Outlook for Russia’s Housing and Mortgage Market, Q1 2013

Date Published 10/24/2013
Author Marja Hoek-Smit
Country Russian Federation

Outlook for Russia’s Housing and Mortgage Market, Q1 2013

October 20, 2013

The Agency for Housing Mortgage Lending published its quarterly report on Russia’s housing and mortgage market for Q1 2013. Summary conclusions are as follows:

- The Russian economy has slowed down for the fifth consecutive quarter. The likelihood of a recession and high rates on retail deposits have put pressure on the interest rates for both retail lending and loans to the real economy. The expansion of the mortgage market is, therefore, projected to be well below its growth rate of 40% in the previous year.

- The mortgage market rose only to 109 percent YoY by volume and 121 percent by value in March 2013. Q1, 2013 had 1.12 times more mortgage originations than Q1 2012 (142,393 retail mortgage loans with a total value of RUB 226,933bn).

- Banks’ balance sheets have observed an expansion of their mortgage portfolio by 36 percentYoY (April 1, 2013). As banks continued to build up their mortgage portfolios, the volume of non-performing loans shrank both in relative and absolute terms (1.7 percent of total value, April 1, 2013), pointing to consistently good portfolio quality.

- Mortgage portfolios are facing a higher risk of deteriorating in the medium term. Several main banks are relaxing their underwriting standards to attract more customers –they no longer require proof of income from borrowers.

- Housing market growth is slowing down. The number of registered housing transfers decreased, but the share of transfers using a mortgage grew. Twenty percent of registered housing deals in Q1 2013 used a mortgage loan, an all-time high since the beginning of active mortgage lending in Russia.

- Housing prices continued to rise in nominal terms but in line with inflation. The housing affordability index did not change much since 2010.

- The housing construction sector performed well (12.8% and 6.5% increase from Q1 2012 in commission of new houses and apartments respectively). However, the number of new construction contracts for the quarter dropped to historical lows which indicate a risk of recession in the construction sector.

- AHML expects approximately 700-800 thousand loans for a total of approximately RUB 1.2tn to be issued in 2013.

For full report, see here.

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