First Home programme real chance for young families from Moldova

Economic commentary by MOLDPRES State News Agency

Chisinau, 13 November /MOLDPRES/ - The cabinet of ministers has recently approved measures for implementing a government programme, First Home, through which access to crediting of young families is facilitated. Also, decision-makers ruled to change state taxes for mortgage contracts signed within this programme.  

The project reached the parliament. It is to be considered and adopted and afterwards normative acts are to be approved till late 2017. So that, in early 2018, the First Home programme is enforced.

By the launch of the programme, the government tries to help young families, wishing to buy a dwelling and having no enough money, contract mortgage loans through extending the term of paying these loans, partial guaranteeing of the credit by the state and diminution of the beneficiary’s initial participation in the purchasing of the dwelling. In the next two years, at least 2,000 young people will be able to buy dwellings within the new governmental project, First Home, the Finance Ministry said. The demand, or better to say, the need is much higher. What is true is that thousands of young families, which presently migrate from one lodging to another, would get chance to have their own dwellings.   

Under the project, among the most important conditions there is the dwelling’s purchasing price, which should not exceed one million lei, one’s own initial participation of at least ten per cent and the loan’s repayment period of up to 25 years. The people owning a dwelling or having mortgage credits will not be allowed to this programme. Also, persons older than 45 years will not be able to access such loans. The state will guarantee about 50 per cent of the loan provided. Young people would save at least 200,000 lei in the 25 years of credit, than if they borrow a loan outside the project, more economic experts said.        

A guaranteeing fund worth 15 million lei for mortgage credits provided within the government programme, First Home, has been already provided for in the 2017 state budget. Decision-makers also discuss other facilities, such as, for instance, the compensation by the state of a half of the interest paid for the real estate loan. The programme’s implementation will be carried out through the Organization for Small and Medium Enterprises Sector Development.   

How realistic these plans are? Raising measures of the programme’s implementation to the level of law, the government’s active involvement, including the financial one, in backing young families, political support of the project are decisive factors which will matter very much in carrying out the First Home programme.   

There are also risks, which should be obviously taken into account once the programme is launched. The history of similar programmes, launched by the Chisinau city hall, as well as by other countries, shows that, in conditions when banks do not have large sums of money, they cannot provide, for instance, loans for a period of up to 20-25 years, and when it is about low rates on loans, the banks do not want to decrease the price. On the other hand, some people who can get loans face the situation when they are no longer able to repay them.       

The mortgage crediting is poorly developed in Moldova. The mortgage credit for real estate investments cover a quota of only 3-4 per cent on the domestic market, according to the Finance Ministry, which makes reference to official data by the World Bank. In developed economies, the share of mortgage credits in the Gross Domestic Product record values close to and more than 100 per cent: the average is of 138 per cent in the European Union.    

Nevertheless, data by the National Bank of Moldova (BNM) shows that, with the decrease of the weighted rate of the interest on real estate loans from 12.11 per cent annually in September 2016 to 7.99 per cent in September 2017, the volume of credits contracted by private people to build or repair a dwelling increased by 61 per cent. And more than 90 per cent of the banking real estate loans were borrowed for a repayment period of more than five years. According to estimations and forecasts by analyst Veaceslav Ionita, in 2017, the market of mortgage credits, after a two-year decrease, recovers and will record a 50-per cent growth against the year before. This year, according to estimations, the number of new mortgage credits contracted to buy dwellings will reach 8,650, most of which or 6,580 are for purchasing flats.  

Another problem could be also delays in payments. The practice of Romania, which provided support within the First Home programme, launched in 2009 and extended in 2017 for more than 200,000 families, shows that some beneficiaries of the programme were not able to pay the monthly bills, they either lost their jobs and other force majeure reasons appeared. The creation of a guaranteeing fund in the case of the project is more than imminent. In Romania, for instance, banks have made applications to get guarantees from the state in the case of 546 out of 200,000 loans since the beginning of the programme. It is about the covering of the sums provided to some clients who were no longer able to pay their rates. Also, an evaluation of a possible attraction of the non-banking sector in the programme would be necessary; in the last two years, this sector has witnessed an impressive growth.   

The creation of an entity for monitoring the programme’s implementation would exclude the unfair competition, schemes of swindling, which have hit the real estate market in the last years, excessive bureaucracy, as well as the way beneficiaries observe the law and the contractual provisions.  The quick intervention in force majeure circumstances would minimize the effects of some problems which could emerge in the process of implementing the First Home programme, which offers a real chance to hundreds of families which do not a place to stay.

(Reporter V. Bercu, editor A. Raileanu)