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Mortgage Approvals Skyrocket As Vladimir Putin Orders Record New Housing

What Vladimir wants, he gets. In this case, it’s a housing boom with record mortgages okayed by State-owned banks.

By Jeff Vasishta December 6, 2016

Vladimir Putin, as we all know, is a man who gets what he wants, even a housing boom. Easy to get mortgages, he recognizes, could revive the economy after two years of recession. The president has made obtaining loans for new houses as effortless as hacking into an overseas political database.

“Whoever wants to and is ready, better do it now,” Putin said of buying a new home to the head of the state controlled Sberbank, PJSC, Herman Gref. The government, who have furnished state subsidies to fuel the frenzy, hope that connected industries such as construction, retail and finance will also benefit economy. And it’s not as if Russians need much encouragement to move. According to Bloomberg, almost half of the population live in deteriorating Soviet housing stock built before 1980. Putin’s plan is paying off. New home loans are set for record numbers in 2017 and is up 29 percent so far this year. However, it still lags by a third—compared to other former communist states in Eastern Europe.

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Unlike other countries, a much higher proportion of Russian homes are apartments rather than houses. The strategy is to build high volumes of cheap housing to provide affordable homes to its general population. It’s not pretty, but many Russians won’t mind because it’s a better deal than they once had in pre-Perestroika housing.

The sheer volume of new housing isn’t worrying bankers, either. Froth is something Russians only appreciate on their beer. Banks insist on large down payments to insulate again the threat of a real estate bubble and easy credit has been welcomed by Russian’s Central Bank as a home buying created upward momentum in the economy.

“If the authorities get inflation down to a stable 4 to 5 percent, they can use mortgages to kick-start growth,” Charles Robertson, global chief economist at Renaissance Capital in London told Bloomberg. “With every mortgage, you’re looking at people buying new kitchens, paying someone to wallpaper the bedroom and spending more money. It’s one of the few domestic demand growth stories open for Russia.”

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There are currently more newly built apartments on the market than anytime in the last decade, with government help seen as the only way to keep the market growing.

“Real estate prices aren’t going to increase given the amount of offers on the market,” Olga Shirokova, head of consulting and research at Knight Frank in Moscow told Bloomberg. “The only way to keep the mortgage market growing at anything like this year’s clip would be to continue to offer state subsidies.”

Momentum has arrived, however, from an unlikely neighbor. China. The number of deals on Moscow housing purchases made by Chinese investors has doubled in the last three years, according to the research and analytical center INKOM.  OK, so the Chinese haven’t being buying up the glut of new housing whose buyers are hoping for subsidies but rather high end homes in southwest Moscow.

Which begs the question. Is there any upscale market Chinese investors aren’t in?

 

 

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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