Housing construction withers in the wait for funding

Russia's housing construction sector has been hit hard with the mortgage market needing new sources of capitalisation before it can become affordable enough to boost building.

Residential construction in Russia has slumped, with developers mired in debt, and state funding for new housing facing cuts. President Medvedev stressed that even the 4% growth in new real estate placed on the market, represents last year's construction. The sector needs subsidies and renewed demand in order to take off. That's unlikely to come from the mortgage market.

Home loans fell more than six-fold in the first three months of this year, as interest rates rose and banks slashed lending and tightened loan requirements. Sergey Polonsky, head of real estate developers, Mirax, says current loan rates of around 20% are unaffordable for most people.

"The programme for subsiding loan rate is still not in place, so not a single rouble has reached the construction firms so far. According to our research, people are only ready to buy at 7% interest rate,"

The government is trying to stimulate construction. The state mortgage agency is getting $6.5 billion to refinance long-term mortgages given to borrowers by private banks, according to Oleg Repchenko head of analysis centre, IRN.ru.

"The reserves or pension fund money might be used in order to make the loans cheaper. It is possible to subsidise the loan rate relatively quickly. Construction of the real estate will take much longer. Last year showed that there is more movement toward lowering rates, but construction was slowing down at the same time,"

President Medvedev has called upon banks to lower mortgage rates, but that will be possible only if the government provides "cheap" money injections or it succeeds in lowering inflation which will naturally cut interest rates .