Homes lost to informal lending
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
People look out from on their balconies in a crowded apartment building in downtown Yangon.