Homes lost to in­for­mal lend­ing

The Myanmar Times - - Business - Za­yarlinn@mm­ ZAY YAR LINN

THE com­mon prac­tice of us­ing apart­ments as col­lat­eral for in­for­mal loans has re­sulted in lost houses and fi­nan­cial prob­lems for bor­row­ers, as well as hurt­ing the real es­tate sec­tor, ac­cord­ing to the Myan­mar Real Es­tate Ser­vices As­so­ci­a­tion’s vice chair U Than Oo.

Us­ing houses and apart­ments as col­lat­eral has be­come com­mon in re­cent years as the prop­erty mar­ket slowed and own­ers be­gan to look around for other in­vest­ments.

“Mid­dle-class peo­ple orig­i­nally bought real es­tate as an in­vest­ment, which they funded ei­ther by sell­ing as­sets or bor­row­ing with col­lat­eral from money lenders,” said U Than Oo.

But the real es­tate mar­ket has been slug­gish for well over a year, and apart­ments bought in the hope of ap­pre­ci­a­tion have not risen in value and in some cases they have de­creased, he said.

Those at­tempt­ing to sell their real es­tate in­vest­ment have found ei­ther no will­ing buy­ers or a price lower than what they paid, leav­ing them un­able to pay back the money lender.

Buy­ing with a mort­gage or a bank loan is not an op­tion for most peo­ple, with banks re­quir­ing de­tailed ev­i­dence of in­come and wealth due to a lack of avail­able data on credit his­tory.

“It’s im­pos­si­ble for or­di­nary peo­ple like us to get a bank loan be­cause it re­quires a lot of doc­u­men­ta­tion,” said Ko Htein Lin from No.152 ward in East Dagon.

Many peo­ple who find them­selves un­able to pay off a loan by sell­ing the prop­erty re­spond by tak­ing out another loan from a sec­ond money lender, this time us­ing the prop­erty they pur­chased in the first place as col­lat­eral, said U Than Oo.

This loan is then in­vested in other sec­tors, in­clud­ing the car mar­ket, the man­u­fac­tur­ing sec­tor and the Yangon Stock Ex­change, in the hope of higher re­turns, he said.

“But the whole econ­omy has been slower this year so they can’t re­pay the loans,” he said.

The loans taken out us­ing apart­ments as col­lat­eral are typ­i­cally be­tween six months to a year and carry a 6 per­cent monthly in­ter­est rate.

Un­able to pay back the loan and fac­ing ever-higher in­ter­est rates on over­due debt, bor­row­ers of­ten sur­ren­der their prop­erty.

Even if they can keep up in­ter­est pay­ments with­out pay­ing back the prin­ci­pal, while the apart­ment is col­lat­eral it can­not be rented out, said U Than Oo.

Not only do most in­for­mal lenders only ac­cept half the mar­ket value of the prop­erty as col­lat­eral, they also de­mand the keys to the prop­erty, he said.

Daw Ni­lar Kyaw, owner of Aye Yeik San Real Es­tate Agency from North Dagon, said that more re­cently lenders have only recog­nised one-third of a prop­erty’s mar­ket value when ac­cept­ing it as col­lat­eral.

“There are a lot of peo­ple that couldn’t sell their prop­er­ties [to pay back the loan they took],” she said. “Peo­ple have lost their homes.”

‘Peo­ple have lost their homes.’

Daw Ni­lar Kyaw Real es­tate agent

Photo: EPA

Peo­ple look out from on their bal­conies in a crowded apart­ment build­ing in down­town Yangon.

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