A Russian reform hits home: mortgages
For his second term, President Putin has made home ownership a priority.
The hopes and prayers of the Zherebtsov family are bound up in a new apartment that has not yet been built.Skip to next paragraph
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Drawn by utopian billboard advertisements on the northern edge of Moscow - and an urge shared by millions of Russians to move out of crumbling Soviet-era apartments - the family decided to buy a three-room flat across the street from a school.
Family members are cobbling together 30 percent of the expected $80,000 price tag, but the rest will be paid by a mortgage - a radical concept for most Russians. Four years ago, only 7 percent of the population even knew the word.
But today mortgages are becoming a presidential priority to spread Russia's wealth and rev its already humming economic engine. The growth of such loans to average Russians signals an unprecedented long-term economic confidence.
For families like the Zherebtsovs - who hope to have the keys to their new flat in two years and to pay off their debt in a decade - a mortgage is helping create a Russian version of the American Dream.
"It's a very big dream for us," says Igor Zherebtsov, a preacher at a popular Protestant church in Moscow. "You can compare it to the American Dream, which is part of my dream, too. We hope, we wish, for stability."
"It's not a fact that [the loan] is going to happen," cautions Igor's wife, Oksana, "because we are here, in Russia." But she can't stop smiling at the prospects for the couple and their two sons, in an area spread with pine trees, good neighbors, and away from the capital's pollution.
In the turbulent aftermath of the collapse of the Soviet Union, which culminated in an economic meltdown in 1998, few Russians dared to believe that long-term borrowing to buy real estate would ever be possible.
But President Vladimir Putin - reelected last week to a second term - is presiding over a new era of relative economic calm. On Friday he ordered his cabinet to halve within three years the number of Russians living in poverty, now at 20 percent.
Part of Mr. Putin's campaign focused on mortgages, and the need for a "legislative package that could 'launch' an affordable housing market." The problems must be "addressed without delay" in the spring parliamentary session, Putin said, because "only a free man can ensure the state's prosperity."
The budding market has now loaned $400 million to $500 million by some counts, with an average mortgage of $18,000, paid back over seven to 15 years. The Association of Russian Banks, says Georgy Gangus, expects the market to quadruple during the next three years, toward a potential volume of $30 billion.
But bringing mortgages to Russia has not been easy. Though seeds of a mortgage system were sown in the late 1990s, legal and psychological hurdles persist. The law enabling lenders to foreclose on the property of defaulters remains untested, for example, so lending banks have been cautious.
And while most Soviet-era apartments were simply given to those who were resident in them when the communist regime fell apart, laws defining land ownership were only passed in 2001.
In a demand-driven real estate market - where prices in some better Moscow areas soared 40 percent last year - many families can't afford to move without a loan. Until recently, tax and finance laws were also in flux; often borrowers have little collateral other than their jobs.
"[Lending] is impeded by the fact that there are no credit histories in Russia, no credit rating agencies, and no credit bureaus," says Gerald Gaige, the head of Real Estate and Valuation Advisory at Ernst & Young, who has worked in Russia for 10 years.
Among the laws expected to be passed this spring is one that smooths the process now prohibiting banks and financial institutions from sharing credit information, Mr. Gaige says. Only now are assets such as buildings and property in Russia beginning to be valued and "monetized," he adds; new rules in the works will also create mortgage-backed securities, to make more cash available to lenders.