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By Alexander Ushakov,
Hannes Tamme (Radio Ku-Ku),
Linas Kontrimas (Lietuvos rytas)
The real-estate market remains a morsel for Baltic markets. The average price for land or a house in Estonia, Latvia or Lithuania is still much lower than that in European countries. Nevertheless, EU accession seems no longer so distant any more and consequently the prices of commodities, services and of course real-estate, are all set to blast off into a big bang. Those who are aware of this fact today try to invest in apartments, houses and land. But if you don't have enough money, you take a banking loan. The BC took a closer look at the situation in crediting the purchase of real-estate in the Baltic states
The Latvian mortgage market has been doing well lately. One of the main reasons for this pleasant change for most was the rise in Latvian living standards. Another thing is that clients taking home-loans these days are more much educated today.
Nevertheless, Latvia is still far from the level of developed countries in the field of mortgage loans. According to research done by Hansabanka, only about 5% of Latvia's residents use loans - mainly those who can take the opportunity because of their sufficient income level. For comparison, in Sweden the figure is at about 98% of the population.
Anita Berzina, director of the private loans department at Hansabanka said that the minimum monthly income a physical entity must have to be eligible for a bank loan amounts to over 100 lats (USD 160 USD). However, much depends on the amount to be loaned and the bank the client turns to.
Three banks hold the top end of the market today - Hansabanka, Parex Bank and Unibanka. The interest rate offered depends on the choice of currency the loan is to be issued in. The average interest for loans in lats is 11%, in dollars - 9%, in euros - up to 7% and the maturity - up to 20-25 years. Of course, the actual property the client intends to purchase or already possesses stands as a guarantee.
According to Anita Berzina, Latvian banks and leasing agencies offer loans of up to 80% of the market value of an apartment. «At our bank, the average loan for purchasing real-estate in Riga is 9,000 lats (USD 14,500), and for covering deals elsewhere in Latvia - 3,000 lats (almost USD 5,000). Basically, the residents of Riga make up the biggest part of the total credit portfolio at Hansabanka, but in terms of the number of clients who have received loans from our bank, the relation of inhabitants from the capital and other regions in Latvia is almost equal.»
At the same time, the price for real-estate properties is not getting any cheaper, ascending slowly but steadily. Experts of Latio real-estate company note that the price for apartments and land in private housing suburbs and the prices for private houses have increased in 2001. What the experts think is that during this year the disproportion in supply and demand of standard apartments will become more apparent - it is obvious that there are not enough cheap apartments on offer. «The rise in prices of standard apartments in building estates still constitutes 1% per month. At the beginning of the year the prices increased by more than 10%,» say the specialists at Latio. What the people are looking for has also changed. If a year ago the buyers wanted mainly a house worth up to 50,000 US dollars, they are now ready to purchase something more expensive.
The situation in the Estonian mortgage market is quite attractive at the moment. A whole set of various loans have been developed, for example, loans for young families, loans for young specialists, etc. The majority of banking loans for physical entities are issued for guarantees in realty.
In 1992 there were 42 banks in Estonia. «Back then few laws regulated banking activities, and banks tried to clinch great deals,» said member of the board at Norde PankToivo Annus. «The market for crediting real-estate did not exist as such, for there was no corresponding legislative basis.« All loans were given on the security of real-estate already owned. For an ordinary person it was very hard to get a loan to build a house or repair an apartment.
But the market gradually started to develop. For instance, in order to get a loan in 1993 one had to fill out piles and piles of documents. In the applications people had to indicate how much they spend at the hairdressers, how much on the theatre, how much on food and clothing. A very detailed business plan had to be written out - how much paint, bricks and nails the client intended to buy, etc. Today, nothing of this kind is needed. It's much easier to get a loan today.
«Estonian banks started to issue legal credits for guarantees of realty earlier than Latvian and Lithuanian banks did,» said the chancellor of Estonia's Ministry of Economy Marika Priske. She explained that on May 20, 1995, the government passed a new law On Credit Institutions, which provided the terms for loans and real-estate guarantees. After this, the banking sphere consolidated, small banks merged with bigger ones, others went bankrupt. The larger banks (Hansapank, Uhispank, Hoiupank) started penetrating new markets - Latvian, Lithuanian and Russian.
«After the stock exchange crisis in fall 1997, many credit institutions turned out to be in a very poorly situation. By 1998 only seven banks were left in Estonia, today there are only five of them left. 95% of this sphere is controlled by Swedish and Finnish capital, having huge amounts of free resources at their disposal,» said Toivo Annus.
«At present, clients have many opportunities to get an advantageous loan on realty,» said the manager of the south Estonian department at Hansa Leasing Jaan Liitmae. However, the banking loan has lately become more popular than leasing. According to him, the reason for this is that credit institutions offer more advantageous terms. For instance, leasing companies offer credits for a time period of 5-10 years with an annual interest rate of 6.5-10.0%, and banks at the same time offer loans with a maturity of up to 25 years.
For a new family with a child up to the age of 16, a loan of up to 90% of the market value of an apartment is offered. The same terms apply to professionals under 35 years with 2 years of experience. The state fund Kredex also helps banks for these kinds of loans.
Chairman of Tonnisson Kinnisvara real-estate, Sulev Puusaar told the BC about their work with banks: «We work with four banks on a permanent basis. We apply for a loan at the bank, which at the given moment offers the most advantageous terms. However, if a while ago we had to negotiate with those working in the credit departments, this year the managing director of one a bank came to us. The reason for this is increasingly intense competition. He offered extra loans. We had not experienced anything like this before. Today banks have much more free capital than the market demands. Many creditworthy people have already built houses, or bought and repaired their apartments. At present banks are looking for clients who may not be so rich, but who have a permanent job and who want to improve their living quarters. I can't even remember a case when the bank may have lately ever refused a mortgage to one of our clients. The situation reminds me a bit of the year 1997, when banks had huge amounts of free capital and loans were offered to almost everybody.»
The current year will go into history as one of the best for construction companies and real-estate agents in Lithuania. After a decline lasting several years, activity in the Lithuanian real-estate market has increased due to a rise in the popularity of loans. The banks of Lithuania have also contributed to this: the hunt for clients that started last year continued into this year with a even more might. Major Lithuanian banks already offer mortgage loans for 20-25 years and the interest rate decreased in a year's time from 12% to 8%-9%.
Over the past year, loans have been diversified, and the idea that one must apply for a loan in order to purchase an apartment, has become a sure thing to both the residents of big cities and of rural areas. Moreover, some banks have started to group clients according to geographical location. The credit institutions have corresponding requirements depending on the client's residence and particularities of earnings in one or another region of Lithuania.
Although the situation seems normal, experts say that they are worried about the year 2002. Managers at Mortgage Credit Insurance, partly owned by the Ministry of Finance, spoke of this in particular. «After a project was launched to finance special-rate loans for young and indigent families from the budget at the beginning of the year, the market of crediting became quite active. But this project may not turn out to be durable, because the increased activity of last year may decrease in the next,» says the deputy director of Mortgage Credit Insurance Andrejus Trofimovas.
In early July the number of issued mortgage loans rapidly increased. In July banks granted 237 loans, but in the next month - already 307. In September the rise continued to 336. Nevertheless, Trofimovas thinks the special rates are to blame for all this. The state compensates 6% of the banking loan. «Such a situation will have negative consequences - people don't think about the opportunity of getting a commercial loan, but about help from the state.»
Bankers also see other problems connected with the growing risk of mortgage loans. Among other risks, the following are highlighted: Firstly, a good part of Lithuania's residents have an unofficial income. Second, state policies concerning crediting are still unclear. Thirdly, there are still only a few real-estate companies that invest their money on the credit market.
But every situation has its good and bad sides, and in the development of mortgage loans, Lithuanians see the possibility to improve their living conditions. This is indicated by the increase in number of loans issued in the national currency. And this is taking place on the eve of year 2002, when the litas will be pegged to the euro, not the dollar as until now.
Latvia's Hansabanka has chosen corporate services as its business priority for the coming year. This means that now and in coming years Latvian businesses can count on getting increased attention on behalf of the bank
It is no secret that many banks make a profit from their customers, i.e., they strive to sell as much services as possible to corporate and individual clients, be it loans, ordinary account management or long-term deposits. The bank-client relationship often looks pretty much like a manufacturing conveyor-belt mechanism. So far only large companies could expect their own banking manager.
On the eve of 2002, one of the largest banks in Latvia, Hansabanka, decided to surprise the local medium-size businesses and their managements by announcing that starting with the new year, the bank will re-orientate its banking services. In future Hansabanka employees will try to not just sell certain banking services but also find business solutions most suited for each company and to maximum benefit for each particular client.
In practice it would look approximately like this: In the nearest future every Hansabanka branch, whatever its location in Latvia, will employ an expert able not only to consult businesses on any matters of interest to them but also to make specific decisions.
Lots of companies are likely to feel the positive effects of this innovation. After all Hansabanka has 25,000 corporate clients. By the way, in 2002 the bank plans a substantial increase in financing services due to the planned merger with another Hansabànka Group member - the Hansa Lizings leasing company - to be completed by the end of this year. Consequently, the bank's credit portfolio, already topping 200 million lats, will grow by an additional 100 million lats at least.
Ànd now about the services themselves: Upon opening a current account with Hansabanka, a company starts cooperation with the bank, immediately getting a number of benefits. These include financing options, remote banking services (Telephone Bank and Mobile Bank), and many others. With the help of a current account, a businessman is entitled to make various banking operations in any currency that is especially vital when working with foreign partners.
By the way, automatic payments or the direct debit facility has lately become a very popular service with Hansabanka's corporate clients. Direct debit means that the bank will pay recurring bills automatically from the company's current account at the bank. Thus, the client's accountants will be relieved from the routine responsibility of taking care of monthly bills. Regular information about payments made under direct debit will be available from account statements.
Heads of many companies probably have already appreciated services such as the organization of salary payments allowing corporate clients to pay salaries to their staff through the bank, transferring the money to employees' accounts. The arrangement has simple cost-saving effects on the company, even by saving on teller handling salaries for payments in cash, as well as on employees that will no longer will be required to spend their precious time, queuing at the cash office on payday. Moreover, employees who have an account with Hansabanka and a payment or credit card, can also enjoy other respective benefits.
Latvian banks, competing with each other, seek to attract clients by introducing more and more new services. Meanwhile corporate clients often have no time for a detailed examination of the benefits from this or that offer. As a result, when asked about corporate financing, managers will immediately mention lending, maybe also leasing but they are simply not aware of any other forms of financing.
The same is also true about forms of placing unattached or free funds. For example, Hansabanka offers several types of deposits, including term deposits, term deposits with monthly interest payment, non-term deposits with one-week prior notice for withdrawal (giving the option of getting interest on the deposit withdrawing it with notice only a week in advance) as well as short-term deposits. Investments in various securities and money market funds should be added to this. Which of them will bring the most benefit? Expert advisors are here to help you to figure this out. They are already waiting to serve corporate clients in all Hansabanka branches. Regardless of the amount of assistance you may need, consulting services in the bank are free.
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