Financing Russian Real Estate

[Misha]

I have noticed the opposite trend lately.. Young RW and RM do NOT get married even after they've had a baby together.. Two of the girls I went to school with are now single moms because the losers that knocked them up wouldn't marry them for nothing..

Even if they do get married, the odds are not good. If they live in any city in Russia,  odds are they won't be able to buy or rent an apartment on their own and they will have to move in with one or the other set of parents.

[possum]

Even if they do get married, the odds are not good. If they live in any city in Russia,  odds are they won't be able to buy or rent an apartment on their own and they will have to move in with one or the other set of parents.

Unless the parents BUY them an apartment.. That happens more often than you would think..

[Misha]

Unless the parents BUY them an apartment.. That happens more often than you would think..

It happens, but it is very, very, very far from the majority of cases.

[KenC]

It happens, but it is very, very, very far from the majority of cases.

gabaub,
Doesn't that really depend upon the local and the financial status of the group you are most familiar with?  Point being, that both you and Possum may be correct for the areas you two speak of.
KenC

[Misha]

gabaub,
Doesn't that really depend upon the local and the financial status of the group you are most familiar with?  Point being, that both you and Possum may be correct for the areas you two speak of.
KenC

Simple economics. The middle class in Russia is defined as individuals earning more than 10,500 roubles per month. The number of Russians defined as part of the Russian middle-class is a bit less than 20% of the population. In Moscow it is higher than average, roughly 30% of the population. If the parents are earning less than 10,000 roubles per month, it is likely that they have the $30,000-$40,000 lying around to buy an apartment or a room in a smaller city or the $100,000 required to buy even a small apartment/room in Moscow. The best the young couple can hope for is that their parents will give them some money for a down deposit and they then try to get a mortgage to pay off the rest (unlikely if both are very young and not earning a lot of money) or that their parents will be willing to sell their apartment and then use the money to buy two much smaller apartments or rooms (one for them, one for their newly married son or daughter). The second option is unlikely if they have more than one child.

[possum]

Simple economics. The middle class in Russia is defined as individuals earning more than 10,500 roubles per month.

That may have been the case for a mid-sized city five years ago, but with today's rate of inflation the number you mention is closer to the poverty line than anything else..

The best the young couple can hope for is that their parents will give them some money for a down deposit and they then try to get a mortgage to pay off the rest (unlikely if both are very young and not earning a lot of money) or that their parents will be willing to sell their apartment and then use the money to buy two much smaller apartments or rooms (one for them, one for their newly married son or daughter). The second option is unlikely if they have more than one child.

I would say these two options are the most popular right now, but there are other alternatives as well..

[Misha]

The figures I cite are from the Russian department of statistics from last year. There were a number of articles in the Russian media discussing the issue of how many Russians truly belong to the middle class. I don't have time to look them up, but I did cite these sources in another post a while back.

[AnastassiaAsh]

I don't see her as a sacrifice on my freedom, but rather, an extension of me. 

This is the key line. More over, in time you will realize that life will be absolutely miserable without that right person who you truly love, she will become like air for your lungs...

[AnastassiaAsh]

Simple economics. The middle class in Russia is defined as individuals earning more than 10,500 roubles per month. The number of Russians defined as part of the Russian middle-class is a bit less than 20% of the population. In Moscow it is higher than average, roughly 30% of the population. If the parents are earning less than 10,000 roubles per month, it is likely that they have the $30,000-$40,000 lying around to buy an apartment or a room in a smaller city or the $100,000 required to buy even a small apartment/room in Moscow. The best the young couple can hope for is that their parents will give them some money for a down deposit and they then try to get a mortgage to pay off the rest (unlikely if both are very young and not earning a lot of money) or that their parents will be willing to sell their apartment and then use the money to buy two much smaller apartments or rooms (one for them, one for their newly married son or daughter). The second option is unlikely if they have more than one child.

I think these numbers are pretty far from reality. 10,000 roubles per month is about $400. I am not sure about littel towns but I know in Moscow general salaries are $400-$800 a month. Even with this state of affairs how in the world will they have $100,000 lying around? Even if two parents work, let's say together they make $1000, most of it is spent on things that are needed, I would say they can save $100-$200 a month. It will take them 500 months to save which is 41 years!! Even if they save more every month they will be able to save the whole sum in what 20-30 years!

Unfortunately the situation is not getting better with the ability of people to buy apartments. I know that credits and mortgages have been introduced recently, that can help but interest is ridiculous. 

[possum]

Unfortunately the situation is not getting better with the ability of people to buy apartments. I know that credits and mortgages have been introduced recently, that can help but interest is ridiculous. 

What the banks are passing off as mortgages right now are not mortgages at all; rather, they are private loans where real estate is used as collateral.. and the ridiculous interest rates indicate just that..

[Gator]

Possum wrote,

What the banks are passing off as mortgages right now are not mortgages at all; rather, they are private loans where real estate is used as collateral..

You have essentially defined a mortgage.  The lender (bank) has a lien on the borrower's property.  If the loan is not paid, the lender can foreclose (claim the property) without refunding any money the borrower may have paid.

and the ridiculous interest rates indicate just that

The lender (bank) must receive interest for loaning the money.  In Russia, what interest rates are lenders charging for mortgages?  What is the term of the loan (years before the loan is repaid)?  What is the size of the downpayment (as a percentage of selling price)?

[possum]

Possum wrote,

You have essentially defined a mortgage.  The lender (bank) has a lien on the borrower's property.  If the loan is not paid, the lender can foreclose (claim the property) without refunding any money the borrower may have paid.

The lender (bank) must receive interest for loaning the money.  In Russia, what interest rates are lenders charging for mortgages?  What is the term of the loan (years before the loan is repaid)?  What is the size of the downpayment (as a percentage of selling price)?

The down payment is usually around 30% and up, which is highway robbery as far as I'm concerned, and the maximum term is 30 years, I believe.. Now, the interest rates is where it gets interesting.. they're all in the 20%(!) range, roughly the same as on most other private loans and credit cards.. Do you think it's a coincidence that the rates are the same for everything?. Shouldn't they vary like they do in the civilized world?. Why is there no flexibility whatsoever on any of these types of credit?. Because it's all a big scam, and the reason the banks are getting away with it is because part of their windfall profits goes straight into the pockets of the oil-and-gas mafia..

[Lily]

In Moscow, situation with mortgage is different from what possum wrote.

For instance, Vneshtorgbank (used by a few of my colleagues) offers tthe following: for a ready to live apartment, they demand interest from 9% for 5-7 years, from 10% for 8-15 years, from 11% for 16-25 years, from 11,25% for 26-30 years of credit repayment.
In the essence, the mortgage conditions depend from the individual's monthly income, and the size of downpayment.

For instance, a signle person with monthly salary of about 4000 USD, having 20 000 USD in ready cash and wishing to obtain 200 000 USD as credit, would have to pay
 2304,69 USD every month during 15 years with bank interest of 11,25%.

A single person with monthly salary of about 2000 USD, having 20 000 USD in ready cash, could count with about 96 780 USD as credit for 15 years and would pay about 11% as interest. He or she would have to pay monthly about 1136 USD to the bank.

Almost every bank has a mortgage calculator on their website, where everyone can estimate what mortgage could he obtain given his salary and conditions.

What would probably be more amazing is that about 80-90 percent of lenders do actually repay their mortgage during a few years only. Often they are repaid in a couple if years. I have not heard of anyone who used even a half of his mortgage allowable time, let alone the full 15 or more years.

[Misha]

For instance, a signle person with monthly salary of about 4000 USD, having 20 000 USD in ready cash and wishing to obtain 200 000 USD as credit, would have to pay
 2304,69 USD every month during 15 years with bank interest of 11,25%.

A single person with monthly salary of about 2000 USD, having 20 000 USD in ready cash, could count with about 96 780 USD as credit for 15 years and would pay about 11% as interest. He or she would have to pay monthly about 1136 USD to the bank.

The average salary in Russia has increased and as of January 2007 has reached $550 per month (see http://www.kommersant.com/p847117/Statistics_2007_Salary/). If the average is $550 per month, what proportion of individuals in Russia will earn $2000 per month let alone $4000?

[Lily]

gabaub, I don't think it would be possible to estimate the percentage of people earning certain salaries.

If we speak of some 'average' salary, we don't take into account any particular details of a person, like location, qualifications, expertise, target employers, etc.

However, if someone looks up the website headhunter.ru, one could probably get a figure on what salaries are offered in a particular locations, for particular profession with certain expertise. That would be IMHO a more accurate source. Sorry the site seems to be in Russian, but some vacancies are described in English.

[deccie]

A related question Lily,
How prevalent do you think it is that Russians do not declare their full income to the government and therefore do not pay the correct amount of tax on it?

I imagine this cash or grey enconomy would skew any offical statistics quite a lot.

[Misha]

gabaub, I don't think it would be possible to estimate the percentage of people earning certain salaries.

Well, if the average salary is $550, you would likely have less than 10% of the population earning $2000/month (i.e. close to 4 times the average) and less than 3% of the population earning $4000 per month (close to 8 times the average).

[Lily]

A related question Lily,
How prevalent do you think it is that Russians do not declare their full income to the government and therefore do not pay the correct amount of tax on it?

I imagine this cash or grey enconomy would skew any offical statistics quite a lot.

I replied to this plus I addressed a question to the moderator in the same message. However, I cannot see that message...

just in case I repeat myself:

1) I think it is rather prevalent.
2) Moderator, as we are in an obvious off topic here, would it be possible to split it and to get a thread like 'Incomes and loans in Russia' or like that? thanks

[Lily]

Well, if the average salary is $550, you would likely have less than 10% of the population earning $2000/month (i.e. close to 4 times the average) and less than 3% of the population earning $4000 per month (close to 8 times the average).

how did you calculate this, I am curious?

[Misha]

how did you calculate this, I am curious?

Here are the official Russian government stats. Unfortunately, the only go up to 2006. But, we can take 2006 as a point of reference. According to these stats (http://www.gks.ru/free_doc/2007/b07_12/07-09.htm), 26.4% of the population earned more than 12,000 roubles per month in 2006. This represent almost $500 per month or pretty close to the average salary. The higher you move away from the average, the smaller the proportion of the population will be included in the extremes (the majority will fall within 2 standard deviations of the average). So, if the average wage was $500 and a bit more than a quarter of the population earned more than this average, how many people would earn 4x the average? My guess would place it at less than 10% of the population. The number of people earning 8x the average would be a minute proportion of the population (hence my guesstimate of 3%). I would like to get the exact numbers, but the Russian state states don't provide a breakdown of how much people earn over 12,000 roubles

[deccie]

 Don't you need to know the standard deviation to make the calculation you've just guessed at?

[Mod5]

2) Moderator, as we are in an obvious off topic here, would it be possible to split it and to get a thread like 'Incomes and loans in Russia' or like that? thanks

As requested 

[Phil dAmore]

Unless the parents BUY them an apartment.. That happens more often than you would think..

That's what Nina's son-in-laws parents did.  Nice place too. 

[Phil dAmore]

Current mortgage rates in St. Pete are running around 16-18%.. don't know if that is simple or compounded.  Terms range from 5 -15 years.

In the bizzaro world that is Russian banking, 'чёрни денги' is factored in as part of the qualifying income.  One would think it would be a simple step for the tax officials to find out who is hiding income this way, but since this is Russia one would be very wrong in this assumption.

Much like the U.S., there are a lot of people in apartments that they can't afford.  It's only a matter of time before the bottom drops out of the whole thing.  It has already started, my apartment has lost over $40K in value from last year at this time.  That sounds bad, but understand that prices here were beyond any semblance of reality.  When I sell in March or April, it will still bring an excellent price relative to what I paid for it.

Russians do not understand credit.  At. All.

[possum]

It's only a matter of time before the bottom drops out of the whole thing.

Oh yeah, there's going to be a major correction in the housing market at some point.. The only question is when..

Russians do not understand credit.  At. All.

True dat..