Russia's Private-Home Mortgages Hit Record Share as IZhS Becomes the Market's Only Growing Segment

Mortgage lending for individual housing construction (IZhS) in Russia set a historic record in early 2024: in February such loans reached a record 12% share of the market by number, and by value the segment became the only growing one in the entire mortgage market. Banks expect full-year lending for private homes to double to 1 trillion rubles.

A record the market had never seen

According to Bank of Russia data, in February 2024 the share of IZhS mortgage loans in the overall market by number set a historic record of 12%. By value the segment posted the second-best result in history, 13%. The maximum share by volume of mortgage loans for building one's own home was recorded a month earlier, in January, at 14.6%. Before 2024 the IZhS mortgage share had never reached even 10%.

According to DOM.RF, 11,000 mortgage loans worth a total of 50 billion rubles were issued for IZhS in February. As a result the segment became the only growing one in the mortgage market: compared with February of the previous year, issuance grew by 274% in number and by 316% in volume.

The regulator sees no systemic risk

Despite the rapid growth, macroprudential limits are not planned for IZhS loans, because "risks in the segment are not systemic in nature and do not pose a threat to financial stability," Evgeny Rumyantsev, deputy director of the CBR's financial stability department, said at the annual meeting of bankers with the regulator.

The private house overtook the new-build flat

A symbolic milestone was recorded by Domclick, Sberbank's analytics division: in February the number of mortgage loans for individual houses for the first time exceeded the number of mortgages issued for apartments in multi-unit new builds. Demand for primary housing continued to decline — 7,400 loans in February — while issuance in the IZhS market rose to 9,700 ahead of the spring-summer season.

Domclick director Alexey Leypi (Alexey Leypi) highlighted the key factors accelerating the market: the emergence of new products for buyers, which in time will reduce the riskiness of acquiring this type of property, and the active discussion of new laws — in particular a bill on escrow accounts, tax incentives for developers and simplified permit procedures.

VTB forecast: a trillion rubles for the year

Mortgage lending for individual housing construction as the only growing segment of the market

VTB expects the volume of IZhS mortgage issuance in 2024 to reach 1 trillion rubles. "That will double last year's result and become a new record for the market," the bank emphasized. Among the drivers it named:

the comfort of this living format;
the price per square metre, which is lower for houses than for apartments;
state programs with preferential rates not exceeding 8%, and 6% for borrowers with children.

The state would do well to focus on the development of private construction too, given its demand among Russian families, VTB believes. An additional impulse to the market, in the bank's assessment, could come from state compensation of the project finance rate in IZhS construction — a measure important both for contracting organizations and for large construction companies.

What to watch next

Whether the IZhS share holds above 10% after the spring-summer season, whether full-year issuance reaches the promised trillion, and how the debated escrow-account bill affects the segment are the three main questions the market will follow through the end of 2024.