Russian Federation

Country Profile

Early in the 1990s Russia transitioned from a command administrative economy to a market economy. This entailed privatization of the housing stock. The social basis for the housing reforms was gradually built up in the next decade and by the early 2000s there was a new layer of residential property owners, and private developers and individual builders started to play an increasingly dominant role in the real estate sector.

Housing mortgage lending had become an integral part of government housing policy since 1998, when a law On Mortgaging (Pledging) of Real Estate was adopted, which shaped the legal framework for housing mortgage lending in Russia. Around that same time the government established OJSC (The Agency for Housing Mortgage Lending), a federal institute tasked with the development of the mortgage market by standardizing national mortgage lending and fostering a two-tier housing mortgage system.

The Regulation of the Government of the Russian Federation of January 11, 2000 approved the “Concept of the Development of the Uniform Housing Mortgage Loan Refinancing System,” followed by the “Federal Law On Mortgage-Backed Securities.” Key directions of housing policy were developed from 2000 through 2010. A federal housing target-driven program called “Housing” was developed and approved: Regulation No. 675 of the Russian Government of September 17, 2001. The program embraced an integrated approach to resolving the problems of the housing sector, providing among other things specific target groups with housing through subsidies from the budget.

In 2001, the Agency started refinancing mortgage certificates originated by its regional operators in St. Petersburg, Chelyabinsk and Novosibirsk Oblast. However the residential mortgage market started actively developing only in 2005 when the Agency’s efforts were supported by a growing economy and supportive government policy. In 2005 the Government of the Russian Federation approved a national project called Affordable and Comfortable Housing for the Citizens of Russia. The project focused on mortgage lending as the main instrument for providing citizens with housing.

Between 2005 and 2008 the annual volume of mortgage loan originations grew tenfold in terms of total loan amount and fivefold in terms of total number of loans. According to the official data of the Bank of Russia the total volume of mortgage loans originated over these three years was about RUB 875 billion.

In 2007 the Agency launched the first Russian issue of mortgage-backed bonds totaling RUB 3.2 billion, which was rated by Moody’s Investors Service as A2 for the senior tranche, two notches above the sovereign rating.

Against the background of the rapid development of mortgage lending during the period of privatization (2006 through 2008) the share of private housing stock increased from 33 percent to 81.1 percent of the stock. However, the world financial crisis adversely affected the Russian mortgage market and in 2008 the growth in mortgage originations slowed dramatically.

In this context the Government of the Russian Federation took a number of unprecedented measures to support the housing and mortgage markets. It made an additional contribution to the authorized capital of the Agency and initiated a program to support mortgage borrowers facing payment problems (e.g., loss of job, significant income reduction). In 2009 the Bank of Russia reduced the refinancing rate ten times in order to support the national economy.

In turn, the Agency maintained the liquidity of lenders during the crisis period and played a critical role in preserving mortgage lending in Russian regions and implemented the state program to support mortgage borrowers. Importantly, payments on all issues of mortgage-backed bonds launched by the Agency performed well throughout the crisis. All payments due were made on time and in full.

The market’s turning point was reached at the end of 2009 when the global economy revived and commodities prices increased, and the Russian economy began to recover.Since then the Russian mortgage lending market shows signs of strong recovery, with mortgage lending doubling annually in terms of both amount and number of loans. The policy of state support to the housing and mortgage lending market was reoriented and focused on support to the building sector, which was most seriously affected by the crisis. The main goal of the policy is to prevent a shortage of housing supply during a time when demand is recovering. The government launched a program called “Stimulus,” which supports the financing of low-cost housing construction.The Agency is actively involved in this program while increasing the affordability of mortgage lending for all population groups through new socially responsible loan products and by persistently reducing the rates, thus setting benchmarks for other market players.