Zero interest mortgage loans for apartments: Risks and benefits
The new legislation in Armenia allows citizens to borrow apartment mortgage loans without any obligation to pay interest rates.
The cabinet last Thursday approved a law establishing the procedures of returning mortgage loan interests to the State Budget from salaries and other regular income. Though the measure is effective as of January 1, it also retroactively applies to the interests paid after November 1, 2014.
Speaking to Tert.am, a deputy minister of finance, Vakhtang Mirumyan, elaborated on the social advantages of the project. He described the decision as a measure facilitating citizens’ mortgage loan burden, making it accessible also to low income classes.
“To those with monthly salaries of 150,000-20,000 Drams ($300-$400), the bank naturally issues loans within a corresponding amount. So in case my salary is $50,000 Drams ($100), for example, I cannot request a loan amounting to 50 million Drams ($100,0000). Therefore, we have made the mechanism more flexible. In case my salary alone isn’t enough, but my and my wife’s salaries put together suffice us to borrow a mortgage loan, and in case we are considered co-owners of the given apartment, the profit tax deduced from two co-owners’ salaries is taken into consideration,” he explained.
The deputy minister further addressed the economic advantages of the law. “The state makes the investment to enliven the economy. And the economy’s enlivening is in everybody’s interests, especially in the development sector, whose multiplying effect is quite high. That implies extra employment opportunities, extra profit and consumption,” he said,
Commenting on the measure, Artsvik Minasyan, an opposition MP from the Armenian Revolutionary Federation-Dashnaksutyun, said he thinks the new loan policies would be fair if they were not restricted only to houses in newly constructed apartment blocks. “If it isn’t a social [project] and is aimed only at boosting the development sector, it isn’t a bad idea again,” he added.
Minasyan further spoke of possible risks. “Another problem may arise here due to the situation on the financial market,” he said, expressing concerns over possible higher interest rates in future.
“Enlivening is certainly theoretically possible, but in practice, the interests rate will be so high that the effect on the citizen will not be that big,” he noted.
Samvel Framanyan of the ruling Republican parliamentary faction didn’t agree to the concerns expressed by his opposition colleague. “That’s already within the Central Bank’s competence, The concerns are understandable, as we in our country are used to that kind of pessimism, so naturally, the Central Bank has to control the process to prevent the banking system from using the advantage to raise the interest rate. Logic prompts that an increasing demand should produce the contrary effect, i.e. – cause the interest rate fall. I don’t want to think that such an awkward approach is possible,” he added.
The Republican MP said he is all in all positively disposed to the project. “It will give the citizens, especially new families who want to purchase a house, an opportunity to do so at lower costs, as the state will pay the interest rate based on the profit tax amount,” he added.
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