The Far Eastern Mortgage project at 2% interest rate, launched by a presidential decree in 2019 for residents of the Far Eastern Federal District (the easternmost territory of Russia, between Lake Baikal in Eastern Siberia and the Pacific Ocean), has not delivered effectively everywhere. For example, president's plenipotentiary in the Far East, Yuri Trutnev, had to interfere in the Kamchatka territory, in order to overcome the resistance of its governor Vladimir Ilyukhin.
In September 2019, the Far Eastern mortgage project was launched by Russian President Vladimir Putin. He instructed the government to make relevant legislative amendments. On December 9, 2019, a program of preferential mortgage loans for residents of the Far East Federal District was signed by then Prime Minister Dmitry Medvedev. The mortgage plan stipulated that a loan of up to 6 million rubles could be granted for up to 20 years to any Russian citizen who was ready to move to any region of the Far Eastern Federal District and permanently reside there. If a person wants to live in the city, only newly-built housing can be purchased. For those willing to move to a rural area, secondary housing market options will also be available. The third option is to build a dwelling house. A total of more than 14 billion rubles was allocated from the federal budget for mortgage crediting at 2% interest rate. It will allow providing 147,000 loans in the amount of 450 billion rubles.Literally the day after the program’s start, the first three families already obtained mortgages in the Primorsky (Maritime) territory.At this moment, seven banks are accepting applications for preferential mortgages: DOM.RF, Asia-Pacific Bank, VTB Bank, Sberbank, Gazprombank, Far Eastern Bank and Almazergienbank. Only DOM.RF, Sberbank and Far Eastern Bank accept mortgage applications at 2% for building a house. Another seven banks are finalizing their loan offers. They are planning to offer them as early as February 2020.In mid-January, the first results of the program were made known. Particularly, the average mortgage amount in DOM.RF Bank was 3.6 million rubles. A total of 1,700 loans have already been provided. About 900 applications were filed by the residents of the Primorsky territory, 225 by the residents of the Republic of Yakutia (Sakha), 217 by the residents of the Khabarovsk territory, 178 by the residents of the Republic of Buryatia. A total of 480 loans at the sum of 1.9 billion rubles have been approved. About 3,000 residents of the Far Eastern Federal District have already applied to Sberbank. VTB Bank received 850 applications, 500 of which were approved for a total of 2 billion of rubles.Approximately 75% of the loan agreements were signed by the residents of the Primorsky and Khabarovsk territories, as well as the Republic of Yakutia. According to the estimates of the press service of the Human Resources Development Agency in the Far East and the Arctic, banks got a total of 4,500 applications for preferential mortgages in the Far East and the Arctic, and every second one was approved.However, not all regions of the Far East federal district turned out to be ready for this act of unprecedented generosity from the authorities. Kamchakta territory Governor Vladimir Ilyukhin said over one of the federal channels that due to the high cost of housing construction, the building industry of the region is not ready for the Far Eastern mortgage program. According to his estimates, average construction costs are between 30 to 36% more expensive for developers in the Far East than in other parts of the country. This results from both transport problems in the process of delivery of materials and the seismic activity of the territory. Ilyukhin added to it that involvement of the banking sector in servicing a new type of mortgage loans may cause problems, too. "Banks do not do it, because today, the risks in Kamchatka are much higher than anywhere else in central Russia. Higher than even in Khabarovsk or Vladivostok,” he said.Ilyukhin's statement had a bombshell effect. Not every governor is so bold to express straightforward opposition to the federal initiatives on a social issue as pressing social issue as the provision of housing and attracting people to sparsely inhabited regions of the Far Eastern Federal District. This is especially so if we recall that Ilyukhin is to stand reelection in 2020. The St. Petersburg Politics Foundation has put Ilyukhin on the list of governors to be fired at the earliest available opportunity. For the second year in a row, the region has been mentioned in the federal media mainly because of rallies, hunger strikes and protests. While raising payments to regional officials, Ilyukhin was one of the main supporters of the pension system reform. The unresolved demographic and migration issues significantly exacerbate regional problems. Kamchatka is losing its residents and young people are increasingly leaving for other, more prosperous regions. Against this background, Ilyukhin's statement was extremely surprising.It should be noted that this is not the first time when Ilyukhin disagrees with the president on the issue of housing. Back in 2012, Vladimir Putin urged Ilyukhin not to invest in renovation of dilapidated housings which could be destroyed in the first earthquake, but to construct new earthquake-proof dwelling houses.Federal officials briskly threw their shoulder into the situation. Yury Trutnev, the president's representative in the Far East, said that the governor should not complain about the high cost of housing but get engaged in the solution of the problem because the level of cost depends largely on the effective performance of the head of the region. Alexander Kozlov the Minister for Development of the Russian Far East and the Arctic, also held a meeting with Ilyukhin. According to him, the ministry understands that the situation with housing construction in the region is really knotty and it is ready to help within the framework of the preferential mortgage loan project. Summing up the results of the meeting, the governor said that he had already made arrangements to prepare a list of residential facilities meeting the requirements of the Far East mortgage plan, and there are no more than 50 of them. At the same time, Ilyukhin noted that he understands the importance of this project for motivating young people to live and work in the region, as well as for the development of the local construction industry.In January the government of the Kamchatka region published a list of construction companies that are ready to provide apartments for the Far Eastern mortgage project. These are Kamstroyindustry, Gesstroy, Russky Dvor, Yusas Stroy and Master. Authorities in the regional capital, Petropavlovsk-Kamchatsky have allocated several land plots for the construction of houses. The officials are convinced that they will manage to finish them by the end of this year, and 40-50 families will be able to buy new housing on mortgage at 2%.Despite all the efforts on the part of the federal authorities from December 10, 2019 only 3 families got mortgages in the Kamchatka region under this project. This is approximately 100 times less than, for example, in Primorsky territory.As noted by Maria Litinetskaya, executive partner of the Metrium company, access to regional markets of large federal developers might be of great help. For example, the PIK Group (the largest real estate and homebuilder company in Russia) is ready to build up to 3 million square meters of residential real estate in Vladivostok, Khabarovsk, Sakhalin and Kamchatka. At the same time, federal market operators should be not allowed to monopolize the market and drive local construction companies out of it. "Construction materials are mainly delivered to Kamchatka from Asia,” says Litinetskaya. “It means both high transportation costs and additional customs expenses. Apart from that, the cost of connecting new facilities to utility networks in the Far East is 40% higher than on average in the country. All this affects the total cost of real estate. As a result, banks are not ready to grant loans for projects of this kind. They understand that they carry a high risk.”The Kamchatka region is one of the outsiders of housing construction in Russia. This indicator is equal to 0.08 sq. m. per person per year. According to Litinetskaya, less housing is being built only in the neighboring Chukotka (a part of the Far Eastern Federal District), as well as in Magadan and Murmansk regions.Irina Radchenko, Vice-President of the International Academy of Mortgage and Real Estate, notes that this is not the first experience of an extremely low interest rate. However, at that time, the authorities tried to take into account the negative aftereffects of past periods. She recalled that when banks did not give credits for new housing around 2000, it led to a rapid rise in prices for "khrushchyovkas" (an unofficial name of a type of low-cost, concrete-paneled or brick three- to five-storied apartment building built during the reign of Nikita Khrushchev and somewhat later a temporary solution to the acute housing problem) and a slowdown in the construction of new housing. Speaking about the current stage, Radchenko notes that in addition to stimulating demand, it is necessary to ensure adequate growth in supply. After that, the introduction of the mortgage at 2% will not lead to an inadequate hike in prices for new housing.