Credit Bank of Moscow sees strong uptake of new support scheme for property developers

Russian lenders are witnessing a strong uptake from the market for their new support schemes for property developers following the government's decision to entrust them with greater oversight functions in the sector, one of the country's top private lenders said.

In response to the need to ensure the availability of affordable housing in the Russian Federation, while avoiding the risks to financial stability that other countries have run into, starting from 1 July, 2019, Moscow will require that all new housing projects be subject to full oversight by the country's lenders.

That includes banks supervising the use of funds by developers, reporting on any legal violations to the authorities, and the establishment of special requirements regarding developers' experience and track record.

According to Philipp Litvinenko, Head of Transactional Banking and Deposits Department at Credit Bank of Moscow, the initiative has already received a positive feedback from the market.

"Within a brief period of time, the bank has been able to form competent teams, increase the number of banking support und project financing units, build up its expertise in financial and documentary control," he said.

"In fact, all infrastructure that is necessary for managing developers' specialized accounts has been created. Due to the transition period, most developers still have not decided on a suitable banking support scheme, but the bank is already preparing its first escrow transactions."

Indeed, starting from the middle of next year, property developers will only be able to deposit money from apartment buyers in escrow accounts secured by authorised banks.

The funds will then be blocked until the construction work is finished, with activities in the interim having to be financed either at the developer's own expense or via bank loans.

Other European nations have diverged in the method chosen to grapple with the increasingly difficult task of meeting the need for affordable housing in their countries, often with decidedly mixed track results.

Even in Germany for example, according to Eurostat as of 2017 at least half of its low-to-middle-income population was 'overburdened' by housing costs, meaning that housing costs - net of housing allowances - ate up over 40% of households' disposable income.

Conversely, in the wake of the Great Financial Crisis, the receding tide of financial market liquidity revealed what were literaly ghost towns of empty flats in the likes of Ireland and Spain, two of the countries worst hit by the housing bubble in the West.

More recently, in France and the UK, authorities have resorted to higher taxes, including stamp duty surcharges on non-resident property buyers in the latter.

In Mr. Litvinenko's opinion, given sustained house price inflation and the apparent continued inflow of migrants into EU countries, authorities across the European Union should consider revamping their model by taking a page out of Russia's playbook and grant the banking sector a greater roll in helping to build and manage the country's housing stock.