- As of today all of the necessary prerequisites for development of a housing mortgage system have been created.
In the course of previous structural reforms of the housing sector, the volume of private housing has increased from 14% in 1987 to 59% in 1999 and totals 1 bln. sq. m. with a value of $100 bln. U.S. dollars.
The recovery of the economy during 1999-2000 has resulted in an increase in the number of people with stable incomes as well as a relative increase in absolute real income.
According to an analysis of current real estate market prices by the State Statistics Committee, over 5% of Russian families (2.3 mln. families) have an average monthly income sufficient to take part in a housing mortgage program. The volume of actual housing construction in 1999 amounted to 34 mln. sq. m. per year which allowed for the provision of housing to less than 1.5% of these Russian families. The construction industry has the potential, however, to provide 70 mln. sq. m. of additional housing per year.
Thus, effective mortgage borrowing demand significantly exceeds supply in the Russian housing market.
- The Federal Laws "On state registration of the rights of real estate property and transactions connected with it" and "On mortgage" form the legal foundation for the functioning of the mortgage system.
The legal basis for the activity of all professional participants in a mortgage market (e.g. appraising, real-estate and insurance companies) has been created as well.
And in many regions of the Russian Federation regional laws on a housing mortgage system have been passed.
- On January 11, 2000 the Russian Government approved the "State Development Concept of A Housing Mortgage System." This concept envisages the adoption of regional housing mortgage programs by Federation regional authorities. The concept provides for a stage by stage organization of a housing mortgage system in accordance with international practice according to the following stages.
The first stage: formation of an accumulation system for borrowers' funds via insurance companies (through long-term life insurance) and so-called credit cooperatives.
The second stage: formation of a primary market for mortgage loans, i.e. a mortgage market.
And the third stage: introduction of a refinancing mechanism of credit organizations which will grant mortgage loans by means of the emission of mortgage securities (i.e. the formation of a secondary market for mortgage loans). Provisions are formulated so that both credit organizations and special mortgage agencies (analogous to the American "Fannie Mae" program) can be issuers of mortgage securities.
- Up to this point, state support of a housing mortgage system has been conducted in two areas -- legislation and budgetary support. The most important of which are:
- The State Duma of the Russian Federation has passed a Federal Law which exempts an individual participant in the housing mortgage program from paying income tax; and
- The federal budget for 2000 includes state guarantees for the emission of mortgage securities issued by the Housing Mortgage Agency (a joint stock company with state control over a stake of the shares) in the volume of $110 mln. U.S. dollars. An even larger sum is planned for the year of 2001.
The Ministry of Construction and Housing Complexes of the Russian Federation has been appointed (by instruction of the President of the Russian Federation) to be coordinator of all housing mortgage system implementation and development in Russia (Professor Vladimir Ponomarev as State Secretary-Deputy Minister of Construction is in charge of this work).
In addition, at the federal level, legislative development is being carried out in the following directions:
- risk reduction in the housing mortgage system aiming at making mortgage loans cheaper;
- the strengthening of safety factors for investors to invest resources into the housing mortgage system; and
- the formation of a preferential tax environment for professional participants in a mortgage market.
- At the same time, work on organizing the implementation of regional mortgage programs and conducting pilot mortgage projects in the regions is also being carried out.
As of today The Ministry of Construction and Housing Complexes of the Russian Federation has signed General Agreements with 22 regions of the Russian Federation for the introduction of a housing mortgage system.
In each of these regions the local authorities are allocating funds to implement pilot projects - around $1 mln. U.S. dollars in each region.
In a number of regions:
- Mortgage loans are granted via banks using funds provided out of local governments' budgets. For example, in Udmurtia - more than 7000 mortgage loans have been issued, in Chuvashia - around 4000.
- Some large Russian corporations (mostly within the energy, oil, gas and railroad sectors) act as active investors within the housing mortgage system by buying emission mortgage securities in order to provide housing for their employees.
- And many regional mortgage agencies have already been organized.
The following is an example of a typical pilot project in the Irkutsk Region:
- Mortgage borrowers have set up a credit cooperative to accumulate funds for a primary deposit or down payment on apartment housing (30% of the price of the property) and to obtain a bank mortgage loan (with an annual interest rate of 8-10% in U.S. dollars) to purchase ready housing. This housing then in turn serves as collateral for the loan.
- The local Government has established a mortgage agency, in which 51% of the shares valued at $1 mln. U.S. dollars belong to the state. (The agency's declared charter capital equals $3 mln. dollars.)
This mortgage agency:
- buys out loans from the credit cooperative (or bank);
- issues mortgage securities with a 5-6% yield secured through demand rights provisions on the mortgaged apartment as provided for under the loans; and
- places these securities in the market. (In the Irkutsk Region the largest corporations in Irkutsk are the primary consumers or purchasers of these securities. At the moment they have executed an agreement for the purchase of mortgage securities with a value of $300,000 U.S. dollars, covering a total of 30 loans.)
Thus, with this last step, a first, closed, mortgage cycle has been completed.
- In conclusion, in order to further accelerate implementation of a housing mortgage system it is necessary to provide for the following:
- creation of a training system for qualified personnel in the regions of the Russian Federation (e.g. securities specialists, banking specialists, brokers, appraisers, registrars, mortgage agency managers, insurance agents, lawyers etc.). There are plans to establish an interregional network of training centers in Eastern Siberia (Irkutsk), Western Siberia (Tomsk), the South (Rostov), the Central Region (Saratov) and others. At present, the country's sole training center is operating at the Industrial Academy of the Russian Federation. The estimated cost of this training program is $3 mln. U.S. dollars (to include technical equipment, leasing study premises, teachers' compensation, student internships at leading international centers, and preparation of educational guidance materials); and
- dissemination of explanatory, informational and educational materials to introduce the housing mortgage system to the Russian population via active cooperation with the mass media (including the electronic media), and focusing on the production and distribution of video materials, websites and printed material to be distributed within the regions. The estimated cost of this program is $2-3 mln. U.S. dollars.