Translated material
Closer to the ground
Medvedev called on citizens to build housing themselves
The government wants to place new emphasis in the implementation of the national project “Affordable Housing”. Since forced lending for the purchase of housing, not supported by the growth of its construction, so far only leads to an increase in prices, the authorities decided to save the situation by encouraging citizens to build their own housing. First Deputy Prime Minister Dmitry Medvedev yesterday, holding a meeting on the national project in Novgorod, called for attention to private houses, calling them the main segment of modern construction. The Agency for Housing Mortgage Lending (AHML) has already prepared new standards for land mortgages, which, according to officials, will help reduce the burden on borrowers.Dmitry Medvedev reported yesterday that in 2006, almost 200 billion rubles in mortgage loans were issued in Russia. -- twice as much as planned. He agreed with the opinion of the meeting participants that it is necessary to take into account “not only meters, but also people who have improved their living conditions.” There is nothing to brag about here yet - the volume of lending is growing primarily due to an increase in housing prices, and not due to the number of borrowers. The First Deputy Prime Minister expressed concern about the problems of lending and construction and promised: “We will move on to selling land plots for personal construction at auction, because unlike other mechanisms, this one is less corrupt. “Not only a system of mortgage loans should be used, but also a savings system, the volume of approvals should be reduced, and the procedure for transferring land from other categories for construction should be simplified.” Mr. Medvedev admitted: having begun to implement the national project “Affordable Housing”, the authorities discovered that there were many more problems in this area than had been imagined. Monopolists, who, according to Mr. Medvedev, “can be curbed”, especially suffered: “Individual officials, together with entrepreneurs, sat on land on which they themselves do not build and do not allow anyone to go. Those who have settled on this land must either build or leave it.”
Mr. Medvedev noted that the average mortgage rate is now 12%, expressing hope for its reduction. True, the major players in the mortgage market do not promise a quick rate reduction, since it is already at the level of the market average or lower. “The rate of 9.5--11% on foreign currency loans and 11--13% in rubles today reflects the real economics of mortgages. If there is a correction, it will be no more than 0.5-1%,” says Igor Zhigunov, board member of the City Mortgage Bank. According to him, the economics of mortgages include the cost of resources, the risks of banks, and the state of legislation, and it would be wrong to focus, for example, only on the Central Bank refinancing rate, which is now 10.5%. “We reduced interest rates on our mortgage programs just a few days ago. Now they are among the lowest on the market - from 10.75% in rubles. We are preparing to refinance our mortgage portfolio and, after attracting cheaper resources from foreign investors, we plan to further reduce rates,” promises Tatyana Voznesenskaya, Chairman of the Board of the Russian Mortgage Bank.
The rates of AHML, the traditional market maker in the mortgage market, have already been reduced several times: from 18% to 11% per annum. “The rate reduction to 11% was planned only in 2007, but was done already in October 2006. Now the Central Bank has reduced the refinancing rate to 10.5%, which may become a guideline for the AHML Supervisory Board when determining the minimum mortgage loan rate,” says Anna Yartseva, head of the AHML External Communications Department.
But the interest rate, being a clear indicator of the state of the market, primarily reflects the availability of credit; other factors also influence the affordability of housing. “The main thing is not lowering interest rates, but reducing the burden on borrowers. The lower the rates, the more unaffordable housing is today, since even a doubling of construction volumes will not satisfy demand,” argues Alexander Chernyak, CEO of the mortgage refinancing company Atta-Mortgage. Several years ago, with rates on ruble loans averaging 18% per annum, a borrower could purchase more square meters than now with an average rate of 12%, he notes.
Having created a successfully functioning system for refinancing mortgage loans, the government is looking for an approach to solving other problems in the implementation of the national project. Thus, Mr. Medvedev yesterday actually called on Russians to live in private houses rather than apartment buildings. In modern housing construction, “there must definitely be a segment of multi-storey buildings, but the main thing is to increase individual construction,” the First Deputy Prime Minister emphasized. He called it almost a strategic task. “If we don’t settle into individual houses, it’s unclear what will happen in our territories, this is a matter of preserving the country,” RIA Novosti quotes Mr. Medvedev. The First Deputy Prime Minister admitted that for now private houses are more suitable for wealthy citizens in terms of cost. But since ordinary apartments are about to catch up with the cost of private houses, the government is preparing an alternate airfield for the national project - a land mortgage.
The day before, the head of AHML Alexander Semenyaka announced his readiness to start a pilot project on land mortgages at a meeting with the governor of the Novosibirsk region Viktor Tolokonsky. According to Mr. Semenyaka, a land mortgage will make it possible to “more effectively resolve issues related to the engineering preparation of the site for development.”
A mortgage secured by land will help solve housing problems for citizens who are ready to build their own home. “The process of obtaining a mortgage loan secured by land according to AHML standards will consist of several stages,” said Ms. Yartseva. At the initial stage, having only a plot of land, you can get a loan, the amount of which is determined by an expert assessment of the value of this land, and use it to install communications for the future building. The next stage is a reassessment of the cost of the site with communications. Having revalued the plot, the bank increases the loan amount and issues an additional amount to the borrower. Having completed, for example, the first floor of a house, the borrower can again apply for a revaluation and receive additional money. This method of lending, according to AHML specialists, is beneficial to both banks and borrowers. “Since interest for using a loan is usually accrued on the balance of the unpaid debt, the client will be able to properly plan his payments by choosing a loan for building a house in small amounts. Banks receive secured collateral, the value of which increases in proportion to the cost of the loan, and may not include increased risks of unfinished construction in the interest rate,” says Ms. Yartseva.
The second option of land mortgage is designed for legal entities that may have large areas of land under ownership or long-term lease. They will be able to get a loan for the construction of a residential complex secured by the market value of the land.
“There are practically no land mortgage products on the market, so the offer will be very interesting, but it is unlikely to become widespread now,” notes Mr. Zhigunov. The City Mortgage Bank had a loan program secured by land plots with rates of 13-14% in foreign currency. According to Mr. Zhigunov, the disadvantage of the proposed AHML scheme is that in the process of revaluing the plot, the mortgage will have to be reissued and re-registered more than once. In addition, problems may arise with insuring a house under construction (land plots are not required to be insured) - companies do not insure a property without a roof. “And finally, only plots for individual housing construction can be the subject of collateral for private individuals. There are not many of them yet, although their number is growing,” says Mr. Zhigunov.
AHML has already prepared standards for land mortgages with rates that are close in their indicators to the current rates according to other agency standards. About 20 Russian regions expressed a desire to participate in the experiment. The Nizhny Novgorod and Novosibirsk regions have already confirmed their intentions, where land mortgages can start working this year.