Mortgages returned on the market of economy-class new developments thanks to OJSC AHML program

A press-conference on the new program of the Agency for Housing Mortgage Lending (AHML) “Measures to support housing construction and stimulate demand for economy-class housing” took place on 27 January 2010 at RIA Novosti. The bank Peresvet will also be involved in the implementation of this pilot project.

The following persons attended the press-conference:

- Alexander Semenyaka - General Director of OJSC AHML
- Stanislav Dambrauskas – Executive Director of Innovations at OJSC AHML
- Oleg Pronin – General Director CJSC Peresvet-Invest
- Stanislav Konylov – Vice-President of CJSC BANK PERESVET 

In an effort to stimulate lending in housing construction, AHML provides an opportunity for banks operating under the program “Incentive” and financing residential construction to use a new type of collateral for loans from the Agency in the form of a pledge of the bank rights under loans issued to participants in shared construction.

Alexander Semenyaka noted: “This is a new type of collateral for the Agency and we think that it is an important innovation, which will allow involving in our program more medium-sized regional banks. By working well with construction companies, these banks may set this kind of collaterals that they can use to get financing from us.”

This new form of collateral is used by the Bank Peresvet, which finances the implementation of a pilot project consisting in the construction of an economy-class residential building in Saratov.

Under agreements, the Bank Peresvet grants to borrowers-participants in shared construction loans to purchase residential properties on security of the rights to claim from interest-holders under the agreements on participation in shared construction.

Upon completion of construction and registration of the interest-holders’ title to the residential premises, standard mortgage bonds, which the Agency is ready to buy, are issued. The date on which the bank must return the loans to the Agency coincides with the date of payment by the Agency of the mortgage bonds issued by the bank. This way, all project participants may perform their payment obligations.

Before completion of construction, the annual interest rate of loans granted to take part in shared construction does not exceed 13.5%. After completion of construction and mortgage registration, the annual interest rate shall be reduced in accordance with the Agency Standards. With an initial deposit from 50% to 70% (inclusive), interest rate will be set at 10.5% per annum; with a deposit from 40% to 49% at 10.75% per annum, and from 30% to 39% at 11% per annum. These rates are applied providing that borrowers got a personal insurance. Without personal insurance, these interest rates are increased by 0.7%

AHML mortgage program also makes provisions for reducing interest rates:

- By 0.5% for buyers of economy-class housing at the price set by the Ministry of Regional Development and not exceeding 30,000 rubles per square meter;
- By 0.25% if the initial mortgage deposit is paid using funds of the “maternal (family)” capital;
- By 0.25% if buyers are parties to the federal program “Housing for 2002 – 2010”: young families under the program “Housing for Young Families”, and holders of public housing certificates under the program “State Obligations to Provide Housing to Groups of Citizens Established by a Federal Law.”

If a borrower is eligible for several discounts at once, all reductions shall be added up and deducted from the interest rate. Loan interest rates may thus be reduced by a total of 1%.

Thanks to low interest rates and special discounts, apartments in new developments will become more affordable for buyers with middle income and the influx of new consumers onto the market will allow builders to increase the pace and scale of construction.
The residential estate Izumrudniy (Emerald) is the first project to be financed under this new program. The construction of this project has already begun in Saratov. CJSC Peresvet-Invest is developing this project, while the Bank Peresvet finances this project.
In his presentation, Oleg Pronin commented: “AHML new program significantly improves the conditions of mortgage lending and makes buying more affordable than renting apartments. For example, buying a one-room apartment in the economy-class residential estate Izumrudniy in Saratov costs 12,700 rubles per month over 30 years, while renting the same kind of place costs 15,000 rubles per month.”

20 buildings with different levels of comfort will be erected on the 22 ha site of the residential estate Izumrudniy. These buildings will be able to house 9,000 persons. The project will start with the construction of four economy-class solid-cast buildings. Before the crisis, building this much was not a problem, but since autumn 2008, purchasing power has considerably decreased, and combined with increased mortgage rates, the purchase of apartments with loans plummeted down to almost zero. Incidentally, in the regions, the purchase of apartments with loans represented 40% of all transactions.

AHML new program allows decreasing mortgage rates down to 10.5%-10% per annum. In addition, the cost decrease of 1 square meter down to 30,000 rubles has attracted new buyers among young and middle-income families. The first construction phase of the residential estate Izumrudniy precisely targets these types of buyers as affordable mortgages call for affordable new housing.
Stanislav Konylov, vice-president of the Bank Peresvet, told: “This new mortgage program gives a chance for developers to attract ‘long-term money’, the absence of which during the crisis has significantly affected the market of new developments. More efficient use of financial loans will not only reduce costs for developers, but it will also increase the pace of construction that will certainly revive the market of new developments.”

Participants in the pilot project are confident that expanding the list of secured assets used in the program “Incentive” will contribute to revitalizing bank activities in housing construction, including regional banks, which do not have access to long-term unsecured financing. This measure would indeed allow implementing more regional programs aimed at providing affordable housing, while helping to increase the volume of mortgage lending in economy-class housing.
Alexander Semenyaka explained: “If in the past year, we have on the whole stimulated demand for housing on the primary and secondary market, the emphasis is now placed on the primary market. Our pricing policies are developed to entice people benefiting from grants to buy economy-class housing. The Agency is now working on concluding agreements with constituent entities of the Russian Federation to coordinate our actions with those of regional authorities in view of promoting and supporting housing construction.”