MOSCOW BANK'S VIEWS ON MORTGAGE MARKET

UNCLAS SECTION 01 OF 02 MOSCOW 001501 SENSITIVE SIPDIS STATE FOR EUR/RUS E.O. 12958: N/A TAGS: ECON EIND PGOV RS SOCI SUBJECT: MOSCOW BANK'S VIEWS ON MORTGAGE MARKET -------------- Summary -------------- ¶1. (SBU) As part of our series of cables on Russia's real estate sector, Econoffs met with representatives from Moscow Credit Bank to better understand Russia's developing mortgage market. Moscow Credit Bank is a mid-size lender that is increasingly active in the mortgage market. According to its representatives, only upper-class Russians are currently using mortgages, which remain beyond the means of the average middle class home buyer. That said, the bank believes there is potential for future growth of the market, especially from Russia's emerging middle class, provided incomes continue to rise and developers start to build more affordable housing. End Summary. -------------- Mortgages: Beyond Most Russians' Means -------------- ¶2. (SBU) Econoffs met with Lyudmila Saligin, Director of Retail Lending, Igor Kondratyev, Head of Financial Institutions, and Andrey Butukhanov, Director of the International Division at Moscow Credit Bank. Moscow Credit Bank is a mid-size lender that specializes in consumer loans, including mortgages. Its mortgage portfolio is one of the fastest growing in Moscow. ¶3. (SBU) Saligin said the bank's mortgage business is growing despite systemic obstacles in the residential real estate sector. She said the principal obstacle is the lack of housing that the average Russian can afford. Even in Moscow, the country's wealthiest region, the average resident earns less than $1,400 a month. Credit limits are fixed and as a policy, monthly payments cannot exceed 55 percent of the borrower and co-borrower's combined average monthly income. Rates on a current 20 year mortgage (the maximum) are more than 12 percent, and purchasers are expected to make a down payment of 20-30 percent. ¶4. (SBU) Assuming, for the sake of argument, that a young two-income couple making average salaries is looking for their first apartment. They would be limited to monthly payments of around $1,500: a 20 year mortgage of $140,000. With a 20 percent down payment that leaves a total purchase price of $170,000. In a city where the price per square foot can be as much as $1,000, this couple would be unable to afford even a small studio apartment. The situation is even worse outside of Moscow, where the poorly developed mortgage lending system and lower average incomes combine to make it more difficult to purchase a home, despite lower prices. -------------- Potential for Growth -------------- ¶5. (SBU) Saligin said that in reality only about 10-15 percent of the Russian population can afford mortgages. This includes the country's wealthiest individuals. Moscow is home to many billionaires, 87 according to Forbes, and Saligin said the elite tended to purchase property as an investment, taking advantage of negative real interest rates (inflation is 15 percent and rising) and driving prices still higher for less wealthy individuals. ¶6. (SBU) However, Saligin said there is a second category of borrowers that are increasing in number and that are the key to the bank's growing mortgage business: the upper middle class. According to Saligin, Moscow Credit Bank's typical mortgage client has a higher education, is a manager or private entrepreneur, is between 35 and 45 years of age, and has a monthly income of $4,000-5,000 per family. These individuals tend to purchase apartments that cost between $250,000-350,000. ¶7. (SBU) Saligin estimated that Russia's mortgage market could expand by 4-5 times its current size over the next five years, provided that incomes continued to rise and that developers began building housing marketed toward the middle class and upper middle class rather than to wealthy speculators. Kondratyev agreed, adding that the greater economic awareness of the general public along with continued stability would lead to greater willingness to take on MOSCOW 00001501 002 OF 002 long-term debt, leading to the growth and maturation of Russia's real estate market. RUSSELL