Property market health hinges on instalment lending

By Tin Yadanar Tun   |   Monday, 16 January 2017

[The Myanmar Times]The commercial capital’s property market has been lacklustre for years, but demand is clearly stronger for housing available on instalment, said Nay Min Thu, managing director of iMyanmarHouse.com. The firm’s website connects buyers and renters or land and housing with sellers, and the company organises regular property expos and real estate shows at which sales are made.

The government makes low-cost housing available through an eight year instalment system, provided by the partially state-owned Construction and Housing Development Bank, and such apartments are in high demand, said U Yan Aung, general manager of Asia Construction. In the private market meanwhile, where most sales are done through large down payments or a pre-sale system, interest is weak. U Yan Aung, like many developers, thinks the solution is for developers to link with banks and offer sales on instalments.

“The government is selling low-cost housing on eight-year instalment and demand is very good,” he said. “So the developers need to sell their units on at least five-year instalment, and if they don’t have the finances they need to join with banks. If sales can be made this way the property market will have a good 2017.”

Few developers have the cash to offer instalments without help from banks, which will need to provide loans in order to make a widespread instalment system a reality. And most developers think that it will take plans of 10 years or longer to return to the property market to its highs of earlier years.

U Nay Min Thu said that an iMyanmarHouse.com property expo in Yangon in December K17 billion worth of property was sold at prices ranging from K10 million up to K100 million, and on instalments ranging from one year to 10 years.

AYA Bank and KBZ were among the lenders providing instalments for property sold at that expo, he added.

“The market for property sales is gradualy shifting from pre-sales and large down payments to installments,” he said. “Buyers are much more interest in buying units on long instalments, but developers and local banks can only offer a maximum of 10 year instalments right now.”

iMyanmarHouse is planning a special property expo later this year at which only units available on long-term instalment will be available, he said.

But the longer the instalment the more loan interest rates present a problem. U Nay Min Thu said that buying on an instalment system typically involves a down payment of half the purchase price, with a bank charging the standard 13 percent interest – the maximum allowed – on the loan it provides for the other half.

“A 13pc a year interest rate is a lot for buyers wanting to purchase a unit on almost a decade of instalments,” he said. “We need to make a lower interest rate for instalment-buyers.”

U Aung Min, director of Myat Min construction, said that it would take a policy change or at least clear rules and regulations to help banks offer lower interest rates. Local lenders have only started providing installments longer than five years in the last two years or so, although he said that they are keen to try to expand this service.

Lenders, however, remain tight-lipped over any plans to lengthen installments. CB Bank and AYA Bank, two of the largest private banks in Myanmar, declined to comment on the outlook for making longer installment programs more available. A spokesperson for KBZ, the largest private lender, said that a lack of legal framework for instalment home loans made things difficult. As to KBZ’s plans, the spokesperson would only say that like many banks it was able to provide instalment plans of between five and 10 years.

There is no regulation that would prevent an instalment plan longer than 10 years, but Myanmar as yet has no credit bureau that would help lenders analyse credit risk.

Although getting 10-year installments is proving difficult, what Myanmar ultimately needs is the option for 30-year loans and mortgages, which are available in other countries, said U Nay Min Thu.

While private banks remained taciturn about their own instalment plans, several pointed to CHD Bank, which is part owned by the Ministry of Construction and has been vocal about its desire to offer more attractive financing plans for buyers of low-cost government housing.

U Win Zaw, chair of CHD bank, said the lender is planning to lengthen its instalment options to include a 15-year plan. At present the longest instalment CHD Bank offers is eight.

But in order push out to 15 years the bank needs more funding, and is waiting for the government to respond to its request for a state loan.

“If the government gives the loan, we will start selling units with 15-year instalments,” he said, adding that CHD Bank also plans to start negotiating with developers to help people buy private sector housing on instalments too.

“At the moment we can give loans to buyers of government housings that implemented by the Ministry of Construction,” he told The Myanmar Times. “Though we have a plan to give loans to people buying units built in private sector projects, we’re not able to at present because we need to hold detailed negotiations with each developer.”