Prime Minister Vladimir Putin said Friday that the government would only support mortgages for newly built apartments in a bid to boost the flagging construction industry.
The government plans to lend banks an additional 250 billion rubles ($8.3 billion) this year for their mortgage programs starting in April, Putin said during a trip to Tyumen.
Homebuyers only borrowed 138 billion rubles in mortgages last year, an abrupt decrease from the past few years. The amount came to 1.2 trillion rubles over 2007 and 2008 together, Putin said.
The near freezing of the real estate market prompted the government to take measures to prop up the flagging demand.
“This way, we will provide serious support for housing construction and stimulate the launch of new building projects,” he said.
Standard mortgages will have a cap of 8 million rubles for housing located in Moscow and St. Petersburg and 3 million rubles for the rest of the country, Putin said.
Deputy Prime Minister Dmitry Kozak said in October that the upper plank was initially planned to be considerably lower than the new limits, saying it was 4 million rubles for large cities and 2 million rubles for smaller cities.
Under the mortgage support program, Vneshekonombank and the National Welfare Fund will pump as much as 250 billion rubles into the financial system by buying mortgage bonds issued by banks. Putin reiterated Friday that the banks that want to be part of the deal will have to keep their lending rates at 11 percent or less. The current average rate is 14.5 percent, Putin said.
The banks that receive government money will also have to agree to drop demands that borrowers contribute more than 20 percent of the home's cost, he said.
Putin first announced intentions to seek a lower mortgage rate of 11 percent through the cash infusion into banks at his United Russia party congress in November.
The plan has the potential to work, said Tigran Hovhannisyan, a real estate analyst at investment bank UralSib. One stumbling block may be the fact that banks are reluctant to accept collaterals of property in unfinished apartment buildings, which construction companies commonly begin to sell as soon as they lay the foundation, he said.
“How can you sell something that doesn't exist?” he said.