Analysts: Housing Decrees Ineffective

A recent trio of presidential decrees designed to revitalize the housing industry will probably prove ineffective due to unfavorable market conditions and a lack of legal support, industry experts said Wednesday.President Yeltsin signed decrees last week to create a legal basis for long-term mortgage loans, initiate a housing certificate program and allow private companies to complete unfinished government housing projects. The measures were aimed at alleviating Russia's housing crunch, which has pushed prices for apartments sky high and left hundreds of thousands waiting years to receive free apartments from the state.But experts, while acknowledging the significance of the decrees, said that they work well only on paper and are unlikely to be successfully implemented in Russia's chaotic economy.Sergei Panteleyev, head of the credit department at Russian mortgage bank Standart-Bank, said that the decree on mortgages, which renders profits made on long-term housing loans tax-free, would be crippled by high inflation and interest rates."Even if the current interest rate were halved following introduction of tax breaks, there would still be very few clients able to finance such loans," Panteleyev said. One would have to pay several million rubles in monthly interest to finance the purchase of an average flat in Moscow, he said. The price of an average two-room flat in Moscow now ranges from $40,000 to $50,000, while the minimum annual interest rate is about 150 percent.Panteleyev said that banks would be reluctant to lend money to individuals because there is no effective system to punish defaulters. "The system of residency permits would not allow the eviction of defaulters from their homes," he said, referring to the Soviet-era system under which every Russian citizen must be registered at a certain address.Panteleyev was also skeptical that the banks would be satisfied by guarantees provided in the mortgage decree, which only "recommends" that employers guarantee their workers' mortgage loans, allowing for other guarantors such as relatives or insurance companies.So far, he said, the only business for Russia's mortgage banks is lending to well-established companies that finance housing construction for their employees.Over the past nine months, Standart-Bank has provided 2.95 billion rubles worth of loans to Russian companies such as truck maker KamAZ, which in turn use the money to finance housing for workers. The housing certificates program would take a slightly different approach to funding construction, allowing would-be homeowners to gradually buy apartments by accruing certificates denominated in square meters of living space.Panteleyev said, however, that rapidly rising construction costs would make such gradual investment impossible."How can you issue certificates and guarantee the holder today a certain number of square meters of space when tomorrow the price of concrete can jump by 100 percent?" he said.A housing finance expert at Tveruniversalbank, who spoke on condition of anonymity, added that housing certificates would only be effective if supported by a legal infrastructure. While the decree places total responsibility for providing housing on the construction companies that would issue the certificates, Russia lacks laws to enforce this regulation, he said. "There should be a law to punish those firms that fail to fulfill their promises to certificate holders," he said.