Why do foreign banks deny loans for Russian real estate?
- Why do Russians seek loans abroad?
- Why do foreign banks avoid lending in the Russian real estate market?
Favorable credit conditions abroad
Foreign financial organizations provide more favorable lending terms than Russian banks. Their interest rates are considerably lower, which facilitates the repayment process and makes it more favorable for borrowers.
For example, in the USA and European countries mortgage rates range from 4-6% per annum, while in Russia they reach 10-13%. As a result, many Russians tend to apply for loans abroad to buyreal estate in their home country.
Reasons for credit denial
However, foreign lending institutions usually deny such applications, and this is due to several important factors.
One of the key problems is the high risks of lending to foreign nationals.In case of default on the part of the borrower, there is uncertainty regarding legal proceedings - it is not clear in which court the case will be heard. It is not surprising that most foreign banks prefer to work exclusively with citizens of their own country and provide loans only for real estate located in their territory.Expert opinion
Alexey Pavlov, who heads the international program development department at Lowell Finance, emphasizes that the status of a foreign borrower is perceived by banking institutions as a potential threat. Analysis of the financial position and property of such a borrower requires special attention in order to minimize possible risks.
Real estate market and its risks
Vyacheslav Putilovsky, head of the information and analytical service of the Banki.ru portal, notes that in order for a real estate object to be considered reliable collateral for a loan, the bank needs to carefully study the risks associated with price fluctuations in the housing market. It is also important to assess the liquidity of the property being purchased and familiarize oneself with the peculiarities of the Russian legal system.
- Difficulties may arise if there are minor children registered in the apartment or house.
- Difficulties may also arise if the property is the borrower's only place of residence.
Putilovsky adds:“Foreign banks with no experience in Russian jurisdictions are unable to adequately assess these risks, which makes transactions extremely problematic for them.”
Transparency of the Russian market
Alexey Pavlov also emphasizes that the Russian real estate market remains insufficiently transparent for international financial institutions.“To date, there is no reason to believe that in the future there will be conditions for lending in the Russian real estate market by foreign banks”,” he asserts.
Search for alternative sources of financing
In addition, Arina Khairulina, credit consultant at Assuractis, specifies that foreign credit organizations do not have the ability to conduct an independent and accurate assessment of real estate located in Russia or any other country. As a result of this situation, many Russians have to look for alternative methods of financing, and the demand for more favorable lending terms becomes especially relevant.
Introduction
According to European Central Bank guidelines, in order to avoid money laundering, financial institutions must verify in detail the origin and purpose of the money that is processed through customer accounts. This includes analyzing the real value of the real estate purchased on credit.
This information is reported by Arina Khairulina.
11 September
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Lending and international banks
Since international financial organizations tend to provide loans only in countries where they have official representation, they often avoid interacting with Russian real estate or direct their clients to established subsidiaries. As a rule, lending terms in these companies do not differ much from the offers coming from local banks.
According to Vyacheslav Putilovsky, usually loans in Russia are provided by subsidiaries of global banks such as Unicredit, Nordea, Raiffeisen and similar.
These institutions have sufficient information about the specifics of the local market. Nevertheless, the terms and conditions of loans also depend on the current market situation, as additional risks and operating costs of subsidiary banks are added to the basic interest rate.
Loan servicing problems
Vyacheslav Putilovsky also emphasizes that the cost of servicing loans is another significant problem. Due to the ban on establishing branches for foreign banks, it is difficult for them to interact with the Russian market directly, which in turn leads to high costs.
- Even if a foreign bank could potentially provide a loan to buy a home in Russia, the total cost of servicing such a loan would be so high that neither party would be willing to enter into such a transaction.
Collateral management
“Collateral management is a serious process: various specialists such as lawyers and security guards need to be involved, and all of this requires a local presence in the area where the facility to be financed is located. For foreign banks, such complexities can significantly increase costs, especially when it comes to one-off loan deals,” explains the expert.
State of the global real estate market
In addition, the situation in international real estate markets is alarming. The fall in the housing segments in Europe and the United States has made local lending institutions less willing to extend credit even to their own citizens wishing to purchase housing.
Vyacheslav Putilovsky believes that this is due to the fall in real estate prices, which creates difficulties in selling properties at prices similar to the pledged prices.
Denial of financing and real estate appraisal
Many banks in Europe are completely refusing to finance deals in certain regions where there is low demand for housing, preventing the ability to sell the property in the event of borrower insolvency.
An independent appraisal of the market value of the objects is a prerequisite, and in some cases it is required to obtain several independent appraisals from various specialized agencies.
Conclusion
Thus, the current state of the real estate market and legislative obstacles create serious difficulties for foreign banks in their intention to work with Russian assets.
Conclusion
In conclusion, it should be noted that the current lending structure in Russia and other countries differs significantly, resulting in high interest rates and difficulties for Russian citizens seeking to take advantage of more favorable offers from foreign banks.
Despite the tempting 4-6% in the US and Europe, many Russians face insurmountable barriers when trying to get a loan to buyreal estate in their country.
The main problems faced by Russians:
- Risksrelated to fluctuations in real estate prices;
- Confusion over legal issues;
- High transaction servicing costsmake foreign banks extremely cautious.
- The ban on opening branches of foreign banks in Russia further complicates the situation.
The crisis in the housing market, caused by falling real estate prices, makes the background for lending even more unstable. Even in their home countries, banks are hesitant, which indicates high risks for all parties involved in the transaction.
Bottom line:
Thus, Russian citizens should prepare themselves for the fact that obtaining cheap foreign loans to buy housing in Russia remains unlikely. Perhaps in the future financial institutions will find ways to optimize the process and reduce risks, but at the moment the Russian market remains non-transparent and difficult for foreign lenders.
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