NCPA - National Center for Policy Analysis

Getting A Mortgage In Russia

June 19, 2000

The obstacles to establishing a home-mortgage market in Russia range from badly constructed houses to pervasive political interference in the economy. But an American company, Delta Capital, is trying to overcome the obstacles with the backing of a $100 million investment from a U.S. government fund set up to promote private enterprise there.

American taxpayers might want to weigh the pros and cons of the project.

  • Around 60 percent of Russia's housing stock is already owned, debt-free, by private householders.
  • But in Russia some borrowers flatly refuse to write down full details of their income and in the event of repossession, the lender is expected to provide a rented flat to the dispossessed family for a year.
  • Even after a recent revision to encourage mortgages, Russian law -- still untested at the highest level -- may forbid the eviction of families with children.
  • Repossessing a house from a top local official in the Russian provinces is a legal nightmare.

Perhaps that is why the program lends only to projects in rich urban regions such as Moscow, St. Petersburg and a handful of other places. But such area restrictions may not be enough. A previous venture in Moscow failed because the mayor decided that the mortgage-interest rate should be only 10 percent -- less than the cost of borrowing.

Source: "Built on Sand," Economist, June 3, 2000.


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