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. Last Updated: 07/27/2016

Moscow Provides Apartment Mortgages

The Moscow mayor's office on Monday began offering affordable mortgages on thousands of slow-selling apartments it has built in recent years on the city's outskirts, and hundreds of Muscovites have already signed up.

"We have had a storm of telephone calls," said Svetlana Osina, director general of the municipal real estate agency Elite-Estate, which serves as the city's authorized dealer in the mortgage program. "We already have 400 people on our waiting list. We'll start seeing them on Friday, 35 to 40 people a day."

City officials say only Muscovites are eligible for assistance under the mortgage program, one of Russia's first. Mortgages will be extended to 1,500 families this year, and 10,000 more in 1999.

Each participant must pay 30 percent of the price of a new apartment up front. A 10-year mortgage at 10 percent annual interest will cover the remainder. Under these terms, the buyer of a $40,000 apartment would pay $370 a month, while the buyer of a $120,000 apartment would pay $1,100.

One of the conditions of the mortgage is that the monthly payment should not exceed 40 percent of a family's budget.

Although the mortgages will for now be funded by the city f which long ago built the apartments up for sale f organizers say the hope is that over time more banks will be drawn into the business of shouldering risks and rewards and offering their own cash for mortgages.

The Moscow Mortgage Agency, or MIA, was created to run the program. MIA has hired Elite-Estate to register applicants, and then to send them on to one of five participating commercial banks: Fora-Bank, Moscow Sberbank, Investsberbank, Mosstroiekonombank and Moscow Municipal Bank.

Each bank checks applicants' credit worthiness, takes the down payment and then organizes the acceptance of each monthly mortgage payment. All of the payments for the apartments are remitted to MIA, minus a commission for Elite-Estate and for the bank.

Only recently built city-owned apartments in Moscow's new developments, most of them beyond the outer Ring Road, will be eligible for now. "Elite" housing is excluded: Only apartments priced at less than $1,500 per square meter can be bought with the mortgages.

Initially, the Moscow city government had planned to offer Muscovites the chance to take out mortgages on any apartment they wished to buy f government-owned or private. That pilot mortgage program was to have been fi nanced out of a $500 million loan the city planned to take from major Western banks.

But Russia's economic crisis destroyed all hope that such a Western syndicated loan would be available anytime soon. Plans to fund the ambitious mortgage program with an issue of city-backed mortgage bonds were also quickly abandoned as unrealistic.

"There is no more of the Western money on which the city had relied to start the mortgage program, but we have to start," said Vladimir Klimenko, vice president of the Russian Mortgage Banks Association. "It will help the city to overcome the crisis. So why not try the scheme with commodity loans [i.e., state-owned apartments] just for a start?"

That has added appeal to Moscow authorities who have been having difficulty selling municipal housing the city government built in outlying areas, because such housing has proved only marginally cheaper than apartments in well-developed areas closer to the city center.

"The Moscow city government has a lot of apartments it needs to sell f hundreds of thousands of square meters," said Alexander Badimov, deputy chairman of Fora-Bank. According to Osina, the city now owns 750,000 square meters of housing built this year alone.

According to Gerald Gaige, director of real estate consulting for Arthur Anderson in Moscow, there is no reason why the scheme should not work with vacant city-owned housing.

"This real estate is already owned and paid for. The money does not need to come from bonds, because it is already in the real estate f in the empty apartments that the city of Moscow has," Gaige said.

The risk, in other words, has already been taken by the Mayor's office, when it decided to build the apartments on speculation in the first place. Nor is there any risk involved for the banks participating in the scheme because they are not putting up any funds, only accepting payments.

"The banks will only service the loan and get their fees," Klimenko said.

The city has already quietly handed out 30 mortgage certificates, said

Vladimir Shternfeld, deputy head of the Prospective Development Complex, a city government unit in charge of the mortgages program.

According to Shternfeld, the program's first beneficiaries were selected "randomly." He would not give their names because "none of them wants publicity."