Friday, February 19 2010 16:37
Real estate prices in Armenia will be dependent only on the economic situation in the country
ArmInfo.Interview with David Atanesyan, Director General of First Mortgage Company
Mr. Atanesyan, certain upward trends of housing demand by potential buyers have been observed in the mortgage market since the end of 2009. Will such trends continue also in the current year and what price development do you expect?
I cannot predict any significant housing price breakthroughs for the coming months. Price fluctuation in the market will mostly depend on the economic situation in the country i.e. another depreciation of the housing market is possible only in case of economic decline in the country in 2010 despite the forecasts of 1-2% GDP growth. The large-scale wave of housing market depreciation caused by the global financial and economic crisis has gradually swept away but there is still no question of sustainable upward trends in the housing market. Actual public demand in the mortgage market of Armenia is currently falling. Only few people can now afford new housing in the country since monthly repayment of mortgage loans exceeds the incomes of a family.
There is surplus supply but low demand in the mortgage market at present. It is still difficult to make any forecasts of further changes in the situation till the end of the current year.
How can the government program of affordable housing to young families, which suggests partly subsidizing of interest rates, change the situation in the mortgage market when only few families can meet its requirements?
Maximum cost of an apartment to be acquired under the program must not exceed 16 million drams. The terms of prepayment are 30% of the cost and the loan maturity is 10 years. This amount is enough for one to buy only a one room flat at best in the remote communities of Yerevan. Under the pilot program nearly 3 billion drams in terms of 267 loans will be provided. I do not think that it is enough to have an impact on the general situation in the market.
The government program of affordable housing to young families could bolster the mortgage market, but it is affordable to few potential buyers, which may have the most unexpected circumstances and even the inverted effect. The point is that social programs must satisfy demand of the middle section of the population and not speculative investors. However, there is no question of satisfying the housing demand by the middle class population given the requirements to potential buyers under this program. Only young families with monthly income of 470,000 drams and 60 years cumulative age ( under 35 each) can apply for participation in the program.
I wonder how many married couples meet the requirements of this program and how many young families earn the needed amount monthly. Will this program accessible only to few potential buyers lead to reduction of interest rates in the market?
The Government program of housing support to young families in Armenia may impact the dynamics of interests rates on mortgage loans, but I do not think that the interests will be reduced enough to make such loans accessible to a wider section of population. The point is that the program has not been launched yet but it has already created series of problems. Most of the citizens who have heard of this program that suggests partly subsidizing of interest rates have not been informed of its requirements. This may arouse a wave of mass indignation in public and create certain risks for the companies expected to provide loans as part of this program and to damage their image.
The program may increase burden for the state budget. As part of the program, the size of subsidies for every borrower makes up 150,000 drams per annum in average, and the consequences may be quite negative if the number of potential borrowers is not limited to several dozens and hundreds. Many countries with a developed mortgage market and different state mortgage programs for the population have policy against direct government subsidies, as their final cost is concealed. It is necessary to use the experience of the developed countries, where the government supports the population by reducing the income tax of an individual involved in such a program.
Mr. Atanesyan, how much has the customer structure changed after the crisis and when will real estate become attractive again?
Before the crisis real estate was acquired mostly for investment and speculative purposes, whereas after the crisis the market sharply depreciated, lost its attractiveness and will hardly become attractive again in the foreseeable future. I think restoration of the market will require at least 5 years. For instance, real estate in Japan depreciated 60% after the financial crisis and the pre-crisis level was restored within 10 years. In our country real estate prices fell 35% in average and 25%-35% in separate cases, particularly, elite housing.
How much increase in mortgage portfolio and profit do you envisage for 2010?
We raised our mortgage portfolio to 2.6 billion drams in 2009 which is 840 million drams more than a year ago. In case our forecasts of demand for housing and mainly for repair of apartments come true, I think we will ensure up to 4 billion drams increase of the mortgage portfolio till the end of the year. The company’s profits will be increased to 200 million drams or 70% per year.
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