability has not changed formally. On the other hand, it takes place on the background of the mortgage loan market decrease and realty business reduction on the housing market.

In 2015 mortgage loan decreased by 35% as compared with 2014, and on the whole the amount of realty businesses on the market decreased by 13% as compared with 2014.

 

— Does it refer to all businesses?

— Yes, including purchase and sale and co-investment agreements. To be more precise: when I say “housing market” I mean all types of housing – new one, secondary one, and the one bought at the stage of construction.

Purchase and sale of finished housing refers to the secondary market. And on the primary market, the number of co-investment agreements grew significantly, which became the trend of 2015.

 

— But is not a very good tendency — the market’s changing towards co-investment increase, is it?

— Of course, not. It is much better for people to buy finished housing borrowing credits at normal rates, as it is done all over the civilized world. Alas, in spite of being spoken of a lot from all tribunes the market does not react, it means that nothing real is done. Not so long ago the 214-FL was amended by a definite mechanism and the opportunity of the housing construction projects’ financing system development with escrow-accounts.

 

— And the representatives of the banking community, for example, analyst Alexander Sinelnikov, call the 214 –FL “maleficent alternative to crediting”.

— Maleficent or not, it is a usual practice of all countries with insufficiently developed credit market. When the credit rates are high, but people still need buying housing, there always exist the so-called shared-mechanisms. That is, the schemes, in which part of money is invested by a future owner, and partly – by the developer.

It exists in all developing countries. It's another matter that it is being rejected in the course of the financial markets development. For example, Mexico moved beyond these schemes in the recession year of 2008. And, by the way, they chose the system we have suggested in the new draft bill correcting 214-FL.

According to this scheme, future housing owners deposit funds in escrow accounts, and they stay there until the object is put in operation. And a flat is fully paid, including a standard mortgage loan credit, which is lent on the security of the built housing, only after the construction is over.

 

— Acceptance certificates being signed – the money from your account is transferred to the developer…

— Exactly, and Mexicans managed to introduce the scheme rather quickly.

 

— We do not seem to be able of such quick switch over. Your boss, President of the “Institute of Urban Economy” Foundation, Nadezhda Kosareva, thinks that few will use this mechanism at the beginning: two or three banks, not more. From her standpoint, first some experience should be accumulated.

«Honestly speaking, nobody expected that the mechanism would be immediately demanded, — she told me in the June’s interview. — It is a prospective form which is to start developing and to the use of which developers will gradually come. To my mind, it should win its right to become the main, but it may become such in 5 years at the soonest».

So, it is an alternative yet. Besides, developers do not like it too much: they are sure, that introducing the bank in the system will result in the process’s price rise, and consequently, the price rise of a square meter …

— Developers do not want, but bankers have another opinion. The development of any market mechanism implies forming some balance of different business interests.

Say, developers ask banks for credits. The lion’s share of all credits is lent by Sberbank, Gazprombank and VTB. That is, the present market of bank crediting is characterized by high concentration, and we do not know how Sberbank interested in expanding business will behave.

Banks may change the crediting conditions, and all developers are afraid of that. The latter may be said: you want to get a credit – we shall open project financing for you with the use of escrow accounts. And the next business game concerning particular conditions will start. It’s difficult to say who will win in it.

In general we may say, that as the adopted draft bill contains the mechanism involving the development of project financing, the new law is in the favour of banks. And they will sooner or later find the ways to make developers to switch over to this scheme.

 

— Sounds convincing. Let’s get back to the issue of housing availability. You have said that the results of your investigation should be correlated with the problem of the housing market decrease…

— Yes. Firstly, it is really occurring on the background of the market decrease. Secondly, housing availability growth is explained easily. The thing is that the average income of high-income brackets (the mentioned 30.8% of families which may be called the richest) has grown. At the same time, housing nominal prices have stayed practically unchanged, and somewhere have become even lower. As everything is calculated according to average performances, the mortgage loan rates, though being higher by 1 percentage point than a year before, could not influence the value.

But if we consider the problem of housing availability increase via expanding the spectrum of citizens who may come to the market, - we do not see it, of course. On the contrary, the incomes of 70% of Russians, who cannot afford housing purchase now, are decreasing. And poverty grows coming closer to a very dangerous line, from my point of view.

— Thank you for the interesting conversation. Next time we would like to hear your evaluation of the prospects of the mortgage securities market, the system of building-and-loan associations as an alternative to mortgage loan and the problems of rental housing market development.

 

Andrei CHERNAKOV