Russian macro: increased mortgages, investment in real estate to add up to 0.5% to GDP growth this year
Statistics suggests that Russians continued to weather their own financial storms during the pandemic quite successfully (on average). Household accounts with banks have been growing steadily since 2015, and the pandemic had little effect on this trend, although deposits have become less attractive amid falling interest rates. These trends became even more visible in 2020, as the key rate was cut further. Escrow accounts have also increased, and they are associated with demand for credit. Since 2018, total consumer lending (including mortgages) nearly doubled. Credit growth accelerated in 2021.
Russians (on average) mostly borrow not because they lack cash but because they are looking for smarter and more efficient investments than low-yielding bank deposits. Investing in real estate with a down payment seems quite attractive at the moment, especially as mortgage maturities have increased. The latter means reduced monthly debt servicing, which is an important short-term factor for ordinary Russians who are betting on rising real estate prices.
Construction activity skyrocketed in 2Q21, which is impressive – the decline in the construction sector in 2Q20 was short-lived. Statistics for 3Q21 are yet to be seen, but at this stage one cannot rule out that construction may grow by around 8-10% in 2021. If so, construction fueled by the rapid growth of mortgages may add around additional 0.4%-0.5% to GDP growth this year.
* Volumes of mortgages granted monthly remained relatively stable in 2018-2019, but increased massively in mid-2020 as interest rates fell below 8% (not least due to the government plan to subsidize loans during the pandemic). The average interest rate on mortgages fell to around 7% in mid-2021, which looked attractive combined with the nearly double-digit growth of the nominal wage and inflation around 6%.
* Mortgage interest rates are well below other consumer lending rates, which are at double-digit levels. However, mortgages account for nearly half of total consumer loans. The average interest rate on consumer loans with less than a 1Y maturity was 13.42% in June. Such short-term loans represent a small part of total loans, which suggests that the bulk of demand for lending comes from the relatively wealthy part of the population.
* The number of mortgages provided monthly has increased, especially since the beginning of the pandemic. At the same time, the average loan maturity has also increased (up to over twenty years).
* Overall, however, as interest rates are still generally high, the medium-term risk is associated with disinflation and the respective slowdown of nominal wage growth.
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