7-20-25. What is it and how it works?

President of Kazakhstan Nursultan Nazarbayev presented a new program “7-20-25”, which should make housing mortgage affordable for the broad masses


What is it?


7-20-25 is a new program proposed by the President of Kazakhstan, NA.Nazarbayev, on March 5 at a joint session of the Chambers of the Parliament. It will be united with the “Nurly Zher” state program.
Under this program, each working Kazakhstani citizen will have the opportunity to obtain a housing loan in tenge on the following conditions: the interest rate on the loan is no more than 7 percent per year;  the initial contribution should not exceed 20 percent; the loan term is not 10-15, but 25 years, in order to reduce the amount of monthly payments for people. Within 5 years, the program manager – a subsidiary of the National Bank will issue loans worth 1 trillion tenge. According to Deputy Chairman of the National Bank Oleg Smolyakov, banks will allocate 70-80 billion tenge for a year as a mortgage.

Nazarbayev at a joint session of the Chambers of the Parliament


How it works?

In the course of the briefing on the implementation of the “Five Social Initiatives” of the President of Kazakhstan, the chairman of the Committee for Construction and Housing and Communal Services of the Ministry of Investment and Development of the Republic of Kazakhstan, Markhabat Zhaiymbetov, spoke about the advantages of the new mortgage program “7-20-25”.

Markhabat Zhaiymbetov

“For example, if an apartment costs  12 million KZT,  it will take  2.4 million KZT for an initial payment (20 percent), and the remaining amount of  9.6 million KZT will be issued by the bank at 7 percent for 25 years.  Monthly payment will be 68 thousand tenge, “said Marhabat Zhayymbetov.

Deputy Chairman of the National Bank Oleg Smolyakov said that all second-tier banks will participate in the project.

Mortgage amout by cities


When will it work?

 

The approval of the mortgage lending program “7-20-25” is planned in May. 

“I expect that in the first half of the year we will finish all the preparatory measures, and starting from the beginning of the second half of the year, banks will start issuing loans under the new program. As soon as the first pool of these loans is formed, our subsidiary will be able to repurchase these loans, that is, the mechanism itself will start”, – said Smolyakov.

In this regard, the main financial oversight body considers the implementation of the program into four main stages.
The first stage – securitization of mortgage loans (securities lending capital use);  maximal use of banks and stock market opportunities.
The second stage – these companies are formed as a financial agency origin.  Tax system for obligations of companies will be also built.  In this regard, the National Bank will submit the relevant bill to the Government.
The third stage – a new opportunity offered by a housing initiative –  the discount to everybody provided. But the program should not be put into a “long rope, wide open”.  Obviously future debtors must prove financial solvency. The program includes Kazakhstani people with official income.  Now banks are making specific demands.
The fourth stage – preferential mortgage loans have to be  fully secured and payable. According to the chairman of the National Bank, some of the claims that have been dropped recently in mortgage loans are revised.


Who will be able to take the loan?

Any citizen of Kazakhstan, who is able to pay and can prove his/her ability to take the mortage can apply to the program. But now the Ministry is working on some other demands


How the program will affect the market?

In this regard, we were looking for answers to the question of how the program “7-20-25” will affect the real estate market, as well as the whole Kazakhstani people. The economist Maqsat Halyk considers this project a brave step.
– Because now there are no thing like 7 percent.  Moreover, the National Bank has a base interest rate. It affects the interest rate of all second-tier banks. This is now 9.5 percent. Here is the question: “How can second-tier banks lend even lower interest rates when they borrow 9.5 percent?”  In fact, our banks are not ready to pay such interest. I think it’s going to happen gradually over the next. The National Bank’s inflation targeting policy is aimed at reducing inflation by 4% by 2020. If this goal is to be achieved, first of all, the basic percentage of the National Bank will fall, then the interest rates of the second-tier banks will be reduced, “ the expert said.

But Halyk Finance board member Murat Temirkhanov criticized the new program “7-20-25”. The head of the bank’s research department with his colleagues conducted a number of studies and studied international experience, after which he remained dissatisfied with the housing program from the state.
Murat Temirkhanov called unrealistic the use of individual program tools in the current conditions of the country. The expert believes that the state must first undergo changes in the mechanisms of state programs and in general it is worth revising the state policy in the housing sector.

Murat Temirkhanov

“The most important disadvantage of the “7-20-25” program and Nurly Zher is that international experience is not taken into account, and this experience says that now the state is entering the housing market in Kazakhstan, but when should the state invade the market?  When the market fails, when the market itself can not trade, that is, the state should help at a difficult stage, but not endlessly finance and help everyone. This new initiative, “7-20-25”, of course, will give people a cheap mortgage, but will  not give the basis for the independence of the market. Even though you have an average income, you can not afford to buy the necessary housing, not to mention people with low incomes, “he said at a round table on housing policy in Kazakhstan , Murat Temirkhanov.


Property prices and availability of mortgages

According to Halyk Finance report, in recent years, the availability of housing has improved, but remains inaccessible. Thus, in 2010, 13-14 annual household income of three people were required to purchase housing  in Astana and Almaty. In 2016, it took 8 years to purchase housing in Almaty, and 6 years in Astana. By historical standards, high availability in Almaty was observed only in 2009, when the cost of housing corresponded to 9 annual household income, which was due to the economic recession.

Availability of housing in Kazakhstan

Now, the availability of housing per resident is 21.6 square meters.


Originally published in Aiqyn newspaper by Abai Aimaganbet under the title “How will “7-20-25″ affect the Market?”

 

 

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