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. Last Updated: 07/27/2016

Mortgage Market Set to Almost Double in 2007

Russia's mortgage market is set to almost double this year as growing wealth among the nation's 141 million people drives demand for better housing and banks offer cheaper loans.

The mortgage market will reach at least $17 billion by the end of this year, Ilya Zibaryev, head of Alfa Bank's mortgage business, said Thursday.

"Mortgages are gaining strength and moving into the regions, where demand is growing every year," Zibaryev said. "Taking into account the tough competition on the market, rates are practically at the lowest possible in current conditions."

The increase in incomes is driving more banks to offer mortgages and others to cut rates, offer longer-term loans and forgo initial deposits, Zibaryev said. It is also pulling in foreign banks and creating a mortgage and construction bond market.

Morgan Stanley, the world's second-largest securities firm, in December bought Moscow-based CityMortgage Bank. House builders Don-Stroi and LenSpecSMU are among companies tapping international bond markets for the first time, and about $2 billion in Russian mortgage-backed bonds will be sold this year.

More than 600 Russian banks were offering mortgages last year, double the number in 2005. Rates were cut by as much as two percentage points, maturities lengthened to 30 years and some lenders are willing to offer credits of more than $1 million for the first time, Zibaryev said.

Housing demand is driving a construction boom. Residential construction surged 15 percent last year to a ­post-Soviet high.

Russia still suffers from a housing deficit, which is pushing up prices even as the country's population declines and crimping the mortgage market's development. In response, President Vladimir Putin has made affordable housing one of his four priorities for the remainder of his term.

Russia has an average of 21 square meters of residential space per person, while that figure is from 40 to 60 in Europe, according to a bond memorandum for LenSpecSMU, a St. Petersburg apartment developer. Prices for apartments have doubled in the nation's largest cities over the past two years.

Russia's mortgage industry is growing fastest outside Moscow as banks open branches in the Volga, Urals and Siberian federal districts. Alfa Bank plans this year to more than double the number of cities where it offers its mortgage program to about 20.