Dmitry Vlasov: Effect of sanctions on the Russian real estate market is grossly overestimated

01/ 10

Recently we have heard many talks regarding the effect of the Western sanctions on the Russian economy. Among other things, about possible negative consequences for the Russian real estate market. However RDI experts believe one should not jump to conclusions.

“Another package of economic sanctions introduced by the US and Europe can hardly harm the real estate sphere, since this market is local by nature. Market analysts have noted a sharp animation of customers in Q1 2014, mostly caused by the news flow regarding bank closures. However to my mind the key factor which resulted in a growth of concluded transactions by dozens of percentage points as compared to January – March 2013 was the reduced mortgage rates, with troubled expectations in the market in the second place”, says Dmitry Vlasov, RDI Commercial director.

It is true that the sanctions were introduced against several major Russian banks and not the Russian financial sector as a whole, bur foreign bankers will be forced either to give up working with Russian customers or raise their credit rates.

We saw a similar situation in 2008, when foreign banks and corporations stopped lending to Russian companies because of the global crisis. The consequences may be similar, namely – deficit of financial resources. This in its turn will make all kinds of loans more expensive. Since the start of the year the Central bank has repeatedly raised the key rate which achieved 8%. Quite logically, banks reacted to increased funding costs by raising their product rates.

“By the fall, many leaders of the financial market have adjusted their mortgage program rates. The growth of base rates at the moment does not exceed 1%. Nevertheless demand for mortgage product keeps growing. Analysis of mortgage transactions in our company demonstrates shat practically every other transaction (approximately 60%) is carried out using mortgage loans” , concludes Rustam Azizov, head of the RDI mortgage center.

The situation is slightly different with the scope of supply and construction. Projects that already have been started will be completed anyway. “Developers most probably will have no problems with financing the current construction – agreements with banks on extending credit lines under specific projects are made well in advance. The result may be some shrinkage of the supply. On the whole, the effect of sanctions on the Russian real estate market is grossly overestimated”, believes  D. Vlasov.