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A.Gantulga speaks about the impacts of ending mortgage loans

Trans. by B.DULGUUN

Commercial banks stopped the issuance of the eight percent interest mortgage loan following a decision by the Constitutional Court last week. Many people applying for this loan were alarmed by the sudden decision. In particular, the decision caused many problems for people who wanted to buy an apartment in Buyant-Ukhaa 2 residential area, which is under construction as part of a government program aimed to house target groups.
General Director of the State Housing Corporation (SHC) A.Gantulga was interviewed to find out more about this issue.

How many people have applied for the eight percent interest loan to purchase an apartment in Buyant-Ukhaa 2? How did this decision impact the SHC?

The Constitutional Court’s decision is absolute. This decision will be respected and obliged, but I’m discontent with three things. Firstly, we planned to move families to Buyant-Ukhaa 2 starting from December 15, before the new year. Over 200 individuals had been pending a mortgage loan to buy our apartments, according to preliminary estimates. But their hope of moving into a new apartment before the new year has been shattered due to the Constitutional Court’s decision.
Nowadays, every development work is connected to a financial chain that pays off loans through more loans. If loans aren’t issued, we can’t sell apartments, pay Mongolia’s bond repayments on time, and we might be unable to provide wages to the people who built Buyant-Ukhaa 2. The Constitutional Court’s decision has greatly impacted on the SHC, banks we cooperate with, people who want to purchase apartments, and construction workers. We believed the program would go smoothly as it was commissioned by the state.
Secondly, I’m suspicious that the decision might have had a political influence. The SCH’s apartment sales were the only thing that hadn’t been influenced by politics and had been proceeding through the law of the free market pursuant to public demands. We have housed 175,000 people through the eight percent interest mortgage loan so far. The only things that need to be stopped are the chaotic politicization and disputes among political parties.
Thirdly, the economy is facing difficulties. Only by moving forward can we overcome this difficulty, not by stopping. The SHC doesn’t merely sell apartments, it creates sustainable economic turnover through jobs and procurement. In other words, the SHC is a big player in the Mongolian economy. If the 200 people who had applied for our apartments had gotten mortgage loans, we would’ve made a circulation of more than 10 billion MNT by paying interest rates of bank loans, providing salaries to subcontractors, and settling previous debts. The chain reaction would have influenced positively on the economy. It’s truly unfortunate.

This year, 1,620 apartments will become available via Buyant-Ukhaa 2’s 30 buildings. How many people were able to get loans before the eight percent interest mortgage loan was suspended?

Everyone who ordered an apartment had taken out a loan. For starters, 1,130 out of 1,620 households had ordered an apartment and deposited 10 percent of the payment in advance. As loans of these households have been suspended, their orders are now pending. 1,130 isn’t a small number. If we say that there are four to five members in each family, nearly 6,000 people will spend the winter in ger areas, burning coal and contributing to air pollution in the city.

What measures is the SHC taking to prevent cancellation of orders and resume regular operations of Buyan-Ukhaa 2?

Our organization is receiving the most damage from the Constitutional Court’s decision. The SHC has been working in emergency mode during the last several days. We talked with Mongol Bank and Mongolian Mortgage Corporation about taking urgent measures for people applying for apartments in Buyan-Ukhaa 2. However, the government’s decision is crucial for this as our company doesn’t have the necessary legal rights to this alone. We need permission from the Financial Regulatory Committee and Mongol Bank to start a special program to finance our applicants.

Wouldn’t this give the SHC more advantage and collapse the free economy market in Mongolia?

It’s a market “rule” for the state to support the private sector. It’s also a “rule” for the state to support the middle class and people with low and average incomes. The state isn’t obliged to only regulate. Supporting target groups to make the entire society better is the state’s obligation. Within this framework, the state is running a program to provide affordable apartments to people with average and low incomes. This program isn’t for rich people who want to purchase a second home, so starting a new financial project for our applicants will not steal clients of other companies. Instead, the government will be able to fulfill its goal to house target groups.
Some construction companies have affiliate financial organizations. They use these organizations to sell buildings they have constructed. It’s fully possible for the SHC to establish an affiliate financial organization. This will be very beneficial to the public. Companies and buyers will be able to sign a contract through a third party. Loan holders will not have to worry about risks that the bank might face and the bank will not need to worry about loan holders running off without repaying their loans. The SHC will provide guarantees for loan applicants.

The State Bank is owned by the state. Can’t the state issue the eight percent interest mortgage loans to people who are ready to take a loan through this bank?

It is possible. Representatives from the State Bank said that it’s possible to issue loans on concessional terms without setting hard requirements like that of commercial banks. However, it becomes difficult or even impossible to issue loans to people who incorrectly report their income to evade taxes and social insurance contributions. The representatives stated that the State Bank will protect personal information of these people, approve incomes that have been recorded in the blacklist, and issue loans if the individual meets basic criteria. At the moment, nothing has been finalized yet.

The reduction of mortgage loan down payments to 10 percent raised considerable expectations among the public before the eight percent interest mortgage loan was suspended. Is a 10 percent down payment possible in the current economic condition in Mongolia?

Currently, the public is required to pay a 30 percent down payment for a mortgage loan. 10 percent down payment would’ve been possible if the economy had an adequate amount of capital for the government to issue guarantees for the remaining 20 percent. But the economy doesn’t have that capacity. Reducing down payments to 10 percent when the nation doesn’t have capital or adequate financial or legal environment is a huge hindrance for the construction sector. It’s possible to decrease down payments for housing purchase to 10 percent and even decrease the eight percent interest loan by one or two percentage points provided that the SHC gets permission to establish a guarantee fund.
I’ve talked about this with relevant officials. This has nothing to do with political parties or the election. Providing affordable homes that can be purchased with the current economic resources is the state and SHC’s objective. I’m a manager trying to reach this objective.

Some people say that the rumor about the mortgage loan down payment decreasing to 10 percent hindered operations. Did it influence Buyant-Ukhaa 2 apartment’s sales?

Most of the people who ordered an apartment from Buyant-Ukhaa 2 had already paid 10 percent down payments. These people were expecting the state to cover the remaining 20 percent. There’s hardly anyone who can afford to pay the 30 percent down payment at the moment. The SHC has initiated to provide guarantees for the remaining 20 percent as individuals aren’t able to pay it themselves and the state is unable to issue guarantees.

Does the SHC have financial sources to guarantee the remaining 20 percent housing loan down payment? On what basis was this considered possible?

Clearly, we don’t have the capital to do such a large financing. Simply put, individuals will pay 10 percent of their apartment price and take a loan for the outstanding 90 percent. The SHC can use 20 percent from the total money collected from people as guarantee and use the remaining 70 percent to construct a new building and recover costs through this method. Commercial banks and the Mongolian Mortgage Corporation believes that this is possible. Mongol Bank, on the other hand, requires a government guarantee. There isn’t any financial source to issue government guarantees. If the government lends more money, the state debt will increase and exceed the debt ceiling.
The SHC can manage this issue and house many families. At present, our company is doing a number of things to address this: including research on this issue and sale of apartments that are facing difficulties because of the 10 percent down payment issue. One of our solutions is to carry out the Rental Apartment Program, which is now ready to launch.

Are you saying that apartments will be rented?

Yes. The program has been approved. The government plans to introduce regulations for the Rental Apartment Program next Monday. Although our apartments are very cheap, the public has low purchasing power and can’t afford to immediately purchase apartments at the current economic condition. Therefore, we will rent apartments for affordable prices. We plan to set rents in Ulaanbaatar at 200,000 MNT per month and 150,000 MNT in provincial areas.

How will the loan and housing issues of people who’ve already paid the 10 percent down payment be settled?

I’ve heard that the Democratic Party and Justice Coalition will submit a new draft bill, appealing to resume the eight percent interest mortgage loan. The eight percent interest mortgage loan will resume if Parliament approves the draft bill within this month.

Source: news.mn

Short URL: http://ubpost.mongolnews.mn/?p=17552

Posted by on Dec 23 2015. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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