Home ownership may be a common dream, but financing purchases of admittedly expensive homes continues to be an obstacle.
The Construction and Housing Development Bank was set up in 2013 under the Ministry of Construction’s supervision to providing the loans that could allow more people to afford homes, but so far its success has been limited.
Managing director U Win Zaw said it needs more funding to expand its loan portfolio and more time to assist customers with paying back its loans.
“If we do get long term funds, we will be able to lend money to customers for the long-term,” he said. “But now we need money.”
The bank’s current funding comes with a four-year term, meaning it is limited to four-year loans. U Win Zaw said with longer funding, 10 or two-year mortgages would become possible.
“We established this bank a year ago, but we don’t have any long-term funding,” he said.
It hopes to tap international institutions for more funding. This will require building trust and showing the Construction and Housing Development Bank can overcome problems.
Its current maximum interest rate is 12 percent plus a 1pc interest charge for a four-year mortgage. Given the bank is lending to immovable property, it has been issuing some loans for four years, longer than most other banks, which have a one-year limit.
Although Yangon property prices have shown recent signs of settling, most commentators agree real estate is selling well beyond the price range of the average would-be buyer. While the bank can’t move the property market by itself, it can offer interest rates and terms that are more convenient to let more buyers enter.
The bank, however, is still at early days of development. It currently only lends for big government projects and large, low-risk associations like the Mandalay City Development Committee.
It has accepted applications from about 200 potential borrowers, but is still scrutinising the individuals before making any decision.
U Win Zaw said he admitted that this falls short of what people are expecting from the bank.
“The bank should support actual loans for people who need loans,” said company director Ko Myint Kyaw Thura. “It doesn’t make sense for us to lend to people who already own homes.”
He said he pushed for more government policies for first-time home buyers, as it makes a measureable impact on peoples’ lives.
Interest rates are still expensive at the bank, with a four-year term being difficult for borrowers.
“These days a starter house may cost K20 million [US$19,400]. To repay that over four years requires payments of about K400,000 a month without including interest,” he said. “Most people are not earning this amount of money.”
Like all domestic banks, Construction and Housing Development Bank must provide a minimum 8pc interest rate to depositors, though some of its products offer higher returns.
Potential home owners say they are frustrated with the difficulty in securing financing.
Retired officer U Hla Soe Tint is building a house in the 15th ward of Yangon’s Shwe Pauk Kan township. He said he would like to borrow to help build the home, but has been stymied so far by lending limits and the four-year term.
“Some people might pretend to build a house and then use this money to start a business, but this is a risky strategy. If the business fails, the house will be seized,” he said. U Hla Soe Tint added the bank would not accept him as a borrower anyway due to an inability to show regular income.
Most applicants to Construction and Housing Development Bank have been rejected for not being able to show the appropriate documents, particularly land title.
U Win Zaw said in some cases, the title documents may show an owner who is 10 times removed from the current, actual owner of the property.
Many buyers do not re-register land in their name after making a purchase in an effort to get around property taxes, which are charged on a percentage of a property’s sales value.
Yet the buyer is also closing him or herself off to most mortgages, as banks want documents specifying the correct owner’s name when taking collateral.
“There are a lot of cases like this,” said U Win Zaw. “And we can’t lend them money. We can only lend when the name on the paper is the name of the person who wants to borrow.”
About 70pc of all applicants are turned down for this reason, he added.
Construction and Housing Development Bank deputy managing director Daw Myint Myint Mu said there are many people requesting loans, but it is difficult to accept applications.
Others are turned down because they are not able to explain how they plan on paying back the money.
The bank has received some financing, such as US$10 million from Japan’s Sawada Holding Company, which was earmarked for mortgages in a particular housing project.
Currently the bank has about K100 billion in total capital, of which about 90pc is lent out, according to its deputy managing director U Than Aung.
Rapidly expanding property prices, particularly in Yangon, has put home ownership beyond the reach of most in Myanmar’s largest city. For most, the problem is one of access to finance.
Although a start has been made with Construction and Housing Development Bank, there is plenty more to do before it becomes a truly effective lender to help home owners.
Source: Myanmar Times