It’s getting harder to purchase a home in Yerevan day by day. We all know that it depends on two key problems: first of all, prices for real estate in the city have briskly gone up during the past couple of years and secondly, even if real estate prices were not to go up, the incomes of the majority of Armenian citizens would not be enough to purchase homes.
So, that majority couldn’t buy homes 4-5 years ago either, as well as this year. The main condition for buying a home in Armenia is that the buyer has to have the money ready, when there is another way for doing that called the hypothec credit.
In mid-2003, Armenian trade banks started providing their customers with hypothec credits, but set high prepay and interest rates with very short-terms. In the beginning, the hypothec credit was given with an 18-23% interest rate, 30-50% prepaid rate and only a 5-7 year term. Nothing has really changed today-the interest rate has gone down to 12-15%, and a couple of weeks ago the term was prolonged to 10 years. It’s obvious that the citizen will not wish to get a hypothec credit based on these conditions. In developed countries, these kinds of credits are given with a 4-5% interest rate and 30-40 redeem term. Today in Armenia, families with four children and a monthly 1000 dollar income can get hypothec credits.
Our studies showed that during the past three years, the total amount of hypothec credits provided by Armenian banks makes up 25 million dollars. In addition, banks all around the world usually give hypothec credits for purchasing, constructing or reconstructing homes. However, the thing is that Armenia’s banks haven’t gotten to the level where they can actually differentiate between loans. In other words, it’s quite possible that banks may provide consumer or trade financing credits under the name “Hypothec Loans”. There is a general opinion that 30% of the credit loan is not used as a “hypothec” credit. If that’s the case, then it turns out that the hypothec credit market is only worth 15-18 million dollars.
“Converse Bank” started giving hypothec credits last year and helped 60 creditors purchase homes, the credits equaled around 750,000 dollars. The price of one credit ranges from 15,000-80,000 dollars. Besides hypothec credits, “ArmEconomBank” also gives “small caliber” credits up until 10,000 dollars. The bank has about 600 creditors and a total amount of 4.3 million dollars.
The “HSBC” bank already gives hypothec credits with 10% interest rates, but has set some limits. The bank didn’t inform how many hypothec credits it has supplied, but according to bankers, this bank has the largest hypothec credit portfolio-50%. Based on our statistics, 1300 Armenian citizens have purchased homes with the hypothec credit. Meanwhile, based on the statistics of the State Cadastre Committee, 14,100 homes have been purchased in Yerevan in 2005 alone. These numbers show us how low the level of the hypothec credit market is in Armenia.
Generally, in all countries of the world, hypothec credits are given to the middle-class. Based on this, we can come to the conclusion that the hypothec credit market develops in a country where there are a lot of middle-class citizens. The rich won’t get a credit with percent rates for purchasing homes, on the contrary, they will pay immediately. As for the poor, they are not able to pay that percent rate. Now, based on this, we can say that there simply is no middle-class in Armenia.
Why don’t Armenian trade banks give hypothec credits with low interest rates and long-term? In response to this question, all bankers give the same answer: “We don’t have long-term and cheap amounts”. In some way, this is a good reason. But they also state, of course non-officially, that “if citizens want 15%, then why should we decrease the percent rates?”, especially since their amounts are limited. This is where the state comes in. The Russian government, for example, gives its citizens a prepaid amount to purchase homes, in other words, it subsidizes its citizens.
“This is a variant, but I don’t think that subsidization helps develop the hypothec credit market”,” says representative of the German KFW bank in Armenia Karapet Gevorgyan. “The state can find other means to develop the market, for example, take out profit taxes for a couple of years. There are other ways.”
Latvia helps its banks to provide hypothec credits for low interest rates. There’s always a way if you try, especially since Armenian authorities always talk about developing the hypothec credit market in Armenia after meeting with bankers.
According to bankers, it is necessary to have 15-200 million dollars to fulfill the demands of citizens. It seems as though this isn’t that big of an amount for Armenia’s banks to provide hypothec credits. Each bank will get 15,000,000 dollars. But if there is a 18-22% demand for trade credits, then it will be hard to provide hypothec credits with lower interest rates and a lot, for that matter. Armenian businessmen and/or bankers look forward to getting profit right away, rather than getting that profit at low interest rates and long-term. Here is where the state needs to play a role. There is a general opinion that some banks have formed groups that circulate the flow of citizens’ money. This year, the KFW bank will provide Armenia’s banks with 12 million Euros (approximately 15 million dollars) to add more hypothec credits to the market. This amount surpasses the present amount for hypothec credits by twice and there is a prediction that this will help the field develop. But on the other hand, this amount only makes up 10% of the demand.