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April 16, 2004




Building Credit: Experts study means for mortgages in Armenia


The Ministry of Finance and Economics, on the assignment of the President of Armenia, has worked out a new project for developing real-estate loans in Armenia.

“Not only in Armenia but in the whole world mortgage is one of the main factors of economic development,” says the head of Financial Market Development and Currency Regulation Department of the Ministry of Finances and Economics Karen Tamazyan. “There are several classical options of mortgage. We will be following them in a version adjusted to Armenia.”

According to Tamazyan mortgage has to be set up specially through real estate financing. There are several banks in Armenia who do real-estate loans. At the beginning they were charging up to 24 percent interest rate on the terms of one to two years. Today, the average is 16 percent on four to five year terms. The lowest is 14 percent, with a maximum of seven years. In the past two years, 40,000 loans have been applied for.

In the elaborated project of an Armenian mortgage model, the ministry will follow European examples, taking into account that Armenia is trying to integrate into the European community.

According to Tamazyan for a natural development of mortgage market first of all it is necessary that there’s an appropriate legal field and a special law on mortgage. Real-estate loans have to be given to specialized institutions or through banks.

“A specialized institution is an organization which includes and provides real-estate loans and based on the provided real estate loans sells bonds,” he explains. “Secured with these very mortgages and loans, through the means from the bonds it again provides real estate loans. It does not do any other activity.”

The other component of the Armenian model is the construction system. According to Tamazyan an individual puts a construction-saving deposit in a bank with a mutual agreement for a period of 3 to 5 years with an interest rate lower than the market.

“The low percentage gives them an opportunity later to get a real estate loan with percentage lower than at market,” he says. “We hope that in this case real estate loans will become more long term and the interest rate will become lower. Today, real estate loans are given to those who have had deposits in banks for at least a year.”

Special attention in the project is being paid to the issue of residential construction. According to Tamazyan priority will be given to those who want to buy apartments in newly constructed buildings.

“Loans are given for building construction; in return for this bonds are being sold which give a right to the bond holder to have 10 square meters’ territory in the same building. When constructions are over he will already have his apartment,” he says.

The purpose of the developed project is that there are low interest rates on long terms so that they become available for many people. According to the project loans must be for 10 years with a 12 percent interest rate.

It is hoped that a law on mortgage will pass in autumn and take effect early next year.


According to Agnes
 

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