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Sunday, October 23, 2016

Is it better to wallow in the mortgage or live in rented apartment

On the Russian mortgage market is experiencing an unprecedented revival. According to the Bank, in the first half of this year, banks have increased issuance of housing loans by 44%. With a mortgage 390 thousand Russians have bought property in the amount of 664,5 billion rubles. To improve your housing problem calls even President Putin, who said the following: “still, inflationary processes are developing… so, who wants to and is ready, it is better to do now.” Meanwhile, the weighted average mortgage rate dropped to 12.99% APR, and most likely its cheaper to not wait. It is currently profitable to purchase an apartment or it is better to do a rent? “MK” asked the experts.

photo: Roman Orlov

The mortgage market: what’s the situation actually?

For most Russians, the mortgage is still the only option that allows you to solve the housing problem. However, before you decide on another loan, to start is to familiarize with the current situation on the market.

Experts of “MK” agree in opinion that now the availability of mortgages is largely due to the reduction of its cost. Thus, the average rate of the state is 11.5%, without it — 12,99%. Thus, the difference was reduced to 1.5–2%, and this, in turn, has a stimulating effect on demand. This is not the limit. Prime Minister Dmitry Medvedev recently promised that the program of mortgage with state support “provides further 16.5 billion rubles, of which 7.7 billion is already allocated”.

In addition, another strong driver of growth was the emergence of many lucrative offers for the purchase of housing, which is a tougher competition between developers. As a result, the growth in housing prices has slowed considerably, and in some regions even went down.

“For the first half of the decline in prices for apartments in new buildings of Moscow amounted to 3%, i.e. almost by 5 thousand rubles per square meter, but we should consider that, in fact, we are talking about reducing the cost on the most eventful demand market of the country the rate of inflation within 7.5–8%. Simply put, the estate, despite its high liquidity, remains one of the few products that are now cheaper,” — says “MK” Alexander Shustov, General Director of “Mani Fanny”.

At the same time, say the experts, one should not forget that such indicators as the growth of the mortgage market by 44%, largely due to the effect of “high base” arising from last year’s recession. Banks have failed to choose the government-set limits of funds under the program of preferential housing loans — 60% of the funds remained unclaimed. That is why any, even a slight increase would be as impressive on the backdrop of the failure 2015. And now, according to experts of “MK” we see more stabilization of the market, than any positive trends.

In addition, according to analysts, the volume of mortgage lending is still lower than in 2014. The average mortgage take 16% less in monetary terms, the gap is 14%. Changed structure of mortgage transactions: the Russians were more likely to purchase living space at the stage of construction of the building — through equity participation, which is a pretty risky move.

Increasing the number of late payments. In the first half of 2016 total debt with payments overdue by more than 90 days increased by 46%, and given that the situation on the labor market does not improve, the number of debtors, most likely, will only grow. This situation is strongly reminiscent of the US mortgage crisis, which quickly escalated into the world. Now in Russia, according to the Ministry of labor, was 948 254 unemployed, and this is only the official data; if the number of insolvent citizens will grow, and the mortgage market is to expand, it will quickly result in serious problems for the banking sector.

What is better- to take out a mortgage or to rent?

As the situation with the mortgage is still not as prosperous as we are trying to present, and do loan rates and conditions for their issuance still close to unfeasible, the question arises: whether their own homes such efforts?

View that represents the capital rental market at the moment. According to Aleksandr Shustov, as a reduction of income of Russians and the crisis practically has not affected the cost of rent of apartments in Moscow — for many workers, it still remains prohibitively high. For example, over the last 6 months the rent fell within only 2.5%. This situation is explained by the already high level of demand due to the migration from peripheral cities to Moscow in search of work, the population is concentrated in the capital and, of course, needs housing.

As commented on the “MK” Maxim Morozov, managing partner of the development company M9 Development, “in Moscow, the situation in the rental market has stabilized and is in equilibrium. Prices increased significantly after a strong decrease, but in General 10-15% behind the peak in 2013-2014”. According to the expert, the question of purchasing their own apartments individually: for most Russians, the presence of “home” remains an important criterion of mental comfort and that is why people continue to buy apartments — let and under extortionate percent. And statistics, according to Morozov, suggests that high quality borrowers in the overwhelming number of cases ahead of time to fulfill their obligations, making the purchase much more profitable.

The interlocutor of “MK” says: for those who come to other cities to time in connection with studies or work, renting is a better option as the acquisition of apartments in this case is meaningless and too costly — especially because the rental market offers a lot of interesting options. It is important to take into account the fact that the situation with renting, especially in Moscow, is changing very quickly, which is why long-term planning strategy to stay in housing “by owner” is hardly possible.

Russian authorities believe that the domestic market of rental housing has great potential to be developed. During a meeting of the Presidium of the presidential Council for strategic development and priority projects, Prime Minister Medvedev said: “…of the 23 million families, approximately 30% are potentially ready to consider the possibility of tenancy, provided, of course, if you will create civilized, clear and transparent rental market. It also speaks to the relevance of such a format to solve the housing problem and the great potential of this sector. You need to think about the use of various incentives for the development of rental housing market”.

However, a new initiative of the authorities not backed by any real action, and to predict whether it will be successful, nobody can. So the experts of “MK” agree that in comparison with the lease conditions on the housing even with a mortgage is “close to perfect”. In Moscow today, the cost of renting a Studio apartment is 31.5 thousand rubles per month, which in General can be compared with the size of payments on a mortgage loan with state support when buying an apartment on the outskirts of the city or in the suburbs.

What awaits the Russian market of a mortgage?

So, according to the respondents “MK” experts, in the current situation, a mortgage is the most sensible investment of resources, and efforts. But does this mean that the Russian mortgage market will continue to grow, or soon we’ll see him again recession?

Experts believe that this year the positive dynamics will continue, but in the long term, growing official and hidden unemployment, falling incomes and, accordingly, reduction of its solvency stall the mortgage market.

According to Aleksandr Shustov, the positive trends in the first place was due to the strengthening of the oil market. The first half of 2016, was marked by the rise of oil to the budgeted $50, and with the consolidation linked to the ruble’s real incomes have stabilized. Therefore, the increased confidence of people in the future, the citizens started to form savings, and consumer and mortgage lending picked up strongly. Right now oil is once again testing local minimums, all closer to $40, which means that the overall level of consumption and interest in the mortgage will again decline in the third quarter of this year.

“Last year was commissioned a record number of new residential properties, offer this increased 85.3 million sq. m. Formed offer objects whose construction started before the crisis, but now the oversupply might lead to a further decline in prices in the conditions of fading demand. In my view, 2016 will bring a 10-11% reduction on the new housing market” — suggests the expert.

Another condition for a market recovery in 2016 as the emergence of new seasonal stock from developers, and the payment of bonuses in many companies. But in 2017, most likely, this positive dynamics, we will not see, says Dmitry Shilyaev, acting Chairman of the management Board of the Bank “Ugra”. “If not implemented some negative scenarios on commodity markets, the market has potential for growth within 5%”, — adds the expert.

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