The Bank of Russia is against allowing developers to seize back property if the buyer defaults on their installment payment. According to Central Bank Governor Elvira Nabiullina, this may cause household debt to spiral out of control, TASS reported.
The initiative to allow developers to withdraw the property from buyers who default on their installment payment, proposed by Deputy Prime Minister Marat Khusnullin, is aimed at protecting developers selling housing directly to end users in conditions of limited bank credit. It is designed to reduce their financial risks, explains Valery Tumin, country director for Russia and the CIS at fäm Properties.
However, the Central Bank did not support the idea. According to Governor Elvira Nabiullina, this measure will cause household debt to grow out of control, encouraging developers to offer instalment payment plans more aggressively while bypassing a loan approval process a bank would use to assess the applicant’s solvency. According to the regulator, this may trigger a new wave of bad debts – this time in the developer segment instead of the banking system.
“The Central Bank is clearly on the buyers’ side in this case. The regulator seeks to prevent people from being easily drawn into unsecured liabilities under the threat of losing their homes. The prospects of this initiative in this form look weak, given the stance taken by the Bank of Russia,” the expert believes. “Most likely, this discussion will continue, but possible solutions must seek a compromise between protecting the buyers’ interests and the developers’ sustainability. This might be achieved by including banks in these deals or introducing additional requirements for developers.”