bne IntelliNews – COMMENT: Ukrainian government to subsidize mortgage loans that could lead to real estate boom


Like other governments in New Europe, the Ukrainian government hopes to boost the real estate sector by subsidizing mortgages through a new law that was passed in early February.

Construction is one of the three main engines of economic growth, and as real incomes slowly begin to rise, the state hopes that by stimulating the homeownership market, it will also help boost housing. economic growth.

The subsidies will be a catalyst for the appreciation of house prices and will revive mortgages, which have remained largely fallow during the last years of economic chaos. No mortgages have been issued in the past 12 years, and the value of Ukrainian residential real estate has fallen by 75%. With the new mortgage law, the first step has been taken to trigger a strong recovery in the sector.

Under Cabinet of Ministers law, the government will pay the first 7% of the interest payment on a home mortgage loan. Currently, five banks offer 10% mortgage loans. Aimed at young Ukrainian families, the program offers 15-year loans of up to $ 70,000 to buy a house or apartment built after 2015. Buyers must make a minimum payment of 15% of the cost of housing.

Ukrainian President Volodymyr Zelenskiy said on his website: “Mortgages will promote economic development and create additional incentives for young Ukrainians to stay and work in their home country.

Thanks to a series of rate cuts by the National Bank of Ukraine (NBU), Ukraine now enjoys the lowest interest rates since the fall of the Soviet Union, which are currently at 6%, and has made mortgage loans more and more affordable for a much larger number. of people.

As interest rates have fallen over the past two years, mortgage loan sizes have increased by 43%, to reach $ 25,000. However, 87% of the loans were for second homes, mainly country houses. Last fall, the average effective mortgage rate in the secondary market was 14.9%. On the primary market, it was 18.2%. The the new mortgage loan subsidy program is reserved for first-time buyers.

“We are actively looking to buy as much as possible at this time due to low prices, desperate sellers and in anticipation of the eventual end of the [coronavirus (COVID-19)] quarantine. From this confluence of events, we consider the current market to be one of the most attractive for investment over the past two decades and the best since 2005.

Part of the attractiveness of the market is that, unlike most other Commonwealth of Independent States (CIS) countries, Ukraine has yet to take advantage of its ‘catch-up’ growth where prices begin to equalize with the rest of Europe. This has already happened in many other neighboring markets, but the series of revolutionary disruptions in the Ukrainian market over the past two decades mean that the virtuous circle of investment and spending has never had a chance to s ‘establish. This left asset prices depressed and ripe for a “catching up boom”.

But the market is starting to move now. Ukraine has already climbed to sixth place in the world for the growth of real estate prices, according to the British group Knight Frank in a quarterly study of the world index of real estate prices in the third quarter of 2020, against the 7th place in the second quarter of 2020.

Ukraine, Russia and New Zealand are the countries where residential property prices have risen in the past four quarters at the highest rates, according to Knight Frank. The average cost of real estate in Kiev increased by 11.2% at an annualized rate in the second quarter of 2020. In terms of price growth, the Ukrainian capital took 11th place among 150 cities in the world.

The growth in prices is partly driven by the resurgence of mortgages which restarted last summer. For the first time since early 2017, mortgage loans grew faster than consumer loans. If in December 2019 you could take out a home loan at 19-20%, then today, given that state banks offer programs at 10%, the average market rate is around 12-13%. Low inflation and a fall in the discount rate to an all-time high for Ukraine of 6% helped lay the groundwork for low rates.

Demand is also driven by the loss of supply. The economic shocks of recent years have hampered developments, and the sharp drop in new construction in the first half of 2020 resulted in a sharp drop of 41% in the number of residential square meters available in Kiev compared to the same period of 2019.

“In October, the value of home mortgages was up 23% year on year to almost $ 100 million. The average loan amount is $ 26,000, and 87% of these loans are for second homes – a dacha, “reports the National. Bank of Ukraine. The second home market is more popular because the interest rates are higher. The interest rates are lower (14.3% on average) than for the first residences (17.2%), because of the additional guarantees.

Market participants expect the Ukrainian residential real estate market to follow the same trajectory as that of Russia, which has been running a highly successful subsidized mortgage for several years now.

The Central Bank of Russia (CBR) estimated in October that its mortgage program accounted for 90% of all new loans to the housing market in 2020. The side effects have been a boom in the residential real estate market ( especially in Moscow), where prices for newly built apartments rose 21% yoy in the third quarter and the volume of new mortgages climbed 90% yoy in the three months to November.

However, despite this rapid growth, Russian borrowers remain among the least indebted in the world. The CBR estimates that less than 6% of the Russian population has mortgages. And as we’ve argued before this summer, we believe low interest rates will become the norm in Russia once rate cuts resume, perhaps later this year.

The Ukrainian market has even more room for growth than that of Russia. Household debt represented 5.3% of the country’s nominal GDP in December 2019, up from 5.6% in 2018. It has since fallen. Loans reached a record high of 28.3% in December 2008.

In the latest reports, Ukrainian household debt reached a meager $ 7.9 billion in September 2020. M2 money supply in Ukraine grew by 31.9% year-on-year. The country’s non-performing loan (NPL) ratio stood at 48.5 percent in June 2020, but has been declining steadily, albeit slowly, for several years.

Acting against an impending boom are all the structural problems Ukraine still faces. A dysfunctional justice system and government corruption were cited as the top two denials of investment: 94% of people in a recent business survey believe a weak justice system is one of the reasons for the weak attractiveness of investments in Ukraine. Enough time has been lost, so the country needs appropriate decisive actions to improve the business climate and economic development. If this problem is not addressed, it will reduce the number of banks that lend, but more likely will simply lead to continuous boom / bust cycles as banks pile up in lending and then pull out altogether.


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