It all begun with great fanfare and promise: The government will help low-income families living in poor conditions to buy new apartments. So far, however, results have been modest, with less than 700 people signing up for the Affordable Accommodation program since its launch in May.
Mortgage lending in Ukraine never recovered after the real estate bubble popped in the wake of the 2008 financial crisis. As a result, development projects throughout the country have stood empty, with young families simply unable to take out decade-long loans at double digit rates. This, in turn, has depressed construction, a major driver of economic growth.
Hence the idea of government subsidies to bring down the costs for prospective buyers. Under the program, the state would reimburse 13 out of the total 16 percent interest rate charged on mortgages for people in need of accommodation. Here “in need” means anyone living in a dormitory, or having less than nine square meters of living space per family member.
But the program is by no means for the poor. A person subscribing for the program should have enough savings to cover 25 percent of the property’s value upfront. Families should have combined incomes of at least Hr 15,000 ($1,850), as monthly payments should not exceed 50 percent of their earnings.
As a result, so far the population’s response has been limited. As of Oct. 8, 685 people signed mortgage deals with the program, said Rostyslav Gomenyuk, spokesperson for the governmental fund overseeing the program. Likewise, just five percent of the allotted billion hryvnias will be spent by the year’s end, said deputy head of the parliament’s housing and utilities committee Igor Lysov.
“Society is not ready to receive money at this interest rate. The program has to be promoted more, so that people would believe in it. There are fears that next year the program will be dropped and families will be charged with the full interest rate. That is why this program is being implemented very cautiously,” said Lysov.
Experts note the interest rate of 16 percent is below the bank’s starting rate of 19 percent, but blame the program’s conditions for the poor results.
“There is no documented guarantee of any kind from the government. Borrowers pay the interest themselves, all 16 percent, and the state reimburses 13 percent within a month. The agreement states that, should the government fail to reimburse its part, the consumer is fully obligated to cover it,” said Viktor Nesin, head of the real estate consultants union.
“Many people complained to us about being refused, as to qualify you have to be rich and suffer from poor living conditions,” Nesin added.
“Harsh requirements aside, many do not want to get involved with the government, as they do not believe that the government will fulfill its promise,” said Nadiya Moiseyenko, head of Key Realty real estate agency.
Commercial banks have also stayed away from the program, with most contracts being signed with state-owned Oshchadbank and Ukrgasbank.
The idea is not new – the previous government also said it wants to help young people and families afford accommodation.
A program which covered mortgage interests for 5 years was launched a year before the economic crisis hit in 2009. Since then, some recipients stopped receiving reimbursements, while others wait in fear of 2013, the last year with interest being covered on accommodation whose value decreased dramatically since 2009.
Kyiv Post staff writer Svitlana Tuchynska can be reached at [email protected]
