Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Moscow Seeks Western Help To Develop Mortgage System

The Moscow city government is seeking help from U.S. financial institutions to create a Western-style mortgage system for the capital's real estate market.

But one expert said the project faces a potentially fatal obstacle -- the inability to eject residents who fail to make good on their loans.

Moscow Mayor Yury Luzhkov, addressing a symposium of investors at Harvard University, announced that the city would pursue developing a mortgage system with the help of experts from the school and the Bank Boston Corp., Reuters reported.

Additional help drawing up legal, regulatory and financial outlines would come from the International Finance Corp. and the U.S. Federal National Mortgage Association, popularly known as Fannie Mae. The agencies have 90 days to present a plan for the city's mortgage system, news agencies reported.

The absence of viable mortgage-finance schemes in Russia is considered a major obstacle for real estate developers and consumers alike. Most commercial building projects are financed by developers out-of-pocket or through up-front rental payments, while individuals buying homes must pay in a lump sum.

Timothy Fenwick, a partner at real estate group Jones Lang Wootton in Moscow, said that Russians with well-paying, steady jobs have nowhere to go to borrow money for purchasing a home -- running from $30,000 for a one-room apartment on the outskirts of Moscow to $60,000 in the center.

Gerald Gaige, head of real estate services at Arthur Andersen in Moscow, said a major hurdle in developing a viable mortgage lending program is that Russian law does not allow lending agencies to repossess property pledged against the loan, even in case of a payment default."Until this basic problem of enforceability of lenders' rights is given strength, no mortgage program is going anywhere," Gaige said.