VZCZCXRO5004
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #1501/01 1491341
ZNR UUUUU ZZH
R 281341Z MAY 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8272
INFO RUEHLN/AMCONSUL ST PETERSBURG 4958
RUEHVK/AMCONSUL VLADIVOSTOK 2833
RUEHYG/AMCONSUL YEKATERINBURG 3180
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
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
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Summary
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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.
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Mortgages: Beyond Most Russians' Means
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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.
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Potential for Growth
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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