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Bank of Azerbaijanâ€™s Chairman Khayal Sharifzadeh: There is a rush for mortgage loans

11 August 2009 14:25 (UTC +04:00)

He pushes for tax incentives in lending mortgage loans

State-funded mortgage loan lending programme has restarted in Azerbaijan since June. APA-Economics interviews Khayal Sharifzadeh, Chairman of Bank of Azerbaijan, on the bankâ€™s mortgage lending activities.

- How would you describe mortgage lending at present? Are there many applicants rushing for home loans?

- As expected, mortgage lending has aroused great interest from the population and lending is under way successfully. According to the July statistics provided by Azerbaijan Mortgage Fund, since the resumption of the mortgage lending programme, authorized banks have received more than 1 200 applications for ordinaryl mortgage loan. Applications seek more than 51 million manats in total.

During this period, more than 400 applicants have already taken out loans totaling more than 17 million mantas. More than 16 million mantas were distributed in July alone. I would like to note that as part of this long-term mortgage lending, around 2 000 families were able to solve their housing problems in 2006-2007.

- Which segment of population mostly wants to take out a mortgage loan?

- Those who need apartments apply for a mortgage loan. Almost 10% of applicants including internally displaced persons and civil servants seek preferential mortgages. 80%of applicants are those who earn a monthly income of 500-1000 manats. 40% want to buy apartments in new buildings, but 60% prefer old buildings. This is due to the fact that you can lay the home you are buying as collateral when you buy an apartment in an old building. Because there are no property documents, it is necessary to lay another apartment as collateral when you buy an apartment in a newly built building.

Various social groups apply for a mortgage loan, most of which are not eligible to get a loan. This shows that their earnings have increased. Loans are issued in accordance with the conditions and terms set by Azerbaijan Mortgage Fund, ie for a 3-25 years and the rate ceiling is 8% per annum.

- How many loans have your bank issued to date?

- Since the mortgage lending programme was restarted, Bank of Azerbaijan has issued approximately 40 mortgage loans and we intend to bring this figure to 100 by the end of the third quarter. 1.5 million manats have been lent since early July. Only one social mortgage has been taken out. Through long-term mortgage loans the government has made great strides towards public housing, settlement of the social problems of citizens and improvement of living conditions.

- Did the resumption of mortgage program have an effect upon the construction sector and the labor market?

- In my opinion, both people and construction companies benefit the mortgage program. Thus, we see recovery in the construction market. The main purpose of this financial mechanism is to create a long-term mortgage lending system to address the housing problems of people. Against the backdrop of the global financial crisis, mortgage lending indirectly influences the revival of the construction, financial and banking sectors, and in fact has an important meaning as a sort of anti-crisis measure.
As I said earlier, 60% of applicants seek to buy a home in the secondary housing market, a tendency which has led to a gradual increase in the home prices.

- In your opinion, what measures can be taken to encourage people to get mortgage loans?

- I think that by using the lessons of neighboring countries, we can take decisions to encourage people. For example, mortgagor gets tax benefit against his annual payments for mortgage in Russia.
That is, if a citizen’s salary is 1500 dollars, and the monthly payment on the mortgage is $300, the amount of monthly payment in salary is not taxable.
I think that the use of this experience in Azerbaijan will help improve the financial position of borrowers and reduce the risk of default on loans. In addition, I think it can be useful to make available mortgage loans for not only the purchase of apartments, but also buying land, home remodeling and improvement in the future. I am also in favor of raising the loan ceiling.

- Some experts propose to increase the ceiling limit on mortgage loans. In your view, is there a need for this?

- Currently, when people apply for a loan they want to get the maximum amount possible. That is, 80-90% of applicants seek to get 50 000 manats for ordinary mortgage loan and 35 000 manats for preferential loan.
If the maximum amount of mortgage loans had been higher, people would have applied for much higher amount. Also, home prices increased after the mortgage programme was restarted. I think that it would be useful to raise the limit on ordinary loans to 75 000 manats, and preferential loans to 50 000 manats.