During the past years, while the prices for real estate started growing rapidly in Armenia, Armenians started to get interested in mortgage credits. Accordingly, the organizations providing such credits cannot stay indifferent. In spite of these factors, there are obstacles in that market which make this tool more risky for organizations and less attractive for people taking the loans.
When the public demand for a something grows a lot and becomes widespread, there is need for something that will present the approach of the demanding party and protect the rights of the given party.
The Union of Armenian Mortgage Market Participants was founded in 2006. The union has has 8 trade bank members, 3 trade organization members, 4 real estate agency and 4 insurance company members. The executive director of the union, Vardan Petrosyan believes that the union will soon play an even major role. “The union has recruited organizations that are strategically interested in mortgages and they know what they can expect from the union. The union should help the interested organizations jointly take part in the processes of this field and play their role. I believe that this principle is based on the interests of the market”, says V. Petrosyan.
The main goal of the union is to create conditions for the market to do what it does and develop, as well as have participants and protect the market participants in the field. The union raises its funds on the basis of its membership payments, but it can also handle paid services, get grants and issue publications. Upon its foundation the union worked to create “general rules” for all the participants of the market, as well as developed certain standards. According to V. Petrosyan, they have recently had important achievements in this framework. As a result of discussions they defined the balanced role of the market participants in the document of minimum standards of mortgage definition in Armenia. The head of the union thinks that the joint balanced level of the participants’ roles is very important because it serves as a basis for providing low level of mortgage risks and creates necessary conditions for forming a secondary mortgage credit market (mortgage annex agreements, stocks secured by mortgage, etc.). “On the one hand, mortgage credits are not that beneficial in the primary market for organizations providing mortgage credits due to the lack of long-term resources. There is not one secondary market of mortgage credits which would serve as a source of recruiting direct resources. On the other hand, there needs to be a certain critical capacity of primary quality mortgage actives in order to have a secondary market. This means that we have a closed chain, which may be broken only by adopting joint general standards for the whole market”, says V. Petrosyan.
According to him, during discussions, sometimes there are disagreements between the participants, however the general interests continue being dominant in this process; they come to agreements on the main issues. Besides that, there aren’t any differences between the principles of different organizations.
While the market participants are working to make this tool more attractable for them, people are thinking of getting mortgage credits for the purpose of buying apartments. The level of accessibility of mortgage credits depends on several factors, one of which is interest rate. It has been reduced during the recent years, but it is still not widely available for people. According to V. Petrosyan, this tendency will continue in parallel to the fall of the prices on primary resources and competition. “In the framework of time limits for providing mortgage credits, which is one of the most important things defining the level of accessibility, we will see development in the years to come. If mortgage credits are now given for 5-7 years, in the future they may be given for 10-15 years. Among the factors of accessibility are prices for real estate properties and incomes of families. Both these factors are developing, but the first one is developing faster. This is a negative process for mortgage market”, says head of the union. He says there is a serious problem connected with the contact between real estate markets and mortgage credits, which should be considered carefully.
According to V. Petrosyan, the real evaluated demand of mortgage credits exceeds the capacities provided. There isn’t such lack of resources for the other credit tools. V. Petrosyan says that this is a natural growth and it will keep growing in the future parallel to the growth of the role that mortgage credits play for home economies. “During the coming years mortgage credit is going to be a tool that provides the most level of growth in balancing organizations that provide mortgage credits. Due to this, mortgage credits are in high demand in the market. If we compare this tool with the other tools of the financial market we will see that in this framework, mortgage credit has more potential than the other ones”, says head of the union.
German KfW bank is going to provide two credit tranches of 6 million Euros for the purpose of developing the Armenian mortgage credit market
Within the framework of mortgage credits, the main problem of organizations providing mortgage credits is long-term resources. According to V. Petrosyan, this problem may be solved by forming a secondary market of mortgage credits and receiving foreign resources. The German KfW bank will provide two credit tranches (6 million Euros each) to Armenia during the coming 2-3 years with the purpose of developing the Armenian mortgage credit market. Together with this German bank two other donor organizations want to take part in that process (International Financial Corporation and European Development and Reconstruction Bank). Besides that, there are some organizations that want to implement such programs as financial aid to foreign private capital resources.
The competition in the framework of the program supported by KFW has started and the results will be known in September. It is expected to elect 10 organizations that provide mortgage credits as partner financial institutions to implement this program. At the same time, they have announced that the interest rates applied for the resources provided by KFW should be equal to the net value of the resources received by the Armenian banking system. This means, that the KFW is not providing those resources upon privileged terms and conditions. However, if we take into account the fact that those resources are long-term, we may assume that there will be positive developments in the market.
Nowadays it’s really hard to purchase apartments in Armenia; it is especially very difficult for young people. Does the union have programs aimed towards this? “We haven’t set such a goal yet. But in the future we may discuss this issue, which may give an opportunity for young people who have a stable income to get mortgage credits by paying low prepayments. We are going to work on providing resources on the basis of lower prepayments”, assures V. Petrosyan.
According to head of the union, by developing mortgage tools the financial system may change a lot and be more accessible. “We will come up with new ways of establishing intermediary contacts,” says V. Petrosyan and notes that mortgage credits, being a source of direct investment in home economies and their wellbeing, may help Armenian families trust the financial system of Armenia.