‘Rybakov’s antipathy to the mortgage is outrageous behaviour and an indicator of ‘being out of touch’ with reality’

“The reflections on the mortgage are rather outrageous behaviour”

Today I would like to talk about the high-profile statement of Russian billionaire Igor Rybakov, a co-founder of famous Technonicol company. In the statement, he is quite hostile to the idea of buying a house on loan itself, calling it big stupidity and a lifelong noose around the neck of people who took out it.

It is good, of course, to reflect on this being affluent when any whim is at hand. Technonicol Group of Companies’ revenue is around 120 billion rubles a year, with 20% profitability, net profit is about 24 billion rubles. Clearly, not all the money is put into the pocket — Rybakov closely does charity work. And in general he is sound enough for his scale. But the reflections on the mortgage are rather outrageous behaviour. He says that it is necessary to increase one’s incomes and purchase real estate without loans. This is, of course, possible with some earnings. But the most population in the country can just dream about it. Let’s get into the essence of the mortgage product why I think it is the perfect product of the market economy.

The term mortgage appeared in Ancient Greece in the early 6^th century BC as a debtor’s type of liability of his debt to creditors. Poles were put on the borders of an encumbered parcel, namely, the mortgages. The modern institution of mortgage banks in Europe dates back to Germany in the 1700s. Nowadays such a loan is usually granted for a long term, with an interest rate much lower than that of other types of loans, with less strict requirements for borrowers. The debt is repaid in equal payments.

“Young families need a place to live in”

Millions of people around the world have purchased their own home thanks to this product. A lot of governments subsidise mortgage rates precisely for the opportunity to provide the population with housing and support the construction industry, which is one of the crucial vanguards of economic developments according to economic laws. The multiplier effect (a term proposed by J.M. Keynes in the 1920-1930s) from the construction sphere to other areas of the economy is very significant, just imagine the number of related sectors and the workforce employed in the process.

Today there is a mortgage boom in Russia — the rates are record low, requirements for borrowers are as friendly as possible, preferential state support programmes are on, a huge amount of housing is delivered annually. Particularly in 2020, 1,7 million mortgages for 4,3 trillion rubles were granted. The total portfolio of mortgages in the country reached around 10 trillion rubles. 88,2 million square metres were delivered.

The portrait of the borrower: 34,4 years on average, it is a family of 3-4 people (1-2 children), higher education, job position as a specialist, the average salary is 40,000-50,000 rubles a month. Most importantly, the share of borrowers under 35 years is 70%! Here is the main reply to dear Mr Rybakov — young families need a place to live in, not everybody can inherit a Soviet flat from their granny, parents of people from these young families already got these flats a long time ago. Times have changed. Young people understand that it is better to take out a long-term loan when you are 25-30, when there is a normal job and there will be the possibility of paying a small payment for 15-20 years but own a flat in the end! According to Rybakov, one should take out a loan, buy bitcoins with it and now live on your yacht, not being “attached” to a place. Indeed, it is easy to use such terms while lying on your yacht and selling insulation materials for 120 billion rubles a year.

Advantages of mortgage

Talking about the advantages of a mortgage in Russia, we can single out the following ones:

• The population has an opportunity to buy a flat or build a house;
• There are at least three state support programmes like a preferential mortgage, plus, the possibility of using maternity capital for these purposes for young families;
• The real estate market has reached a large scale and liquidity. As a consequence, banks became friendly in loan terms and refinancing in particular;
• In case of a negative scenario (a fall in incomes, default), the real estate can be sold, it always goes up in price;
• It is necessary to take a well-thought-out approach to finance planning and choose the amount of payment a family will certainly be able to pay considering current expenses. A person would better stay clear of such planning without a stable job. In general the existence of such a long-term loan and the necessity of repaying it, in contrast, stimulates people to earn more money. Here is Igor Rybakov is absolutely wrong, I think. Financial discipline gives rise to labour, while labour, in turn, brings to the improvement of households’ well-being.

“Does he himself buy flats for his workers?”

Besides the mortgage Rybakov considers as a noose around one’s neck, he voiced a number of other interesting moments or, more precisely:

• One shouldn’t wait for a fall in prices for square metres in new builds, as developers’ feedstock costs are growing. It is an absolutely correct observation, it is easily confirmed by numbers. Rolled metal has increased from 40,000-42,000 to 78,000-82,000 rubles a tonne particularly since autumn 2020 depending on the nomenclature. Prices for timber went up after metal, for instance, a cubic metre of wall panel cost 7,000 rubles in winter, now it can hardly be found for 15,000-16,000 rubles.
• As an investment a flat is not a very good instrument, it allows just not losing much. I cannot help but agree with his because the era of the buyout of investment flats is a thing of the past, the market is saturated with supply, there will no longer be such a situation that existed 15 years ago, the asset is not very profitable;
• The flat rent market lost its attractiveness. I can agree, since the market is objectively full of supply. And given crises in the economy, the population’s solvency has reached the peak. At the same time, we see a bigger supply of rent flats from developers themselves.
• Private housing development is at its height and is expecting a decline. I can agree with this argument partly. The main “in favour” factor is that transactional costs of communal accommodation (in blocks of flats) is much lower than in private houses. One has to be quite a wealthy person to be able to maintain both the house and the surrounding infrastructure. On the one hand, the pandemic showed once again that the possibility of isolated accommodation has its edges. And I think this factor will provide an additional stimulus for private housing development.

In conclusion, I would like to note that Igor Rybakov’s experience in Russian business, which doesn’t have the possibility of making planes for such a long period as 15-20 years, can explain his pessimistic mood. Nevertheless, his group of companies constantly expands, purchases plants in other countries and launches new capacities in Russia. It is odd to hear the reflections that all mortgagors will see a default and lose their flats. In general Rybakov makes an impression as a sound man who is good at many things and talented, without doubt. But his antipathy to the mortgage is outrageous behaviour and an indicator of “being out of touch” with people’s reality in the country.