Install

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

. Last Updated: 07/27/2016

First-Ever Mortgage Auction Goes Awry

In a landmark event for the St. Petersburg noncommercial real estate sector, the first auction to sell off a flat for failure to make mortgage payments was held last Monday.

The 56-square-meter, two-room flat on the first floor of a Stalin-era building near the Oktyabrskaya embankment was put up for sale Dec. 11 after the borrower failed to keep up with payments when his small business folded, Gazeta.ru reported Wednesday, without naming the borrower.

The borrower had initially taken out the mortgage over one year ago from Aleksandrovsky Bank with the mediation of the St. Petersburg Mortgage Agency, an organization run by the city administration that arranges loans at a rate of 11 to 14 percent interest.

The agency runs the city's mortgage program as part of the Affordable Housing scheme, a widely publicized federal project intended to make home ownership a more realistic prospect for average-earning Russians.

Despite expectations that the auction would draw considerable interest, the bidding was poorly attended and the flat ended up being sold off to a private individual for its 2.2 million ruble ($80,000) starting price set by the mortgage agency. The $1,500 per-square-meter price for the flat is considerably below the St. Petersburg average of from $2,000 to $2,500.

"It all happened at an unfortunate time," said Alina Kuberskaya, head of the press office at the St. Petersburg Property Fund, suggesting that the New Year's holidays could account for the low price offered.

"To put it bluntly, people were too busy drinking and having fun to notice," Kuberskaya said.

Prospective buyers also have yet to get used to the system, said Kuberskaya, whose fund has an agreement with the mortgage company to run the auctions.

"It is also because this is just the first example of such a case and it is still something quite exotic."

Despite estimates that the rate of nonpayment for mortgages in St. Petersburg could rise to 3 percent to 7 percent as the popularity of mortgages increases over the next year, Kuberskaya predicted that there would be just "a dozen or so" similar auctions in the next twelve months.

The total amount lent to individuals as mortgages in St. Petersburg tripled over the first nine months of last year and amounted to 11.7 billion rubles, according Central Bank statistics.

The St. Petersburg Mortgage Agency estimates that from 14,000 to 19,000 mortgages will be taken out in St. Petersburg this year, a sharp increase on the nearly 9,500 mortgages issued in 2006.