Moscow Region Plans Mortgages

The Moscow regional government is planning a mortgage system that will provide loans at much lower interest rates than others presently available on the market.

The new system is to be set up by the Mortgage Corporation of the Moscow Region. The corporation was founded about a year ago and is partly owned by the Moscow regional government.

Nikolai Repchenko, the deputy head of the regional government, announced last week that interest on loans would be just 12 percent and payable in rubles.

By comparison, state-owned national savings bank Sberbank provides loans at 14 percent, payable in hard currency.

The Mortgage Corporation plans to organize housing and construction cooperatives to erect new housing.

The corporation will also organize consumer and credit cooperatives that provide members with loans for acquiring this housing.

The general director of the corporation, Vladimir Maltsev, said he is certain that individuals' funds will be safely invested with the cooperatives.

"The chairman of each of the cooperatives will be one of my deputies, and this way the state structure will directly control their activities and participate in management," he said.

The charter capital of the organization amounts to 50 million rubles ($1.7 million). A controlling stake of 51 percent belongs to the regional government.

The remaining shares belong to 14 municipal bodies in the region that have participated in the program since its inception.

During the next two years, the Mortgage Corporation of the Moscow Region plans to issue at least 1,500 mortgages.

Those hoping to receive a mortgage must cover 50 percent of the cost of the future apartment themselves. The remaining amount would then be received as a loan payable over three to 15 years.

Maltsev said the average amount of each loan is 160,000 rubles to 180,000 rubles, and the upper limit is not specified.

In order to receive a larger amount the borrower must confirm his or her liquidity by providing proof of a sufficiently high income.

Families who have been waiting to receive a new apartment in the Moscow region will be given priority under the new program.

At present there are 240,000 such families.

Repchenko said no more than 15 percent of those families have incomes that would allow them to participate in the program.

The average wage in the region is just $100.

Other mortgage market participants are skeptical about the plans to issue credits at a rate lower than the inflation level.

"A 12 percent rate in rubles per year is inappropriate for the economics of the project," said Yelena Klepikova, vice president of the U.S.-Russia Investment Fund, which finances the DeltaCredit mortgage program through Russian- and foreign-owned partner banks.

"This program has little chance of survival unless it plans to feed off other sources, such as the budget, for example," she said.

Nonetheless, the regional government is convinced that market investors will be found.

Officials plan to court construction companies to sign up as co-founders of the housing and construction cooperative.

The firms would have to be prepared to build for less than the average market price.

In order to attract investment, the Mortgage Corporation of the Moscow Region has received a guarantee from the regional government for 200 million rubles. Of that amount, 100 million rubles are to be provided in 2002 and 2003.

"There are interested investors and we are negotiating with them," Maltsev said.

He did not name the investors.

There is a joke circulating in real-estate circles that, over the entire period mortgages have existed, there have been more newspaper articles written about them than there have been credits issued.

In fact, according to the municipal housing and policy department, 1,941 mortgages have been issued in total. Of these mortgages, 1,236 were provided by banks.

The majority of credits were provided by Sberbank with 341, Sobinbank with 259, KB Investment banking cooperation with 154, and Delta with 107.

Of the mortgages that were not issued by banks, the bulk was provided by SSK.