VZCZCXRO5004
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #1501/01 1491341
ZNR UUUUU ZZH
R 281341Z MAY 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8272
INFO RUEHLN/AMCONSUL ST PETERSBURG 4958
RUEHVK/AMCONSUL VLADIVOSTOK 2833
RUEHYG/AMCONSUL YEKATERINBURG 3180
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 001501 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS 
 
E.O. 12958: N/A 
TAGS: ECON EIND PGOV RS SOCI
SUBJECT: MOSCOW BANK'S VIEWS ON MORTGAGE MARKET 
 
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Summary 
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¶1. (SBU) As part of our series of cables on Russia's real 
estate sector, Econoffs met with representatives from Moscow 
Credit Bank to better understand Russia's developing mortgage 
market.  Moscow Credit Bank is a mid-size lender that is 
increasingly active in the mortgage market.  According to its 
representatives, only upper-class Russians are currently 
using mortgages, which remain beyond the means of the average 
middle class home buyer.  That said, the bank believes there 
is potential for future growth of the market, especially from 
Russia's emerging middle class, provided incomes continue to 
rise and developers start to build more affordable housing. 
End Summary. 
 
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Mortgages: Beyond Most Russians' Means 
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¶2. (SBU) Econoffs met with Lyudmila Saligin, Director of 
Retail Lending, Igor Kondratyev, Head of Financial 
Institutions, and Andrey Butukhanov, Director of the 
International Division at Moscow Credit Bank.  Moscow Credit 
Bank is a mid-size lender that specializes in consumer loans, 
including mortgages.  Its mortgage portfolio is one of the 
fastest growing in Moscow. 
 
¶3. (SBU) Saligin said the bank's mortgage business is growing 
despite systemic obstacles in the residential real estate 
sector.  She said the principal obstacle is the lack of 
housing that the average Russian can afford.  Even in Moscow, 
the country's wealthiest region, the average resident earns 
less than $1,400 a month.  Credit limits are fixed and as a 
policy, monthly payments cannot exceed 55 percent of the 
borrower and co-borrower's combined average monthly income. 
Rates on a current 20 year mortgage (the maximum) are more 
than 12 percent, and purchasers are expected to make a down 
payment of 20-30 percent. 
 
¶4. (SBU) Assuming, for the sake of argument, that a young 
two-income couple making average salaries is looking for 
their first apartment.  They would be limited to monthly 
payments of around $1,500: a 20 year mortgage of $140,000. 
With a 20 percent down payment that leaves a total purchase 
price of $170,000.  In a city where the price per square foot 
can be as much as $1,000, this couple would be unable to 
afford even a small studio apartment.  The situation is even 
worse outside of Moscow, where the poorly developed mortgage 
lending system and lower average incomes combine to make it 
more difficult to purchase a home, despite lower prices. 
 
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Potential for Growth 
-------------------- 
 
¶5. (SBU) Saligin said that in reality only about 10-15 
percent of the Russian population can afford mortgages.  This 
includes the country's wealthiest individuals.  Moscow is 
home to many billionaires, 87 according to Forbes, and 
Saligin said the elite tended to purchase property as an 
investment, taking advantage of negative real interest rates 
(inflation is 15 percent and rising) and driving prices still 
higher for less wealthy individuals. 
 
¶6. (SBU) However, Saligin said there is a second category of 
borrowers that are increasing in number and that are the key 
to the bank's growing mortgage business: the upper middle 
class.  According to Saligin, Moscow Credit Bank's typical 
mortgage client has a higher education, is a manager or 
private entrepreneur, is between 35 and 45 years of age, and 
has a monthly income of $4,000-5,000 per family.  These 
individuals tend to purchase apartments that cost between 
$250,000-350,000. 
 
¶7. (SBU) Saligin estimated that Russia's mortgage market 
could expand by 4-5 times its current size over the next five 
years, provided that incomes continued to rise and that 
developers began building housing marketed toward the middle 
class and upper middle class rather than to wealthy 
speculators.  Kondratyev agreed, adding that the greater 
economic awareness of the general public along with continued 
stability would lead to greater willingness to take on 
 
MOSCOW 00001501  002 OF 002 
 
 
long-term debt, leading to the growth and maturation of 
Russia's real estate market. 
RUSSELL