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. Last Updated: 07/27/2016

Investors to Unfreeze City Mortgage Loan

A group of U.S. and European investors have tentatively agreed to unfreeze a $500 million loan intended for financing Moscow's housing mortgage program, and the final deal is to be signed Feb. 18 in Moscow, according to an official close to the deal.

The preliminary agreement on the Western loan was reached last week in Cambridge, Massachusetts, during the third annual U.S.-Russian Investment Symposium, said Stefan Zhureck, a Harvard University professor and a consultant to Moscow Mayor Yury Luzhkov's housing mortgage program.

A top-level Moscow delegation, led by Vladimir Resin, Luzhkov's deputy in charge of construction, came to the symposium for talks on the financing package, which was frozen after the Aug. 17 ruble devaluation and debt default.

"It is still too early to say that the [$500 million] has been secured," Zhureck said. "But this is a sign of a thaw in the frozen financing. We are hopeful that this may be the beginning of the kind of second round of financing after the crisis.

"We are working right now trying to finalize who the investors in the pool are and the terms of the investment, but in any case, by Feb. 18 there should be some clarity in the picture. Technically the contract should be signed on that date," the consultant added.

Zhureck said that, according to preliminary plans, the loans will be granted to the city for five years, but Moscow would like them extended to 10 years. Zhureck declined to name the proposed interest rate, saying it will be "lower than 10 percent" and will be agreed to before Feb. 18.

The investors, Zhureck said, were heartened by the fact that Moscow, among only a handful of Russian regions, has been paying its debts throughout the financial crisis. Although recent city bond issues have not been completely redeemed by cash, the Moscow government cut deals with investors by offering them apartments and other assets. Western rating agencies also see little danger of Moscow defaulting on its Eurobonds.

The city government started the mortgage program in 1998 as planned, despite the lack of foreign funding, but was only able to issue 196 mortgages instead of the planned 1,500. Officials offered Muscovites cheap municipal housing on the outskirts of the city as "commodity loans" the homeowners would then repay in cash to authorized banks.

The Western loan should pave the way for a broader program that will involve not only city-owned but also private housing. Under the scheme, Moscow residents are supposed to make a down payment of 30 percent of an apartment's price and pay out the rest over 10 years at 10 percent annually.

There will be another opportunity to finance an apartment in Moscow with a mortgage. Under a scheme to be tried out starting next month in the capital's western district, Muscovites will be able to accumulate money for an apartment in special mortgage banks.

Yury Korostelyov, head of the Moscow administration's finance department, was quoted by Prime-Tass as saying at a news conference Thursday that Muscovites will be able to save up to 50 percent of the cost of their future apartment in a new mortgage bank and borrow the rest.

"We will start with one bank in February and by summer get four of five banks in place," Zhureck said. "The only purpose of those banks will be to accumulate savings from people and to use this money only for the purpose of construction of housing which will be later given as mortgages."

The advantage of the new banks, the Harvard professor said, will be that they will not engage in financial speculations. The scheme has its limitations, though.

"In a bigger mortgage scheme you can go from one mortgage to 10,000 mortgages overnight, depending on how much money you have externally," Zhureck said. "In this scheme you are limited by the amount of money that people bring in. It is like a very reliable automobile which moves at its own pace."