Mortgages in Tajikistan: sort of there, but not really

Only three organizations in the republic engage in mortgage lending, but in reality obtaining a loan from them is practically unrealistic.

Among the large banks of Tajikistan, only «Spitamen Bank» issues mortgages for real estate, and exclusively in US dollars, at 15% per annum for amounts up to $150 thousand, with a term of up to 120 months (10 years), with property as collateral. And all this with an initial payment of no less than 30% of the price of the property being purchased and without a guarantor.

If you want to buy an apartment from Spitamen Bank’s official developer partners – CC «Avicenna», CC CJSC Global Group, CC A & R Construction, CC «Sebiston-2018», then the interest rate will be 12% per annum.

The country’s other large banks have licenses for mortgage lending on real estate, but they do not issue it.

Among microcredit organizations, it is issued only by CJSC «First Microfinance Bank» and the Microdeposit Organization «Humo».

At the «First Microfinance Bank»

For the purchase of an apartment or house, the annual interest rate in somoni – 21%, in dollars – 12% for preferential clients; for non-preferential ones – 22% per annum on amounts up to 500 thousand somoni. Preferential clients – are those clients who use an FMFB payment card to receive their salary.

Loan conditions:

Loan amount: up to 50 thousand dollars (equivalent in somoni);

- Loan term: in somoni up to 120 months;

- Loan term: in US dollars up to 96 months;

- Grace period: 1 month;

- Minimum own contribution – 30%;

- Collateral – real estate and 1 guarantor.

At the MDO «Humo»

Loan conditions:

- Loan amount: from 40 thousand to 250 thousand somoni or the equivalent in US dollars;

- Interest rate: 30% per annum in somoni, 18% per annum in dollars;

- Loan term: up to 60 months;

- Initial payment: no less than 30% of the housing amount;

- Collateral: real estate;

- The loan is issued for the purchase of housing in the cities of Dushanbe and Khujand.

- The mortgage loan is provided to persons over 20 years of age with a good reputation.

Can ordinary citizens manage to pay off a mortgage?

Let’s imagine that your family wants to buy an apartment for $30 thousand (that is 339 thousand 600 somoni).

Suppose you are an ordinary rank-and-file teacher or civil servant and your average earnings are about 3 thousand somoni a month ($265), and your spouse has the same salary.

With a total income of – 6 thousand somoni ($530) - it would be unprofitable for you to take a mortgage «with a low interest rate» in US dollars because of the unstable exchange rate of the national currency.

We explain why.

If you took out a mortgage in dollars at 12% per annum in 2019 at the rate of 1 dollar – 9.4298 somoni, then taking into account the change in the rate by 2020 to 9.6910 somoni, in percentage terms the additional increase will be +2.76%, that is, by the end of the first mortgage year you are paying not 12%, but already 14.76%.

Today the dollar exchange rate has risen to 11.2985 somoni, and this is an additional increase in percentage terms of +16.58. For this year, therefore, you are already paying not 14.76%, as it was a year earlier, but about 31.34% per annum, and such an increase in percentage will occur every year when you buy dollars.

It turns out that annually under the contract you pay 15% per annum, but in fact, with each year, more and more.

No one knows what the dollar exchange rate will be in 2022, but if it rises by even 1 somoni, this will have a tangible effect on the interest rate.

That is precisely why, despite the high interest rate, it is more profitable to take a mortgage in the national currency – somoni. In that case, the dollar exchange rate will not affect the interest rate.

 

Let’s do the math here too.

Suppose you take a loan in somoni at 21% per annum for 120 months (10 years).

You will have to pay an initial payment of 30% - that is 101 thousand 880 somoni ($9015) out of 339 thousand 600 somoni ($30053). The mortgage amount will be 237 thousand 720 somoni ($21037) at the current dollar exchange rate.

Over the course of 10 years, each month you will have to pay from the family income 23 thousand 97.01 ($212.12), taking into account 21% per annum. Each year you pay the bank 28 thousand 764.12 somoni ($2545.50) – that is 23 thousand 772 somoni ($2103.72), plus +21% – 4 992.12 somoni ($441.78) per year.

In the end, for a mortgage amount of 237 thousand 720 somoni ($21037) over 10 years at 21% per annum, you pay an additional 49 thousand 921.2 somoni ($4417.81), if everything goes according to plan and without overdue payments (without penalties). If there is a 15% annual salary increase, then repaying the mortgage loan on time or even ahead of schedule becomes possible.

There is one more advantage to a mortgage.

When saving up funds, there is a risk that the rate of income growth will not keep up with the rise in real estate prices, but by acquiring housing on a mortgage, you get the opportunity to lock in the cost of housing at the current level, without fearing price fluctuations.

But this is all in theory…

 

Why do citizens resort to old traditional methods?

In practice, however, the banking specialists with whom we spoke say that with such low incomes of the population, instability of the exchange rate, high interest rates, short loan repayment terms, and the general instability of Tajikistan’s financial sector, it is in principle impossible to talk seriously about the development of mortgage lending.

 

As banking experts explained to «Asia-Plus», the reorientation or redirection of all financial resources to the industrial and agrarian sectors of the economy is linked to the government’s «Program of Accelerated Industrialization of Tajikistan», which is why banks and investment companies are given various flexible opportunities in this direction. For example, a bank may have the right to equity participation after the implementation of a project, as an investor.

Therefore most of the country’s large banks, such as «Orienbank», «Amonatbank», «Development Bank of Tajikistan» and «Sanoatsodirotbonk» issue loans for the purchase of machinery and equipment for industrial and agrarian purposes, but not for the purchase of real estate.

Also, according to the bank manager, a downside of the Tajik mortgage is the banking sector itself. We have already had cases where the NBT stripped banks of their licenses and debtors had to either pay off the mortgage early or refuse to keep paying the mortgage. «Such cases occurred at “Fononbank”, “Tajprombank”, “Tojiksodirotbank”, “Agroinvestbank”, - the expert says. - Before closing, the banks offered clients favorable terms for early repayment, but not many clients were able to do this and afterwards were forced to transfer their real estate to the bank’s assets».

And it is precisely for this reason that Tajikistanis categorically do not trust banks and more often resort to a method that specialists call «off-system lending». This is when you take a loan from acquaintances, often without collateral, without interest, without risks (penalties for delay) and legal documentation. «Off-system lending, of course, has advantages, but the disadvantages should be noted too. It sometimes leads to court proceedings between citizens, - notes lawyer Rajab Aliev. - When a debtor does not repay the debt by the appointed deadline, one has to turn to law enforcement agencies or to the court. Very often it happens that money is lent without any receipts – this more often happens between relatives».

But no matter how risky this traditional method may be, Tajikistanis more often buy apartments precisely this way.

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