Konstantin Boytsov told CRE magazine about the specifics of industrial mortgages

Konstantin Boytsov - Counsel

In September, Russia launched the so-called industrial mortgage, a programme to provide concessional loans to businesses for the purchase of real estate for industrial production. Eligible companies and individual entrepreneurs will be able to obtain it at a preferential rate of 5% per annum. Even more favourable terms – at 3% per annum – are offered to technology businesses. The maximum loan amount is RUB 500 m.

Konstantin Boytsov, Senior Associate and Head of Real Estate & Construction practice at Maxima Legal told CRE magazine that in order to expand opportunities offered by the program, the Ministry of Industry and Trade prepared a draft of changes to the current procedure of regulation of the “industrial mortgage”. In particular, the possibility of soft loans for construction (up to RUB 2 bn with a 10-year loan period), reconstruction, overhaul and modernization (up to RUB 11,5 bn with a 10-year loan period) of the property not used for industrial purposes are provided.  

As it is specified in the explanatory note to the draft law, based on statistical information provided by the Ministry of Industry and Trade, the need to obtain credit funds for the above additional purposes is 2.17 times higher than the need for crediting of existing real estate. “Unfortunately, the draft amendments do not disclose the notion of “modernization of real estate objects” used therein. On the basis of the current legal regulation, by analogy, it can be understood, in particular, as a purchase of new production equipment. But from the point of view of a literal reading of the rules, this statement is questionable even in relation to equipment purchased for placement in facilities under construction, let alone existing ones. Based on the practice of our clients, the main disadvantages of the “industrial mortgage” program are the impossibility of concessional lending for construction and reconstruction of real estate, purchase of land, purchase of new equipment. To date, the draft amendments to the rules prepared by the Ministry of Industry and Trade have passed public discussion, but have not been approved by a Russian government resolution,” the expert noted.

To read the full article (in Russian) please visit CRE magazine website >>>