The Effect of Mortgages on FSU RE
Interesting to see the effect of mortgages on FSU real Estate
2021-09-24 06:00:00.9 GMT
By Alex Sazonov
(Bloomberg) — Russia’s property tycoons are minting vast
fortunes after a government move to boost the market during the
pandemic helped spur a housing boom.
Sergey Gordeev, the controlling shareholder, chairman and
chief executive officer of PIK Group, has seen his net worth
more than double this year to $8.9 billion, according to the
Bloomberg Billionaires Index, as shares in Russia’s biggest
developer surged. Pavel Golubkov and Mikhail Kenin’s stakes in
their property firm, Samolet Group, are each worth more than $1
billion after its stock soared more than fivefold in 2021.
Real estate markets across the world have been red-hot
during the coronavirus outbreak, supported by low interest
rates, reduced supply and demand from people who are stuck at
home and are buying larger residences or making new investments.
Those factors are also at play in Russia, but there’s
another important reason: President Vladimir Putin’s government
introduced a mortgage-subsidy program in April 2020 to stimulate
demand amid the pandemic and a slump in the country’s key
Property prices have since taken off, and Samolet, at
least, says the good times have room to run.
There is “huge” demand for housing, CEO Anton Elistratov
said in an interview, pointing to large flows of people into
Moscow and St. Petersburg, the two biggest cities. “But the
supply is very limited.”
Russia’s housing prices jumped 14.4% in the 12 months
through June compared with a year earlier, according to Knight
Frank’s Global House Price Index report, putting the country in
the top 10 globally for price growth. Mortgage originations rose
to 545 billion rubles ($7.5 billion) in June, up 150% from the
same month in 2019, according to Russian real estate research
“The pandemic made people stay at home,” said Yury Ilin,
PIK’s vice president for capital markets and corporate finance.
“They realized they want bigger places to live and had enough
time to find them. Plus, they didn’t travel much and spent more
Global Boom in House Prices Becomes a Dilemma for Central
But as early as last July, officials were warning about the
sustainability of the boom.
Coronavirus subsidies risk inflating a housing bubble in
the country among people who aren’t solvent enough to take out
mortgages, Deputy Finance Minister Alexei Moiseev said at an
online conference that month.
“A mortgage is a loan for many years and it must be paid,”
Bank of Russia Governor Elvira Nabiullina said last week in an
interview with local media RBC Daily. “There should be an
appropriate level of family income for it.”
Adjusted for inflation, Russian incomes have been sliding
for much of Putin’s two most recent presidential terms, hurt by
weak economic performance and accelerating inflation.
In June, Putin ordered that the mortgage-subsidy program be
extended by one year to July 2022, but with tightened
conditions. The government increased the subsidized rate for
buying new apartments to 7% from 6.5% and cut the mortgage limit
countrywide to 3 million rubles from 12 million rubles in Moscow
and St. Petersburg and 6 million rubles in other regions.
In a report in August, the central bank said the risk of
the mortgage market overheating had decreased as a result of
factors including the changes to the program.
Apartment Prices Surge in Russia, Raising Fears of a Bubble
Gordeev owns 59% of PIK, which focuses on building housing
primarily in Moscow. The company reported revenue of $5.3
billion last year. Its stock is up 148% in 2021.
Golubkov and Kenin founded Samolet in 2012 as a developer
focused on mass-market high-rise apartment blocks on the
outskirts of Moscow. They and their partners sold almost 10% of
the company this month to the billionaire God Nisanov. Samolet’s
shares have risen 483% in 2021.
“At the moment Samolet stock looks heavily overbought and
we expect a correction,” said Finam analyst Natalia Pyreva. “The
change in terms of the mortgage-subsidy program will lead to a
slowdown in demand in the second half of this year, while supply
in the market is growing. It should stabilize housing prices.”
The subsidies are currently set to end in less than a year.
Samolet’s Elistratov said the company is looking for new growth
areas, including premium real estate. PIK has also been seeking
to diversify, launching its first residential project outside
Russia this year.
–With assistance from Anya Andrianova.