Despite a massive fall in real estate prices since the onset of the financial crisis, the most popular form of collateral for bank loans by far is real estate.
More than 70 percent of the property used as collateral in the 20 largest Russian banks falls within the category of real estate, said Svetlana Sagaidak, director of Sberbank's problem assets department.
While 18.5 percent of the collateral on bank loans is housing, 39.3 percent is commercial real estate, Sagaidak said, and if you include all property portfolios, the share reaches 20 percent.
Banks have always considered real estate to be one of the more reliable forms of collateral, said Pavel Gurin, chairman of Raiffeisenbank. The overwhelming majority of UralSib's collateral is in real estate.
As a result of restructuring deals, UralSib companies received as collateral real estate assets equivalent to 5 percent of the bank's assets, said Alexei Chalenko, adviser to the chairman.
"About 70 percent of the collateral we hold is real estate — it used to be that most loans were given out under a real estate backed guarantee," said Andrei Lapko, vice president of Bank of Moscow. "Such a deposit lowers the risk for banks, and even taking into account the current discounted cost, the price of real estate is higher in monetary terms than that of equipment."
Nevertheless, banks' collateral has lost value and liquidity. Because of the crisis, the market has come to a standstill in nearly all segments — land, commercial real estate and housing, experts said.
In Moscow, rental rates for office space have fallen 60 percent from their pre-crisis high. Commercial real estate rental rates have fallen 30 percent to 50 percent, while development has stopped on regional commercial properties, said Andrew Zakrevsky, senior vice president at Knight Frank. But the market has already hit bottom and is even beginning to recover slightly, he said.
There are only a handful of deals for buying and selling land, said Ilya Terentyev, CEO of Zemer Group. He said commercial sales of land in the Moscow region have fallen 12 percent to 15 percent in price. Wholesale land prices have fallen 40 percent and as much as 70 percent in some cases.
The housing market is faring only slightly better. According to the IRN.ru real estate portal, Moscow housing has fallen 37 percent in price to $3,865 per square meter but has rebounded slightly since fall and now runs at about $4,142 per square meter.
The number of apartment sales has picked up as well. But one shouldn't expect a major increase in prices this season, said Oleg Repchenko, head of IRN.ru.
"Delayed demand has been accumulating, and supply in Moscow, as always, is limited. Therefore, having observed the increase in activity, those selling housing are trying to raise prices," he said. "But from the point of view of consumer solvency, current demand for housing leaves much to be desired."
When accounting for their collateral, banks assign a 30 percent to 50 percent discount from the price of the property, Sagaidak said.
In addition, the situation has stabilized. "The fall in rental payments has stopped," she said.
It's not clear that real estate's huge presence in banks' collateral is a risk, as only a fraction of the loans secured by real estate are problematic, Gurin said. "There is a discount system that takes into account liquidity and the possibility of a fall in prices."
There are two kinds of clients: Those with whom banks resolve issues through the courts and those who pay back their loans and work with banks on restructuring their debts, Sagaidak said, adding that the latter are the overwhelming majority. She wouldn't say what percentage of the collateral would have to be taken by the banks.
When loans aren't repaid, the bank takes the deposit as a last resort because converting it into cash always takes time and energy and sometimes results in a loss of funds, Lapko said.
"Our policy is to meet halfway all debtors who want to pay and can," Chalenko said. The market is beginning to recover — the situation with short-term liquidity has returned to normal. We believe that everything will be OK," he said.
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