During the economic crisis, the number of mortgage loans in Russia amounted to 1,200,000. According to ARMHL estimates, 9% to11% of borrowers, that is, about 90,persons had problems with meeting their mortgage liabilities. It is noteworthy that in some regions concentration of such borrowers was much higher than the national average. The danger of a crisis situation for the future mortgage lending was made worse by the aggressive policy pursued by creditor-banks.
About one-third of problem borrowers succeeded in solving their problems all alone having received financial support from their friends and relatives, while loans to about 40,000 to 45,000 persons were restructured by banks or with assistance of ARMHL. As regards another RWAY, Information and Analytical Bulletin, No. 186 (September 2010), p. 60-61.
s t i n u c. c. c. c. c. n. p.
e e e e u u u u j j j j s s s s de de de de de mar.
Institutional Problems 20,000 persons who failed or were late to take advantage of restructuring programs, the prospects of staying on in mortgage housing is being determined in court.
According to the General Director of ARMHL, the experience related to restructuring of mortgage loans during the crisis showed both high efficiency of mechanisms of pre-trial opinion as regards restructuring of mortgage loans and a lack of willingness by banks to do such work, as well as borrowers’ low level of financial literacy. Also, a weak self-regulation of that market revealed itself in a shortage of instruments which could help credit institutions fix their relations with borrowers.
At the same time, the success of ARMHL activities points to the fact that the absolute majority of borrowers who received timely support has resumed to meet their liabilities: 84% of people who were rendered support by the Agency now meet successfully their liabilities. A major factor behind that result was a decrease in the interest rate on newly provided loans by ARMHL to two-thirds of the rate of refinancing of the Central Bank of Russia (earlier the interest rate on loans was equal to that on the main mortgage liability). Such a measure was aimed at easing of the effect related to increase in borrowers’ financial burden after the period of support had d up1.
As the mortgage deals in most cases with the primary market housing of economy-class, the above mechanism is expected to contribute a great deal to recovery of the housing development.
6.5.3. Dynamics of Commissioned Housing Volumes In 2010, the volumes of commissioning of new housing kept falling though the rates of that process slowed down (3% against 6.7% in 2009). In 2010, the overall number of commissioned housing amounted to 714,100 apartments with the total floorspace of 58.1 million square meters. (Table. 30).
Table Commissioning of apartment in Russia in the 1999–2010 period Growth rates. % Year Million sq. m of floorspace To the previous year to 1999 32.0 104.2 105.2000 30.3 94.7 100.2001 31.7 104.6 104.2002 33.8 106.6 111.2003 36.4 107.7 120.2004 41.0 112.6 135.2005 43.6 106.3 143.2006 50.6 116.0 165.2007 61.0 120.6 201.2008 64.1 104.6 210.2009 59.9 93.3 197.2010 58.1 97.0 191.The source: The Russian Statistics Yearbook. 2007: Statistics Collected Papers./ Rosstat. М.. 2007. p. 507; The Social and Economic Situation in Russia. 2009. М..Rosstat. pp. 86–87. The Social and Economic Situation in Russia. 2010. М.. Rosstat. pp. 86–87. calculations of authors.
Thus, in 2010 the volume of commissioning of new housing kept falling as a result of the investment collapse of the previous years. It is to be noted that as compared to indices of the year 2008 (which indices were the best ones in the 2000s) the drop amounted to less than Mortgage Lending: Between the Russian Roulette and the Engine of Development. www.opec.ru, March 2, 2011.
RUSSIAN ECONOMY IN trends and outlooks 10%. The 2010 results turned out to be worse than those of 2007, but notably better than all those of the previous years when implementation of the priority national housing project was in full swing.
The principal difference of the 2010 results was an apparent collapse of the individual housing development. If in 2009 individual housing development smoothed such consequences of the financial and economic crisis as had the most adverse effect on developers’ activities by showing a positive dynamic (in 2009 an increase in the volume of commissioning of housing which was built by households at their own expense or with use of borrowed funds amounted to 4.3%) in 2010 individual developers built 11.2% of housing less. It is to be noted that in Russia, in general, the share of individual housing development in the total floorspace of housing built amounted to 43.6% against 47.7% in 2009.
Twenty regions with volumes of commissioning of at least 1 million sq. m accounted for nearly two-thirds of housing commissioned last year. Shown below (Table 31) is the group of those regions with differentiation by the rates of growth and decrease in commissioning of housing.
Table Commissioning of housing in Russian regions in 2010 (by the rates of commissioning) Regions with growth in volumes of Increase to the same Regions with a decrease in volumes of Increase to the same housing commissioned period last year, % housing commissioned period last year, % Voronezh Region +18.1 Moscow –34.Novosibirsk Region +12.2 Chelyabinsk Region –25.Sverdlovsk Region +10.7 Bashkortostan –14.Krasnodar Territory +4.2 Tyumen Region –10.Dagestan +3.7 Moscow region –8.Nizhny Novgorod region +3.4 Kemerovo Region –5.Stavropol Territory +2.St. Petersburg +2.Samara Region +1.Saratov Region +1.Leningrad Region +1.Tatarstan +0.Belgorod Region +0.Rostov region +0.The source: The social and economic situation in Russia. 2010. М. Rossatat. pp. 394–395.
Such growth in volumes of commissioned housing as was registered in most regions stated above can be regarded as a positive factor. The leaders in that respect were the Voronezh Region (18.1%), the Novosibirsk Region (12.2%) and the Sverdlov Region (10.7%), while in other regions including St. Petersburg (where in 2010 a small increase of 2% replaced a dramatic drop of the previous year) the growth did not exceed 5%.
The metropolitan region stands out among regions (with volumes of housing development of at least 1 million square meters) where a drop in volumes of commissioned housing was registered in 2010. In Moscow, that situation has prevailed for three years running with the extent of the drop increasing by 100% and being comparable to that of 2008 (nearly 1/3). In the Moscow Region, a positive dynamic of housing development in 2009 gave way to a drop of 8.5%. The unit weight of the metropolitan region in the aggregate volume of the nationwide housing development amounted to the mere 16.4% of which the Moscow Region accounted for a larger portion (13.3%), while the share of Moscow proper slightly exceeds 3%.
So, as it could be expected such growth in commissioned housing to 3–3.1 million square meters in 2010 (with allocation of 800,000 square meters for implementation of the municipal Section 6.
Institutional Problems housing program) as was expected by the Moscow authorities failed to take place1 though the volume of housing development (with apartment houses built under the program of the government of Moscow beyond the city borders) amounted to 3,658,500 sq. m or 87.0% to the 2009 figure. However, Moscow proper accounted for less than 50% of that volume (48.4%), while in the previous years the share of housing built beyond its borders was much smaller (approximately 10%–11% in the 2005–2007 period, over 20% in 2008 and over 1/3 in 2009).
Considering the above, it is highly unlikely that the volume of housing development in Moscow will reach the pre-crisis level (about 5 million sq. m) in the 2011–2012 period with relevant consequences for the housing market. The new Moscow authorities have already encountered difficulties in providing housing to households on the waiting list due to a failure by some investors to comply with the terms of their contracts. Also, it seems the priority of the Moscow authorities will be development of transport infrastructure and road building. As regards housing, one may expect reduction in the period of execution of relevant documents and shorter deadlines for securing of approvals at different stages of building.
6.5.4. The Current Situation and the Prospect of Development of Institutional Structure of Housing Development In the period of over two years since the beginning of the crisis, no such target administrative changes in the money-and-credit system and the banking sector as would be aimed at upgrading of organizational and economic mechanisms (administrative, economic and fiscal) of market regulation of growth in building industry took place. Nor was growth in the volume of the supply on the primary market motivated by means of development of market diversified instruments of project finance of urban planning activities (competitive repayment banking financing, budgetary financing and mortgage monetary financing with use of government guarantees).
As a result of the crises, the new configuration of the structure of the building market is just taking shape.
On the one hand, larger players of the federal level which included mostly Moscow-based operators affiliated with different business-groups and conglomerates kept taking over companies which were local developers at the regional or city level. Such process was encouraged to some extent by state support those players received during the acute stage of the crisis. In particular, the list of economic entities (which was made public by the Ministry of Economic Development of the Russian Federation in spring 2010) which received state support included well-known private business-groups specializing in building and development (SU-155, PIK Group of Companies and Inteko), as well as production of building materials (Glavstroi)2.
Unfortunately, the data is unavailable as regards the volumes and types of state support those economic entities received which factor actually brings to nought the importance of that information. Also, a question arises to what extent the above information was complete considering involvement of authorities of different levels3. As a result, large players are in position to influence pricing on the property market.
RWAY, Information and Analytical Bulletin, No. 186 (September 2010), pp. 55, 62.
www.economy.gov.ru, April 12, 2010.
During the crisis, in the Moscow Region to complete building of social housing the Bank of Moscow paid RUR 15 billion against guarantees of the Moscow government to ZAO GK SU-155 which apart from that also received RUR 9 billion worth of guarantees of the federal authorities.
RUSSIAN ECONOMY IN trends and outlooks On the other hand, due to a complicated financial situation and a large accrued debt1 building and development companies depend to a great extent on creditors (mostly banks with state participation) which in many cases along with provision of financing take hold of assets which earlier belonged to the above companies through restructuring of their debts.
Late in 2009, VTB received the controlling interest in Sistema-Gals (51.24%) with approval by the Board of Directors of AFK Sistema of the sale of its interest of 27.6% in Sistema-Gals. In autumn 2009, in the course of restructuring of loans for the amount of USD million the bank gained the controlling interest in ZAO GK Don-Stroi whose total debt to VTB amounted, by estimate, to RUR 80 billion. With taking into account the land plots in the Moscow Region which were received by VTB as redemption of the debt of the Unified Industrial Corporation and its own development projects which the bank started earlier, VTB has a good prospect of establishing a powerful unified holding in that area.
A portion of GK Don-Stroi’s assets passed to Sberbank, its another creditor (GK DonStroi’s debt to Sberbank amounted to RUR 20 billion). Since the beginning of the crisis, Sberbank received the total of nearly 2 million sq. m of the already built property as well as that which was under construction from a number of companies, including Capital Group, Keystone Company and Coalco. The Miel Holding is prepared to assign to Sberbank about 20% of its land plots in the Moscow Region as repayment of its debt.
GP PIK may serve as an example of intensive changes in the capital structure.
In April 2009, the controlling interest in the above company was received on a non-cash basis by Nafta Moskva in return for a promise to provide assistance in restructuring of the debt in the amount of RUR 49 billion. The main creditor of GK PIK is Sberbank (RUR 15.billion) whose subsidiary Sberbank Capital was granted a mandate to restructuring of PIK’s loans. It is not excluded that Sberbank may extend a loan to a buyer of the interest owned by Nafta Moskva, which interest is estimated by the latter at USD 1 billion.
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