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Housing Finance Market Overview
In Russia, housing finance is mainly raised from banks and mortgage banks, but also non-banks like mortgage cooperatives or housing savings cooperatives participate in the market. However, approximately 70 per cent of the mortgage market is controlled by the top five banks, with the Sberbank taking the largest market share (38 per cent). By the turn of the century, the Russian housing finance industry has grown by leaps and bound with housing finance recording compounded annual growth rates of more than 50 per cent till 2007. Yet, as this market boom started from an extremely low level the mortgage debt to GDP ratio was still at an abysmal 1.9 per cent in 2007. The development of the mortgage market has been hindered by inadequate legislation, immature financial markets, lack of unified market standards and a failed policy to develop the market at all. This low level is reflected also in an estimate of the Central bank that only 10 to 15 per cent of the real estate in Russia is bought using bank loans.
The Market from the Perspective of the Demand Side
In Russia, the usual maximal loan-to-value (LTV) ratio amounts to 85 per cent though the average LTV ratio is far below this level with just over 60 per cent. Interest paid on a loan to finance the construction or purchase of housing qualifies as a tax deductible expense. In addition, there have been several programmes to support affordable housing in Russia. In 2007, most loans taken out were fixed interest loans though the share of variable interest rate loans was considerable.
House Price Development
From 2000 to the middle of 2008 the average annual growth rate of house prices in Russia was 30 per cent, a very considerable increase, though the main metropolitan areas had even higher growth rates. 2006 was the year with the most stunning house price growth, with price increases of more than 50 per cent. Since the middle of 2008, house prices were declining slightly. Property prices are expected to slide further in 2009, by 20 to 25 per cent.
Special Characteristics of the Market
The government supports the housing market with several – mainly indirect – measures, whereof the grants and guarantees to the government-owned Agency for Housing Mortgage Lending (AHML) – a mortgage liquidity facility – can be considered to be the most important.
While the non-banks rely usually on their customer deposits, banks and mortgage banks have and mainly use other possibilities to fund their mortgage market activities. First, mortgages can be refinanced by the AHML, which in turn receives direct allocations from the state budget but also issues (state guaranteed) bonds and (recently) mortgage backed securities. In 2007, the share of the AHML on the mortgage market was over 10 per cent. The creation of a secondary market including the AHML has been fostered and assisted financially as well as technically by the World Bank, the IFC and USAID. Banks and mortgage banks are also involved themselves in the securitisation of mortgages. However, the outstanding residential mortgage backed securities had only a share of 6 per cent on all outstanding housing loans as banks and mortgage banks mainly use other instruments like mortgage certificates and debt obligations.