Банкеръ Weekly

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HUNGER FOR BUILDING SITES GIVES BIRTH TO NEW BANK PRODUCTS

500 sq. m Can be Purchased in Sofia with Monthly Income of BGN600Plots of land for building purposes have been for sevaral months the hit on the domestic real estates market. This opinion is shared by experts of the agencies Chance 96, Akeya, Address, Uni Commerce and Dial, which the BANKER weekly contacted for information. The companies' officers claim that the selling offers for plots of land in Sofia are very few and if some appear they quickly find buyers.According to representatives of Uni Commerce OOD, land at comparatively low prices can still be found in some suburbs, but demand increases theer too. With some more luck, plots in regulation could be bought in Lyulin at EUR40/sq. m and in Manastrirski Livadi at EUR50/sq. m. Building sites in Pavlovo are traded at EUR100/sq. m and at EUR200/sq. m in Banishora. However, the interest of buyers towards these quarters increases, which means that prices will be going up there too, brokers explain. The race for construction sites requires considerable financial resources from investors and credits are logically the way to get them. DSK Bank was the first to get on the right track in this situationCurrently, it is the only credit institution that extends specialized loans for the purchase of plots of land for the construction of blocks of flats, one-family houses and villas, trade premises and hotels. The bank's managers announced that as of February 1, 2004 they would offer easier conditions for getting such credits. The clients will already be able to receive credits in order to cover 100% of the price of land they want to buy. Earlier, they could borrow a loan covering up to 70% of the purchase deal's price, but no more than 80% of the bank's evaluation of the mortage, guaranteeng the credit. The annual interest for the loan's repaymenthas been changed considerably. As of February 1 it went down from 11.75% to 10.75% per year. This is a significant decrease, considering that the longest possible term for repayment of such credits is 20 years and the amounts for which building contractors apply are to small. E.g. EUR20,000 (or almost BGN40,000) is necessary for buying 500 sq. m in Lyulin. If a 20-year loan is drawn from DSK Bank for the purpose, at 10.75% annual interest, the borrower will be repaying BGN406.09/month, down from BGN433.48/month at the previous interest rate. In other words, DSK's new terms save its clients BGN27.39/month from interest. This will make BGN6,573.6 for 20 years, a sum that cannot be ignores. The bank's officers specified that the credits extended prior February 1 cannot be renegotiated as per the new terms. However, the clients could get a credit at the more advantageous new conditions and spend part of it to pay back the remaining of their old debt. But a single 4% fee on the amount repaid prior the due term is charged for such an operation.Three more financial institutions - First Investment Bank, Raiffeisenbank (Bulgaria) and EIBANK, accept the plot of land as a guarantee for the mortgage credit. However, the extend credits covering from 60% to 80% of the real estate's evaluation and the balance of neecssary money should be ensured by the client. The alternative optionis to mortgage another, more expensive real estate, whose value is sufficient to provide the entire price for the purchase of land. Another inconvenience when using financing from these three banks is the shorter term for repayment of loans, which is 15 years. This increases the amount of the monthly repayment installments. E.g. when drawing a credit of EUR20,000 from Raiffeisenbank (Bulgaria) the client will have to pay EUR245.85/monthly within 180 months. If the loan is BGN40,000, the monthly installment will be BGN511.37, or about BGN100 up from the amount due for a 20-year credit from DSK Bank. A plot for building puposes could be also boughtwith a mortgage credit from BULBANK, Bulgarian Post Bank or the Sofia branch of INGBank. These types of loans are used for the purchase of building sites, but the client is obliged to mortgage in favour of the credit institution another real estate. But even then he will get only part of the purchase price. If a client borrows BGN40,000 from the Sofia branch of INGBank, for instance, he should be paying BGN407/month for 20 years. The problem in this case are the requirements for the part of income the borrower would have after payment of the due monthly installment. According to INGBank's terms, it should be at least two times higher than the monthly repayment installmet. DSK's requirement is far more liberal - the client has to prove remaining income of BGN60/month and for each member of his family if a family house will be built on the purchased plot of land, or BGN100/month if the new building will be used as a hotel. In other words, if a client with a 3-member family gets a 20-year loan from DSK Bank he will have to prove that his and his wife's minimum monthly incomes exceed BGN586, while if you apply for a credit from INGBank your monthly incomes should be at least BGN1,253.The huge demand for plots of land (at that, not only in Sofia) will probably make many banks follow the example of DSK Bank and launch specialized credit products for the purpose. It is highly probable that competition in this segment results in a decrease of the interest rates and fees on mortgage loans, which will raise clients' interest towards that bank product.

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