Putin’s Virus Aid Risks a Housing Bubble, Finance Ministry Says
Coronavirus subsidies that have helped mortgage lending grow at an “explosive” rate risk inflating a housing bubble in Russia, a deputy finance minister warned Tuesday.
“We need to ask if it makes sense to systemically subsidize credits like mortgages,” Deputy Finance Minister Alexei Moiseev said at an online conference. “We risk inflating a bubble on the market among people who aren’t solvent enough to take out mortgages.”
Russia introduced a subsidized mortgage rate in April as a measure to stimulate demand for loans and new apartments amid the coronavirus epidemic. About one-third of the 277 billion rubles ($3.8 billion) in mortgages that banks lent in June were subsidized, according to Dom.rf. Housing loans last month grew 29% from a year earlier.
The growth, boosted by a record-low key rate and the subsidy program that runs through Nov. 1, came even as Russian incomes dropped the most in two decades last quarter.
Moiseev said Russia shouldn’t extend the subsidies and is on track to reach the mortgage targets laid out in President Vladimir Putin’s National Projects stimulus plan. The government was forced to delay most goals of the $400 billion investment and development program to 2030 from 2024, blaming the economic havoc wreaked Covid-19.
What Our Economists Say
“The government may need to take steps to prevent a bubble from forming, but they were right to provide so much support to keep lending flowing. A sudden stop might have made the crisis deeper.”
--Scott Johnson, Bloomberg Economics
Housing prices are growing faster than the national average in Far East cities such as Vladivostok, where residents can receive subsidized rates of 2%, according to Moiseev.
“Basically, budget money is simply flowing to those who sell apartments, which of course, shouldn’t be the goal,” Moiseev said.
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