"AFFORDABLE" HOUSING TO YOUNG FAMILIES

news.am
Feb 19 2010
Armenia

A special housing program for young families launched by the Central
Bank of Armenia (CBA) can only be welcomed.

But, you can sometimes find a fly in the ointment.

Late this January the RA Government approved the Affordable Housing to
Young People program. Executive Director of the Flat to Youth universal
credit institution Mher Yedigaryan said that about 300 families can
benefit from the program this year. Not a bad figure for Armenia.

The program sets both age limits (the age of both spouses is not to
be over 60, with neither of them to be over 35) and the minimum wage
limit (300,000 AMD monthly, including nearest relatives’ incomes). A
similar program launched in Russia set identical age limits, which
evoked varied responses. Compromises are inevitable, and the problem
can be settled if mortgage lending terms for other population groups
are improved.

The point is that the maximum amount of credit is 16m AMD (about U.S.

$42,000), which is sufficient for purchasing 34 sq meters of housing
in the center of Yerevan. The Yerevan center has always been "famous"
for high housing prices. As regards the "suburban" districts, this
amount would be sufficient for purchasing 45 sq meters in the Arabkir
community and up to 113 sq meters in the outlying Nubarashen community,
not far from the city dump.

The skyrocketing housing prices in post-Soviet Armenia defied
imagination. In 2008, the price for 1 sq meter of housing in a block
of flats in the Yerevan center reached 471,600 AMD (U.S. $1,580). The
global crisis, which delivered a severe blow on the Armenian economy,
as well as on the potential purchasers’ incomes, put an end to the
inexorable price rise. Last year, the average price for 1 sq meter
of housing in blocks of flats in Yerevan was 10% lower (24% lower in
USD terms) as compared with 2008.

The housing prices in the Armenian regions are much lower than in
Yerevan. In the satellite town of Abovyan the price for 1 sq meter
of housing is 55% of that in Yerevan. As regards the other regions,
it ranges from 1% of the Yerevan price (in Shamlugh, Lori region) to
67% (in Tsakhkadzor, Kotayk region). The Yerevan young people would
hardly agree to less expensive housing in Armenian regions no matter
how badly they need flats — it is much more difficult to find jobs
in the regions.

Citizens aged 19-30 constitute 18.3% of the officially registered
unemployed – the age group the housing program is intended for. The
official data, however, are only the tip of the iceberg.

As regards the "income qualification", it is not so serious, with
the nearest relatives’ incomes considered. The problem is actually
the credit interest rates.

With an annual interest rate of 10.5% and 2% subsidized by the
Armenian Government, the beneficiary will have to pay 8.5%. With
annuity payments during the 10-year credit period, the beneficiary
will pay 85% of the amount. That is, the actual price for housing
will prove to be twice as high! With differentiated payment, the
beneficiary will not overpay so much, but the actual amount remains
relatively high. Thus the current high annual interest rates disfigure
the idea of providing housing to young families in need.

The blame, of course, lies with commercial banks, which, in pursuit it
easy profits, are jacking up credit interest rates. And the reason is
not at all the lack of "long" money, but the banks’ huge speculative
margin – up to 10%. Such a margin is impossible in any civilized
country! On the contrary, after the recent global crisis credits are
issued at symbolic interest rates in a number of countries. In Armenia,
however, the CBA’s recent decision to raise the refinancing rate from
5.5% up to 6% even worsened the situation.