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New build mortgages set to grow further

New build mortgages set to grow further

According to the Bank of Russia estimates, 1H 2018 saw 663.4 thousand mortgage loans issued for a total of RUB 1,310 bn, (up 57% y-o-y in volume terms and up 69% y-o-y in value terms). There were 166.8 thousand mortgage loans worth RUB 382.7 bn issued to purchase new housing (up 45% y-o-y). The secondary housing market saw even stronger growth, with mortgage loans issued for a total of RUB 926.7 bn (up 82% y-o-y).
This performance is driven by strong demand for housing, as around 25 million families would like to improve their housing conditions. Recently, we have been observing a shift towards new comfortable housing. In addition, there is a massive backlog of unmet demand for modern housing (according to a survey by the Russian Public Opinion Research Centre and DOM.RF, 80% of people looking to buy a home in the next five years consider new properties). However, new housing deals accounted for just 22% in 2017.


2016 2017 2018
Number of mortgage loans issued
856,6
1086,9
663,4
including in the primary housing market, RUB bn
305,9
312,2
166,8
Value of mortgage loans issued, RUB bn 1473,5 
2022
1310
including in the primary housing market, RUB bn
570,8
661 
382,7
Share of mortgage loans for new housing, %
39%
33%
29%
Number of registered shared-equity construction contracts, ‘000 620,4
632
309
Shared-equity construction contracts financed by mortgage loans
305,6
312,2 166,8
Share of mortgage-financed new home sales, % 49%
49%
54%
Deals in the secondary housing market, ‘000
2241,6
2231,7
983,8
Mortgage deals in the secondary housing market, ‘000
550,8
694,8
432,1
Share of mortgage-financed secondary market sales, %
25%
31%
44% 

Source: Bank of Russia, Federal Service for State Registration, DOM.RF estimate

Due to the shortage of modern housing, the current structure of real estate transactions is 1 in the primary market vs 3–4 in the secondary. Historically, the share of mortgage transactions in the secondary market was at or below 20–30%, while some 50% of new housing has been financed by mortgage loans for several years already. In 1H 2018, the share of mortgage-enabled sales by the top developers hit a record high (including PIK Group: 36% in 2014, 65% in 1H 2018; LSR Group: 20% in 2015, 52% in 1H 2018).

In 2018, rapidly declining interest rates and growing mortgage affordability prompted a significant increase in the share of mortgage deals in the secondary market, which expanded to 44% from 30% in 1H 2017. The share of mortgage deals in the primary market also grew, albeit at a slower rate, climbing up from 49% to 54%.

Ultimately, it was the growing share of apartments purchased with a mortgage in the secondary market that pushed the share of loans for newly constructed properties down in the overall mortgage volume. Again, that does not mean that the number of new builds sold decreased — and the mortgage-enabled sales are not an exception. In 1H 2018, the number of shared-equity construction contracts registered grew by 14% y-o-y, while the number of deals in the secondary market increased by a mere 1%.
Buyers’ wariness of construction risks has been the main constraint on mortgage lending for newly constructed properties. The launch of instruments to protect purchasers under shared-equity construction contracts, especially a shift towards project financing and the emergence of escrow accounts, will encourage more people to take out mortgage loans for properties under construction.