OREANDA-NEWS. March 24, 2008. In 2007, the Russian market of mortgage was 2.3% of GDP, with Sberbank and VTD controlling half of the market.

According to Alfa-Bank’s chief economist Natalya Orlova and analyst Olga Naidenova the continuing surge of prices in real estate initiate the growth of mortgage lending that in 2008 would very likely build up the market by more \\$20 billion. We believe that the demand for mortgage will grow thanks to the regions as the Moscow prices are unreasonably high.

Al the close of 2007 the mortgage market grew to \\$30 billion (2.3% of GDP). In 2007, it increased by 140% (or \\$17.6 billion in nominal terms). Although, the acceptance of mortgage remains low: with its share being a mere 2.3% of GDP (or \\$211 per capita) compared to 10-15 of GDP in Poland, Hungary and the Czech Republic. In Russia, only 10-15% of housing is financed by banks.

Sberbank and VTB control 52% of the mortgage market: high rotation among the leading private banks. In the first half of the year 2007 Sberbank stopped loosing its market share and by the end of the year managed to control 39.7% of the market. Last year, the share of VTB grew from 7.5% to 12%. Moscommertsbank ranked third a year ago, fell back to the ninth place. Foreign banks, constrained with their organic growth, could not strengthen their positions in the mortgage market, but apparently would build up their presence through merges and acquisitions.

In the second half of the year 2007 interest rates grew by 1.0-1.5 percentage points; higher prices for housing make the number of overdue loans minimal. In spite if a slight increase in lending rates in the first six months of 2007 the growth ratio of the market remains significant. The share of overdue loans is still below 1% of the banks’ mortgage portfolios. We believe it is explained mostly by a strong growth of housing prices. Only in January-February 2008 the Moscow housing prices increased by 8-10%, and we forecast further growth of the mortgage market in 2008 by \\$20 billion.

In the second half of the year 2007 the volumes of mortgage lending in the regions grew two-fold against the similar period a year ago. At the same time, the Moscow share of mortgage loans was 5% less compared to the first half of the year 2007. At the close of the year the largest players in the mortgage market turned to the regions, with the Moscow share still taking 22% of the total mortgage loans made in 2007. St. Petersburg as the second largest city in Russia took just 7% of all the loans.

Ilya Zibarev, Head of Mortgage at Alfa-Bank: “The mortgage market is gearing up in spite of the growing rates, and all the major players sense the consistent and steady demand for mortgage.

In 2008, the share of large and state-run banks will grow at the expense of the medium regional players suffering from the US mortgage liquidity crisis.

Further mortgage growth factors in Russia are inter alia linked with lending to the housing under construction as this segment is constantly growing up.

Increased growth rates are very likely to take place in lending for country homes both in Moscow and in the regions. Today, according to estimates some 10-15% of all the mortgage loans are made for country homes, having a huge potential in the future.

Increase in the volumes of mortgage lending is geared by the growing real estate prices, making an average amount of loans higher and correspondingly — boosting the mortgage market as a whole.

Strong prospects have the second-tier regions. Alfa-Bank is actively expanding in the cities with population of nearly 600 thousand people as the demand for mortgage there is very high. Within the year Alfa-Bank is planning to open more 20-30 mortgage centers in these cities“.