The Central Bank proposed to develop rental housing with the right to buy

Against the backdrop of the imminent cancellation of preferential mortgages, which for most Russians has become the only possible way to buy new buildings, the Central Bank and the Ministry of Finance have proposed developing long-term leases of apartments and houses with the right to buy. Housing leasing will certainly expand the circle of potential buyers of “squares”, but this tool has a number of peculiar pitfalls.

It is no secret that today two thirds of transactions in the Russian market of new buildings are carried out with the help of mortgages. At the same time, in a number of large projects, for example, in the Moscow region, 100% of housing loans are issued under state-supported programs. The government plans to complete them in July 2024. However, in fact, the limits on preferential mortgages may end as early as September-October, Dmitry Zheleznov, commercial director of Kortros Group, said at a REPA press conference. According to him, in terms of the amount of funds, the limits for issuing mortgages with state support have already been selected by 80–85%, and if we count in the number of loans, then by 95%. Thus, banks will run out of money for preferential mortgages this fall. Against the backdrop of a likely increase in the key rate of the Central Bank and, accordingly, commercial mortgages, this will drastically limit the ability of Russians to buy new apartments and houses.

It is no coincidence that the authorities are urgently looking for non-standard options to support demand in the primary housing market. Recently, the Bank of Russia proposed to develop leasing as an alternative to mortgages. This type of residential property rental for a long period, which implies a subsequent purchase, according to the representative of the Central Bank, is suitable for people without a credit history, those who have gone through bankruptcy proceedings, as well as borrowers who do not have funds for a down payment. In order to develop a new direction, according to the regulator, it is necessary to equalize the financial conditions for the operation of housing leasing and mortgages in terms of VAT offset and property tax calculation, as well as establish requirements for the transparency of leasing companies.

Leasing housing, which has been allowed for individuals since 2011, has a number of advantages. It is processed faster and easier than a mortgage. The transaction takes place on the basis of three documents – a passport, SNILS, TIN. Payments can be made monthly or quarterly. No collateral or guarantors are required. The leasing company inspects the property before buying it out and pays property tax until the property passes into the ownership of the tenant in the future.

However, there are also disadvantages. As Irina Babina, the chief analyst of the Rosbank Dom Mortgage Products Department, told MK, the main disadvantage is that leasing housing has higher interest rates than mortgages. Unlike banks that attract funding from the market, from legal entities and the population, leasing companies themselves receive money from banks.

To compare leasing and mortgages, Babina, as an example, suggests considering a one-room apartment in Moscow worth 10 million rubles, located in a residential area, with a good repair, the rental price of which will be 50 thousand rubles. per month. The average mortgage rate in the secondary real estate market at the beginning of summer, according to the Central Bank, was 8.4%, taking into account the size of the down payment of 50%, the loan term of 20 years and annuity mortgage payments. The cost of renting such an apartment for 20 years will be about 12 million rubles. During this period, mortgage payments in the amount of 10 million rubles will be paid. “Thus, the difference between the cost of renting and acquiring the same apartment on a mortgage will be about 2 million rubles. And if we take into account the likely increase in rental rates, inflation and the annual increase in real estate prices, then the benefits of mortgages are obvious compared to long-term rental housing, ”the analyst emphasized.

According to Irina Babina, if rates on leasing programs remain higher than on mortgages, then this mechanism is unlikely to be in demand. In order for housing leasing to become a mass phenomenon, according to her, regulatory solutions are also needed to reduce the risk of the lessee. For example, now the apartment remains in the ownership of the lessor for the period of payments, and if this company is seized or bankruptcy proceedings are initiated, then the client may simply lose his home.

According to Natalia Vashchelyuk, chief analyst at Sovcombank, clients with a difficult credit history usually turn to leasing, who cannot get a loan from a bank or can only rely on a high rate. There is a high risk that the client may become insolvent and the housing will be transferred to the balance of the company. In mortgage lending, on the contrary, the share of overdue loans is minimal and banks relatively rarely face the need to sell collateral. “There may be issues with the return of the deposited funds in case the client changes his mind about buying a home. In addition, with an increase in the price of an object, lease payments may increase,” Vashchelyuk added.

We add that often a leasing agreement imposes restrictions on the actions of the tenant: such an apartment cannot be subleased.

According to Natalya Milchakova, a leading analyst at Freedom Finance Global, if a federal law is adopted that obliges lessors to tie rental rates to the key rate of the Central Bank of the Russian Federation, just as mortgage rates are pegged to it, the service will be more in demand by Russians. At the same time, this product will not be a significant competition to commercial mortgages, and even more so to state housing lending programs, the expert is sure. “To solve the problem of housing affordability for low-income citizens could be the creation of a system of tenement houses. Only the landlord, in our opinion, should be not private homeowners, but local authorities, ”concluded Milchakova.

Published in the newspaper “Moskovsky Komsomolets” No. 29072 dated July 18, 2023

Newspaper headline:
Preferential mortgages are looking for a replacement