VZCZCXRO0623
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #1576/01 1560617
ZNR UUUUU ZZH
R 040617Z JUN 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8398
INFO RUEHLN/AMCONSUL ST PETERSBURG 4969
RUEHVK/AMCONSUL VLADIVOSTOK 2850
RUEHYG/AMCONSUL YEKATERINBURG 3193
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 001576 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS 
 
E.O. 12958: N/A 
TAGS: ECON EIND PGOV RS SOCI
SUBJECT: FEAR AND LOATHING IN THE RUSSIAN MORTGAGE MARKET 
 
REF: A. MOSCOW 1536 
     ¶B. MOSCOW 1501 
     ¶C. MOSCOW 1450 
 
------- 
Summary 
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¶1. (SBU) Continuing our series of cables on Russia's real 
estate sector, Econoffs met with Dmitri Galkin, Director of 
Mortgage Lending at BINBank, a leading retail lender. 
According to Galkin, although most Russians cannot yet afford 
mortgages, even those who can shy away from them out of fear 
of debt and financial naivet.  He expected demand for 
mortgages to rise in the near future as Russians became more 
sophisticated about financial services.  Without a 
corresponding increase in the supply of affordable housing, 
this could cause already rising prices to explode.  End 
summary. 
 
------------------------ 
Mortgages Under-Utilized 
------------------------ 
 
¶2. (SBU) Galkin told us that BINBank provides a wide range of 
corporate and retail banking services.  Last year BINBank was 
recognized for its transparency by Standard & Poor's and as 
"the most dynamic bank of the year" by well-known Russian 
business journal "Company" for its expansion into Russia's 
regions.  The bank increased its outlets from 64 to 125 and 
has plans to further increase the number to 150-200 this 
year. 
 
¶3. (SBU) Galkin said BINBank also doubled its retail loan 
portfolio last year, with mortgages increasing from 21 to 30 
percent of all retail loans.  Despite the larger role 
mortgages play in the bank's portfolio, he said mortgages 
remained drastically under-utilized.  Only 7-8 percent of all 
apartment purchases last year were made with the help of 
mortgages.  Galkin said 25 percent of Russians could afford a 
mortgage, either on their own or with the help of 
co-borrowers.  This means many more Russians can afford a 
mortgage than are taking one.  However, it also means that 75 
percent of Russians still can not. 
 
¶4. (SBU) Galkin profiled his typical mortgage client as 
follows: 
 
-- Marital status: 50 percent single, 30 percent married, and 
20 percent married with children 
-- Average income: USD 2,000 per month 
-- Average purchase: USD 160,000 for a 538 square foot, 
one-bedroom apartment in Moscow's suburbs 
-- Down payment: 30 percent 
-- Allowable debt-to-income ratio: 50 percent 
-- Mortgage term: 15 years (BINBank's maximum) at 12.5-14.5 
percent interest (USD and ruble denominated, respectively) 
-- Additional fees: application fee (USD 20), property 
evaluation (USD 150)500), commission (1 percent of the 
loan), personal mortgage consultant (USD 300), bank safe 
rental (USD 85), realtor fees (5-7 percent of the purchase 
price), and insurance. 
 
-------------------------- 
Fear and Financial Navet 
-------------------------- 
 
¶5. (U) Galkin said there are a number of obstacles in the 
housing sector that were to blame for the under-utilization 
of mortgages.  On the supply side, there is simply a lack of 
housing stock, especially affordable homes. (Ref. A, B) On 
the demand side, Galkin said the average homebuyer's fear and 
financial naivet prevented them from seeing a mortgage as a 
viable option. 
 
¶6. (U) Galkin said Russia's history with financial crises had 
caused a general distrust of the overall financial system. 
Russians not only needed time to regain this trust, but also 
to be educated -- or re-educated -- on the benefits financial 
services, and mortgages in particular, could provide. (Ref. C) 
 
¶7. (U) Galkin said this lack of understanding also explained 
a strange phenomenon in his bank's business.  Despite taking 
mortgages with a 20-year term on average, most of BINBank's 
 
MOSCOW 00001576  002 OF 002 
 
 
clients paid off their loan well before the term because they 
were afraid of having debt.  Galkin also blamed financial 
navet for the fact that clients living in Russia's regions 
preferred to borrow in rubles just because they were more 
"comfortable" with local currency, even though the rate is 4 
percent higher than for borrowing in USD.  (Comment: The rate 
difference is probably even more, considering the ruble's 
fast appreciation. End Comment.) 
 
------------------------ 
Supply Response Critical 
------------------------ 
 
¶8. (U) Galkin predicted that over the next ten years, 
Russians would become more educated on financial services and 
more comfortable with the idea of taking on long-term debt. 
However, he noted that while this was good in principle, once 
the country's pent-up mortgage demand was unlocked, it would 
only widen the mismatch of supply and demand for affordable 
housing.  The lack of housing stock would be amplified and 
prices would soar even higher.  Galkin warned that the 
picture would be grim if the government did not adopt 
concentrated measures to increase the housing supply. 
RUSSELL