Cottages and townhouses at 7% will wait: what prevents banks from lending to private housing construction

Commercial banks are reluctant to issue loans for individual houses, waiting for the introduction of new rules to regulate the sphere of private housing construction

The federal experiment on preferential mortgage lending of individual residential houses and townhouses, launched in October, has not caused a wave of activity among large banks operating in Tatarstan. Preferential mortgages at 7% for the purchase of individual houses in the republic have not yet been implemented, despite the increased interest of citizens in this type of housing. Banks explain their reluctance to enter this sector by the difficulties of determining their fair value and high risks when concluding transactions. Real estate experts confirm that lending to private housing construction is hampered by the opacity of the market.

Preferential mortgage for private housing construction will be!

Against the background of a serious increase in prices for urban apartments, individual residential buildings and townhouses are becoming more attractive for potential buyers. According to real estate services, a square metre in an average individual house is almost twice cheaper than in multi-storey new buildings in Kazan — about 60-70 thousand rubles at the end of December 2021. There are few such offers on the market, but they are in steady demand.

However, banks in Tatarstan are not in a hurry to launch a programme of preferential mortgages for residential housing at 7% per annum, which the federal government announced a long time ago. Yes, they still lent to the construction and purchase of individual houses, but the rates on these loans were comparable to consumer ones.

As noted by Deputy Prime Minister of Russia Marat Khusnullin, the fact that this sector accounts for only 2% of mortgage lending is associated with high risks of unfinished construction. But in July, announcing the programme of preferential mortgages for residential housing, he promised that the product should be launched by the end of 2021.

To revive transactions in this sector, the government of Russia has indeed already extended the preferential mortgage programme to the sphere of individual housing construction (IHS). In October, at a meeting of the government of the Russian Federation, Prime Minister Mikhail Mishustin stated that such conditions would now apply in the field of individual housing construction. “A lot of people who want to live in their own house will have the opportunity to use them," he promised. According to him, preferential loans at 7% for the purchase and construction of a private house can be taken out from October 2021 to the end of 2022.

Now this programme is being tested, it is being implemented only as part of a pilot experiment. According to government estimates, 15,000 loans can be issued for the purchase and construction of a house in Russia so far, the amount of loans for which will exceed 30 billion rubles.

What prevents banks?

However, the first wave of the programme has not yet aroused interest among banks — at least in Tatarstan. The manager of the Bank of Tatarstan branch of Sberbank PJSC, Rushan Sakhbiev, explained why in an interview with Realnoe Vremya: “There are a lot of issues related to title documents, and the programme itself is still stalling in this part.” First of all, according to him, this is due to that the private housing construction facility is difficult to assess, that is, a clear scale of fair valuation of the house has not been developed, which banks can use. But Sakhbiev hopes that when a large number of players come to this market, everything will stabilise.

The press service of Ak Bars Bank also informed our publication that there were no issuances under the preferential lending programme in the republic. They explained why:

“The development of private housing construction lending is hindered by that, as a rule, individuals are engaged in the construction of private houses. But within the framework of existing programmes aimed at the development of private housing construction, the construction of houses by private individuals is not possible," the press service of ABB explained.

VTB Bank in Tatarstan is also in no hurry to lend to the purchase of country houses at the promised preferential rate — it offers a higher percentage. But in public statements, they take the initiative to increase the amount of subsidies for the private housing construction market. The bank cautiously says that the opportunity to purchase your own house at a discounted rate will be an additional incentive to expand and improve housing conditions for hundreds of thousands of Russians across the country.

Commercial banks are waiting for the release of new rules that will regulate residential housing under the escrow account scheme. The head of the Central Bank, Elvira Nabiullina, said in the summer that at the initial stage the product could not be mass: “So far, the bottleneck is the allocation of land plots. And the main thing is the introduction of a register of standard projects. Because it will be easier for banks to issue a product if these are standard projects. Banks are generally ready to work, this will be an expansion of business for them.”

Half a year has passed since then, but the mass introduction of standard projects of individual houses will have to wait (which means that preferential mortgages for them, too). For example, on January 28, 2022, the creation of the design and estimate documentation and BIM models for projects that won the competition will be completed for the development of standard residential and infrastructure projects made of wood (it was organised jointly by Dom.RF and the Ministry of Construction of Russia). On February 15, 2022, the examination of the design and estimate documentation should end, after which a public register of winning projects ready for implementation will be formed, which will be included in the Unified State Register of Conclusions (EGRZ). Dom.RF expects that the use of such projects will finally interest banks in issuing mortgages for their construction.

“This segment of real estate remains opaque”

Antonina Darchinova, an expert on the real estate market of Kazan, explains the caution of banks in lending to residential housing by the opacity of the segment:

“Banks are in no hurry to lend for the purchase of individual houses, even in the city and townhouses, since this segment of real estate is not regulated by federal rules and remains rather opaque. There are many difficulties here: it is difficult to check the quality of construction, the legality of land ownership and to give an objective assessment of real estate.”

Nikita Egorov, the deputy director of Avangard-Realt, lists some of the problems that demonstrate this opacity:

“As a rule, private owners build individual houses: they buy plots and build several houses on them. Risks with the registration of ownership rights can arise at every step. Is there a building permit? Has the project passed state expertise? Sometimes the house can go beyond the boundaries of the plot by 10-30 cm, such also happens. There are examples of unsuccessful private development in the village of Salmachi. One of the owners built a mansion, which a few years later turned out to be within the boundaries of the red line of the Gazprom Transgaz Kazan gas pipeline. It is impossible to sell it! The owner flew abroad, the house is empty.”

Since in mortgage lending a house is a collateral object, all these risks fall on the bank that issued the loan. So the reluctance of credit and financial organisations to help citizens with cheap mortgages for private housing construction against this background is quite understandable.

Egorov tells about his unsuccessful experience: a few years ago, his agency took part in the construction of individual houses, having bought a small plot of land in the suburbs of Kazan with partners. “They divided it into pieces, built several houses. But it was hard to sell houses, because they did not agree with banks in assessing the asset," he confirms the words of colleagues about the complexity of a fair valuation of real estate.

The expert also talks about another potential problem — this is the legal status of townhouses, which remains uncertain at all: there is a dispute whether to classify them as residential housing or apartment buildings. There are few such offers on the Kazan market now, and, according to him, they have “sunk” in price.

Will there be inclusions of residential housing in the areas of multi-storey development in Kazan?

Meanwhile, in the suburbs of Kazan, there is an unprecedented surge in the construction of multi-storey housing, and not cottage settlements at all: Usady, Sokura, Osinovo, Vysokaya Gora are breaking records in terms of the pace of commissioning of high-rise buildings, capturing the best locations, Dom.RF states.

According to their data, since this year, intensive multi-storey construction has begun in Usady, where the volume of housing commissioning has increased from 3,3 thousand square metres up to 60,3 thousand square metres — a growth by 1,725%. Another popular location is Vysokaya Gora: the growth was 389%, according to the report of Dom. RF. And so it is everywhere: in Osinovo — 293%, in Sokury — 100%. Accordingly, mortgage rates are growing there.

The suburbs of Kazan are being built up more actively than other cities of the republic. Antonina Darchinova states: the capital is forced to grow because the city has run out of sites for complex development:

“There is still a zone in the area of Adel Kutuya, but the city needs more affordable housing for population growth due to visitors from other cities. Low-rise housing will definitely appear among this multi-storey development, developers have such plans.”

According to her, the bet on mixed development is made so that the owners of cottages and multi-storey buildings can share social infrastructure.

Luiza Ignatyeva