The Boom in Credit

In total, Russians borrowed about $5 billion from banks and non-credit organiza­tions in their quest to improve their housing conditions in 2005. Spread across the entire population, that means that every Russian is carrying a mortgage debt of $21. That's not a lot — the average West­ern European is carrying a mortgage debt that is about 1,000 times higher.

Taking into account the ini­tial sum stumped up by buy­ers when using mortgages, credit was used to buy about 4 million square meters, with only about 10 percent of that figure involving new housing constructions.

That amounts to 400,000 square meters of new construc­tion — a drop in the ocean. The other 90 percent went on com­pleted housing, leading to sig­nificant increases in prices.

In St. Petersburg, about 5,000 mortgages were issued with 25,000 to 30,000 square meters of new housing being financed in the process. Alto­gether, that adds up to just one multi-apartment complex...

Nevertheless, the mortgage market is expanding. Its mech­anisms are being improved and the fields where credit can be employed are being ex­panded.

Those with medium range incomes are being attracted to mortgages as a realistic op­tion, with humbler citizens consolidating communal apartments or trading in their single-room apartments for two rooms, and some receiv­ing subsidies from the au­thorities in the process.

The profits to be made on these customers are not vast, but the potential volume of the market that they create is huge. This means that two processes are taking place in parallel — prices for housing are being pushed up and mortgages are turning from an exotic finan­cial instrument (along the lines of underwriting or clearing) into a mass product.

Since the beginning of 2006, mortgages have for the first time begun to have a se­rious effect on the housing market.

The emerging middle class, then, is faced with a serious question: To buy now or to wait until the rush is over?

In St. Petersburg there are over 30 banks offering dozens of different mortgage pro­grams.

They differ in various ways: the amount of the initial pay­ment or deposit, the time pe­riods, the amount of the in­terest rate and, importantly in an environment with such a vast shadow economy, the con­ditions for establishing the in­come levels of borrowers.

On the St. Petersburg mar­ket, the rise in prices predicted by analysts has begun, al the pace of that growth remains less impressive than in the capital.

In new constructions, prices went up 1.1 percent in Janu­ary, 2.2 percent in February and 3.5 percent in March. On the secondary market, prices steadily rose by 1 percent to 1.2 percent per month in No­vember, December and Janu­ary, with the pace rising to 1.5 percent in February and 3 per­cent in March.

"Nearly the whole world lives with mortgage systems and, for our citizens, acquiring a house or apartment of your own the price of which is sev­eral times your yearly income is now a reality," says Alexander Ginovker, director of the Nevsky Prostor real estate agency.

"According to the statistics, about 50 percent of the popu­lation wants to improve its hous­ing situation, and 20 percent in­tend to do it through the use of mortgages," Ginovker says.