New German Loan to Boost Armenian Mortgage Market

YEREVAN (RFE/RL)–Germany’s government has provided Armenia with a new 20 million-euro ($27 million) loan designed to spur the development of the local mortgage market, a major focus of anti-crisis measures taken by the Armenian authorities.

An agreement to that effected was signed in Yerevan on Monday by top representatives of the German state-run development bank KfW and the Central Bank of Armenia (CBA).

Under that agreement, the loan, repayable in 10 years, will be distributed among over a dozen Armenian commercial banks and mortgage firms to be selected by the CBA. They will then re-lend KfW funds to Armenians seeking to buy new apartments and houses or to remodel their existing homes.

According to the German-Armenian Fund, a CBA-controlled structure managing KfW-funded projects, such mortgage loans will be repayable in at least ten years and carry an annual interest rate of 12-16 percent. The fund expects them to be fully utilized by local families in the next three years.

The German government and KfW already lent 12 million euros to Armenia for the same purpose in 2006 and 2007. The CBA said in a statement that the program has been a success.

Armenian banks drastically cut back on mortgage lending at the start of the global financial crisis in late 2008. The authorities in Yerevan have sought to revive such lending as part of their efforts to shore up the crisis-stricken construction industry and thereby stimulate economic activity in Armenia.

In a bid to make housing loans more accessible to people, the Armenian government and Central Bank set up a state-owned mortgage fund last summer. Its authorized capital stood at 17 billion drams ($43.4 million) as of last December. And in late January, the authorities launched a new mortgage scheme which is supposed to help hundreds and possibly thousands of young families buy apartments. The CBA is to allocate 3 billion drams for its first phase.

Speaking to RFE/RL’s Armenian service on Tuesday, the head of the German-Armenian Fund, Gevorg Tumanian, emphasized the fact that KfW loans will be dram-dominated and their repayment will therefore not be affected by exchange rate fluctuations. “Because of the crisis people have developed negative expectations on exchange rates,” he said.

Private real estate agents cautioned, however, that this alone will not guarantee strong mortgage borrowing. “Even if you offer mortgage loans on favorable terms, people will be worried about whether they will be able to repay them,” one realtor told RFE/RL.

“The loans, if they are disbursed on beneficial terms, will somewhat boost the mortgage market, but the main factor is economic stability,” he said.

The fresh mortgage funds are part of up to 100 million euros in additional loans which the German government has pledged to allocate to Armenia in the next few years. One of the promised loans worth 40 million euros will finance rural infrastructure projects in the northern Shirak and Lori regions. Another 40 million-euro credit will finance the reconstruction of the country’s largest hydro-electric station and renewable energy projects.


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