Financing Your Home
By John Bonar
Getting a mortgage in Russia can be a fraught business, especially for expatriates. However, foreigners have been receiving mortgages here from a select few banks, and the situation should be getting better in the near future, according to international bankers consulted by Passport.
A mortgage is simply a bank loan specifically for the purchase of a home. Such loans have only been available in Russia for the last four years, pioneered by Delta Credit Bank, or DeltaCredit, as it is usually known.
DeltaCredit was purchased recently in a deal due to be finalised last month (October) for $100 million by the French Societe Generale. The publicity surrounding the purchase made much of Delta’s 20% market share of Russia’s $1 bn home loans market, about 0.2% of the 2004 GDP.
According to Richard W. Beesen, an American banker who has been working with Russia since the 1980’s, developing countries normally have a mortgage market running between 2% and 20% of GDP. In developed economies the mortgage debt outstanding can reach 45% – 75% of GDP.
According to several borrowers, and would-be borrowers, in most cases, funds available for mortgages are restricted and allocated on a month by month or quarter by quarter basis by the bank’s board. “We were told, sorry, your mortgage is not approved,” said one borrower. “When we reported this to the developer, from whom we wanted to buy a property,” the salesman said, “Don’t worry. You are the sixth customer that has happened to this week. Try again next month, or try another bank.”
Beesen says the problem is there is no secondary mortgage market in Russia.
“A secondary mortgage market means a primary lender can unload the debt.” He points to the efficiency of three US institutions in running that country’s secondary mortgage market – the Government National Mortgage Association, GNMA (Ginnie Mae); the Federal National Mortgage Association, FNMA (Fannie Mae) and the Federal Home Loan Mortgage Corporation, FHLMC (Freddie Mac).
Until now, Russia lacks an effective secondary mortgage market, so the primary lenders are forced to capitalise. “They have massive equity capitalisation,” says Beesen.
A sole attempt at setting up a Fannae Mae type institution, the state-owned Agency for Mortgage Housing Lending, (AIZhK), is meeting with little success due its its own limited resources. Even though it is working with banks in Moscow and the regions, it is not able to spur lenders beyond 100-150 mortgages a day. AIZhK General Director, Alexander Semenyaka, believes the market needs 4,000 mortgages a day by 2010.
Meanwhile, how do you finance the purchase of a home here?
Well, surprising as it may seem, AIZhK has actually financed a number of mortgages for expats through Uniastrum Bank in Moscow, since the bank opened an expatriate department in June this year. Uniastrum can arrange the mortgage for an apartment or a country house with a plot of land in any of the 24 regions in which it operates. Maria Tinkova, the head of the expatriate division of the bank, says Uniastrum can provide clients “with the maximum length mortgage – 27 years.” She also said the borrower can pay off the loan after just six months without penalty. The rouble denominated loan commands a 14% fixed interest rate, which Yinkova says is “low” in Russia. Uniastrum provides free of charge an independent valuer to guarantee “that you are not being overcharged.” Uniastrum will give you an answer promptly, often within one day, but the processing through AIZhK can take another month.
Two other banks provide mortgages to expats, but these are usually denominated in US Dollars and also carry interest rates from 10% to 14% depending on the term. These are not arranged through AIZhK.
DeltaCredit offers three mortgage loan products. The down payment is at least 20% and the maximum amount of a loan is $300,000 with loan periods according to the product between seven and 20 years.
Full documentation of the loans, an interactive mortgage calculator, and an online application form are all available at www.deltacredit.ru in English as well as Russian. The company operates hot-lines with advisers in Moscow and St Petersburg. DeltaCredit offers mortgages in Moscow, Moscow Region, St Petersburg and Nizhny Novgorod. It only lends for apartments, not country cottages. The bank says it takes a maximum of two weeks to process the loan from start to finish.
The other source of mortgages for foreigners is Raiffeisenbank. This expanding bank has a minimum borrowing requirement of $20,000 or $30,000 for cottages. The bank lends from Moscow, St Petersburg and Ekaterinburg.
Two factors suggest the mortgages will become more accessible, to foreigners as well as Russians.
Firstly, credit bureaus which will make it easier to verify a borrower’s creditworthiness are becoming active and, secondly, the sheer potential size of the market has leading Russian retail banks salivating.
Beeson quotes a report that indicates a potential mortgage market in Moscow alone of $79 bn. “It is my expectation that within months the larger Russian retail banks with branch networks who have the capability of originating mortgages will enter into relationships with major international institutions to create a secondary mortgage market.”
So, expect Citibank and Alpha Bank to be offering mortgages soon, while GE Finance, which bought Delta Bank (formerly a sister institution of DeltaCredit bank), is planning to launch mortgage products in January.
Uniastrum Bank www.uniastrum.ru/en; 787 6769
DeltaCredit www.deltacredit.ru Call Centre: 234 6060
Raiffeisenbank Austria www.raiffeisen.ru; 721 9900