The Growing Credit Market in Russia

I am a strong supporter of mortgages, as for many families they are the only means of ever building any real equity in anything; trying to save and invest money while also paying rest is just too hard. I've never had one, but I get car loans, as in many cities (including Dubai) the lack of option in getting around by any other way make cars are a necessity, although some aspects are more distasteful, including higher interest rates, the tendency to sell cars according to the monthly payment rather than total cost to the buyer, and the willingness of dealers to extend credit to people who really can't afford it, long-term (just like mortgage brokers, they resell the loans while getting a commission for making it, so long-term default rates don't really bother them). Credit cards and other consumer credit programs are another story; they are quite often deliberately usurious and use tricks to make it difficult to pay the bills or avoid additional hidden fees.

All of this is a real issue in the US, where poor mortgage decisions and high debt (credit card and otherwise) have made it very difficult for some families to live solvently and spend any money in the economy. The Russian economy is still growing, but I see worrying signs that credit is about to Reach Russia in a big way. Car loans are widely available, at least here in Moscow, and credit cards are promoted everywhere. The waiting couch at my neighborhood travel agency even had fake credit cards pushing debt as a means of paying for vacations. The small room also had a large banner offering up to 600,000 rubles with no interest for 90 days. On the metro I see little paper ads promising credit in one hour for up to 3500 rubles for all citizens of the Russian Federation, while the magazines, television and the two fashion channels on TV promote a lifestyle 95% of the country can't afford. Hopefully things won't get too out of hand, but the way things are looking now many Russian consumers are heading down the same credit-abuse path of the US, if not planning to exceed it.

My First Hawala Transfer

Being in Moscow, but without a Russian bank account, and wishing to transfer money from Dubai to here, I have a few options. I could put it in the account connected to my debit card, which is fine as long as I don't mind paying 0.5% and a daily withdrawal limit, which is is good for security reasons but bad for convenience reasons. I'm sure I could work out a way to wire oneself the money here, after a day or two of forms, faxes and arguing, but I decided to try something new, partially for convenience and partially because I'm interested to see how it works.

I am trying hawala, the traditional system of money transfer in the Muslim world (technically not just the Muslim word, but that is where it is the best known to Decadent Westerners such as myself). An Afghan friend of mine in Dubai graciously set it up, and this morning he called me with a man's first name, a phone number and a code. I called, gave that man the code (we spoke in Russian, but I have an accent that screams "Decadent Westerner" and I got the impresison that he is just as curious to see me as I am to see him), and we are going to meet tomorrow morning at a major metro station landmark to hand over the amount, all in cash. It would be today, but today is Women's Day, a major holiday in Russia, and we are both too busy to work out a schedule when we can both meet. My friend in Dubai is keeping an eye on it all (he asked me to call when we arranged on a meeting time, and was quite unimpressed that I have to wait until tomorrow), and asked against that I confirm when I have my money, which may be speeding the efficiency along, but I have to say - in less than a day, it transferred money from Dubai to Moscow with much less fuss of bureaucratic hassle than if I did it the more official way. If I weren't busy today it could have been even sooner.

I can also see how this system could be the bane of any law enforcement operation, as there are no official records and no way of tracking it (it even has a scandal named after it in India for this reason), but I can also see how attractive this would be, especially in places where banks are not reliable or the recipients and/or senders are unbanked. Money transfer services such as Western Union also do not have universal reach (and should sometimes be avoided for other reasons - I saw on in Sri Lanka with a gold shop in the same office as the Western Union, ready to take the remittances before the potential spenders made it out the door), but because it relies more on informal connections and less on official ties, it seems a lot easier for hawala to find a guy who knows a guy.

I will provide an update once I actually have the cash.

Update: I have the cash and it worked quite well. I arrived early and stood outside the metro station entrance where we agreed to meet. A Russian policeman came and stood directly in front of me about 15 feet away, which confused me a little until the next train load of metro passengers started to exit and he picked out a few Caucasian (in Russia this doesn't mean white, it means form the Caucuses), and Central Asian passengers and asked to see their documents. The station serves the largest outdoor market in Moscow where a lot of people form those regions work, and given prejudices against them here and the fact that the markets do provide work for many illegal immigrants, it would make sense for a policeman to choose that point on the morning before the big Sunday market operations.

Hamid eventually showed up. Officially I was supposed to give him the code but I was clearly not there to work at the market, nor shop there, and once I started speaking with my Decadent Westerner accent it was pretty obvious it was the same person he spoke to on the phone. It turns out he is Afghan so I tried out my basic Dari which surprised him even more (Decadent Westerner hawala users who speak Dari, no matter how bad, are rather rare I think). We walked to a small Uzbek cafe (Uzbek and Georgian food in Moscow are what Chinese and Lebanese food are in many other wares) called Bishkek (actually the capitol of Uzbekistan's neighbor Kyrgyzstan), ordered some Central Asian tea, complete with small tea bowls and the proper Central Asian ritual of using steaming hot tea to rinse the cups three times before using them while listening to a rather cheezy English-language ballad about the troubles in Belfast while a documentary on marmots played on mute on the TV over the cashier's corner.

He then provided the cash and asked me to count it, which I did as unobtrusively as possible. It was all there, as I expected. I'm getting good at counting cash - my goal is to be able to flip through it quickly with just three fingers, and I'd say I'm about a third of the way there.

We chatted a little more about life in Moscow and the operations of the market (in addition to being the cash delivery man Hamid also runs a store in the market selling sneakers, mostly knock-off Nike and Pumas. He came to Moscow from Afghanistan last year, has been learning Russian ever since, and after working for another store selling ladies handbags until his Russian improved, his family lent him the money to open his own stall, and he trusted as well enough to be the cash delivery point). His brother has a similar store in a Petersburg market.

Hamid also told me he knew my Afghan friend in Dubai (I know him from Afghanistan, where he performed a Very Good Feed and earned my gratitude ever since) who set the whole thing up, and that he himself was a friend of a friend, and that the typical transfer fee had therefore been waived. Which was appreciated, but was also a little disappointing from the true hawala experience side of it. I could see he was dying to ask me how exactly I was involved, but he didn't, and I figured that they really were good friends, my friend would have told him (as the perpetual solitary decadent (female!) Westerner I really am a very odd case in Afghan society, and as such don't invite any more gossip about myself than isn't already coming), and so didn't volunteer.

The Unforeseen Hazards of Construction and Real Estate in Dubai

I have seen quite a few advertisements (including one flashing billboard) to buy real estate in Dubai during my stay in Moscow. Part of this I'm sure is just going farther afield efforts to prop up the real estate sales, but the fantastic promises made by advertisers here bring to mind some of the issues that are involved. I am also in the early stages of shopping for a new residence myself, which probably accounts for why these issues seem so fascinating and hazardous.

The first real issue for foreigners such as myself is the type of land. I am only interested in freehold, which means property which I can purchase and own, as opposed to leasehold, which is property that I own, but on land which I am only leasing from the government. This lease can be for 99 years, but it does increase restrictions on what I or any heirs can do with it. It was the introduction of widespread freehold property that really sparked the beginning of the property boom/bubble a few years back. That the offer of a residency visa (and the banking privileges that includes in the tax-free USE) with a purchased residence.

For starters, while a growing number of completed villas and apartments are available for sale throughout Dubai, many are still under construction. They tend to cost a little less than comparable ready-made residences, and there have been many cases where buyers could sell them at a great profit once they were ready, but there are also risks. I am only looking at completed housing, however, mostly because of the first two of the following concerns.

The first is the most obvious. An image which looks good in an artist's rendering may be put together with poor quality finishings, or not even look that way at all. I've seen ads showing grass and trees where there were none, and even ads which erase neighboring buildings, to give the building being sold the appearance of being in a more spacious area, or, in one case, on the waterfront where in reality and entire row of buildings stands before it (alas I misplaced the ad in question, but it was for a building in the Marina area and the ad is in the In-Flight magazine for Emirates, among other places). You buy now, and when you move in your wall could be cracked, the faucets super cheap and unattractive, the playground non-existent and the wide green lawn a small bricked over terrace. This is enough of an issue that there is an ad on the radio for one development using the promise that the completed development would match which was promised as their "hook."

New topography. One of the cooler things about construction in Dubai is the ability and willingness to change the topography to suit the building. The Palms are probably the most famous cases of this, but they are by far not the only ones. While the Marina was first being built, buildings that were on the water when first showed and sold later became a few rows away as the land was filled in. On the Jumeirah Palm apartments that had a canal view when sold now have a view of earth (a filled-in canal) which supports the elevated metro platform, and will one day be a view of the elevated metro itself. One person I know purchased their apartment across from the actual Marina because they were pretty sure that the Marina would be left alone and that his Gulf (and Palm) views would be preserved.

Financial risks. These aren't so terrible, but they exist. I do not mean that the prices of your purchase could go down; they could, and although a workers amnesty reduced the number of construction workers in Dubai, which reduced the number of construction sites that could run 24-hours cycles, or just extended-schedule cycles, which in turn slowed down how quickly they would all be on the market and increase supply, they will still be finished one day, which will increase supply, which will have an effect. The whole market could collapse entirely for that matter (I don't think it will, but it could).

The financial risk that I am talking about is the one borne when you put money down. This is of course a standard practice if you purchase an apartment or villa still under construction. I did the same when I bought an apartment in the US. The difference is that when I put my money down in the US it went to an escrow account, where neither I nor the developer could touch it. When the building was finished and we went to settlement, that money was added to the rest of my payment to pay the entire amount. In Dubai the developer gets the money immediately. They could save it, invest it conservatively, use it to fund the construction of your development or give it away for all the control you have. They tend to invest it. This became a problem a while back however, when one of Dubai's two major development firms gambled big and lost a lot a large portion of their assets on the Dubai stock market. The company could have gone under and everyone who made deposits would have been out of luck. The good part about an authoritarian government and (semi)managed economy, however, is that this was not allowed to happen; that company's leadership was ordered to save the company using their own considerable personal assets, which they did.

An ad for yet a tower in the marina area. The area looks like that, only the buildings are surrounded by many others, there is no water in the background, and the trees (clearly photoshopped in in the original photo) occupy area occupied by more buildings in real life.

A Disturbing Sign of Housing and Credit Difficulties in the US

There is a service called You Walk Away now available in America which, for 1,000 USD, will help you set up a way to walk away from your mortgage, aka give up the house and let the bank foreclose. A growing number of people are doing this, as their mortgage rates go up as interests rise yet the value of their house declines, leaving them making payments on houses they can't afford which are worth less than what they owe.

The service promises to help you do this while avoiding calls from creditors, staying in your house without payments for eight months and removing the foreclosure from customers' credit record (I guess have to promise the eight-months-without-payments part in order to get people already in serious financial trouble to give them a thousand dollars). But the fact that such a service exists means that enough people are in a situation to considered walking away from their home and mortgage that You Walk Away thought that a business was viable. I'm sure it is, and all of the press coverage will only help.