Maswood Alam Khan
HOUSE Building Finance Corporation (HBFC), which had been a little laid-back in disbursing new loans for quite a long time, seems to have been vivacious of late, thanks to remarkable changes in her leadership patterns and recent initiatives taken to help solve housing problems in our country, especially in urban areas.
Apartment Credit Policy 2007, newly introduced by the government, is a new course of action to be implemented mainly by HBFC. We are optimistic that the policy will usher in a welcome paradigm shift in bank financing to help people of limited incomes buy their homes not as houses built on lands owned by them but as apartments erected on common lands owned by communities.
Accustomed for ages to living in houses with backyard and kitchen gardens surrounded by ponds and plants and enlaced by creepers and vines we have for about a decade been trying to tune to a different kind of living in box-like homes called apartments which people initially used to compare with holes on lofts where pigeons nestle in.
People used to call these self-contained housing units as flats. But the word 'flat' sounds the overtone of poverty and smacks of a humble abode. With price of these housing units skyrocketing owners of such flats nowadays stylishly call their accommodations as apartments in an American intonation.
According to a new scheme of HBFC, introduced late last month, an individual belonging to a middle-class or lower-middle-class group---who does not have a home of his/her own to live in---may avail of a maximum of Taka 4.0 million (TK 40 lakh) as 'home loan' at a simple interest rate of 12 per cent per annum to buy in Dhaka or Chittagong metropolis an apartment to dwell in. The loan along with interests accrued has to be adjusted in full within a period of 15 years at best.
The Managing Director of HBFC in an interview telecast over a TV channel assured the general public that his corporation will see that the borrowers of home loans under the new scheme do not have to bear cumulative burdens on account of interest which would be simple in the true sense of the term. It is possible if a borrower is offered a client-friendly amortisation and instalments deposited by the borrower go straight to the principal loan amount to be adjusted with first. People should know that "lower the outstanding of principal loan amount, smaller the amount of interest to be accrued".
A banker always looks at the equity of the borrower (homeowner's unencumbered interest in his/her property) and the value of the mortgaged property. Equity increases as due instalments (known as mortgage payments in western countries) are paid or as the property enjoys appreciation. If borrower's equity is high and the mortgaged property appreciates the banker does not mind to reschedule the loan portfolio with lighter monthly instalments expanding the period of repayment or even offer a reverse amortisation requiring the borrower to pay back with smaller amounts at initial stages and gradually higher amounts at later stages on a scale like the pyramid with its upside down.
In Bangladesh borrowers are in haven as the rate of interest however high gets diluted by progressively high rate of inflation. To put it simply, if interest rate is 12 per cent and inflation, 10 per cent the effective load of interest on the borrower stands at 2.0 per cent. Moreover, a government-owned bank, unlike other lenders, does not fleece their clients with a plethora of charges.
Nevertheless, loan---though an asset to a banker---is a nagging liability and no genuine borrower, who has no intention to swindle his/her banker, lives in peace till his/her mortgaged property is freed from encumbrance.
But many of our borrowers, especially those for home loans as I found during my long experience in a commercial bank, are not really prudent enough to evaluate their present and future capability in paying off their mortgage.
I have a friend, a salaried person, who hates the money matter and his wife, a perfect housewife, takes full care of their family budget. While shopping in the local vegetable & fish market my friend, as strictly advised by his wife, is supposed to buy groceries according to a budgeted checklist which he usually does---except on occasions when he bumps into a salesman displaying a king-sized hilsha fish that he impulsively buys plunking down all the notes and coins from his pocket. My friend's mouth as a matter of fact waters at the sight of a hilsha fish.
There are people whose mouths water at the sound of bank loans and to avail of any loan they become trigger-happy to sign on any papers bankers offer.
It is the same story anywhere in the world because money is perhaps more intoxicating than amphetamine, the main ingredient of 'yaba' pills that kills you after making you feel excited.
Present consumerism is driving people crazy not to be content with a mere hilsha fish; they borrow money to buy costly apartments, cars, the latest electronic gadgets, trips abroad for holidaying etc., to quench their ever-increasing thirsts for modernity in life. It's fine as long as people have income and so long as the economy vibrates with income generating avenues. Problem arises when people, who are not sure about their ability to pay off loans, jump on the bandwagon encumbering their hard-earned savings or properties to avail of loans to buy luxuries.
The target groups of the new HBFC scheme on home loans are of those belonging to the middle and the lower-middle strata of our society. Let's say, those who would be availing of the maximum limit of home loan of Taka 4.0 million (40 lakh) do belong to the middle class. To repay within 15 years the loan of Taka 3.2million (32 lakh) (with adjustment of 20 per cent equity down paid) along with interest the borrower will have to pay back an instalment of not less than Taka 30,000 every month (the instalment amount being reliant on many variables like amortisation method, bank rate, irregular repayments etc. may go up or down). If the borrower lives in that apartment s/he must have a smooth monthly income of at least Taka 60,000 during the next 15 years.
Hope, there would be enough people belonging to that middle class who can afford such loans.
But, who are those belonging to the lower-middle stratum? Let's say, one of them is the guy who as the most honest government servant has just retired as a mid-level officer with his last basic pay drawn at Taka 16,000 a month.
Given that his receivable pension funds are unencumbered, he would be getting not more than Taka 2.6 million (26 lakh) as total benefit of pension. If he has to avail of a loan of Taka 3.0 million (30 lakh) under the new HBFC scheme to buy an apartment (say, a liveable flat of 1200 SFT with two bed rooms) to live in (he cannot rent out the apartment as he is the prioritised applicant for not having a home in the city) he has to make a down payment of Taka 0.6 million (6 lakh) as his equity and his monthly instalment would be not less than Taka 23,000 towards adjustment of the loan of Taka 2.4 million (24 lakh) within 15 years.
But the point is after spending Taka 0.6 million (6 lakh) as down payment he would be left with cash of only Taka 2.0 million (20 lakh) of his pension benefit funds which, if invested in the government's pension savings scheme, will fetch a maximum monthly earning of Taka 20,000---not enough even to meet the monthly mortgage payment, let alone meet his other living expenses.
Shouldn't we think of an alternative way of housing for people like the guy with his last basic pay at Taka 16,000 and many others with the same or lower financial status who have been retired and cannot really afford to avail of the HBFC loan to buy a two-bedroom apartment in metropolitan areas?
Thanks to unprecedented progression in medical science and young people's propensity for leaving their parents in the lurch to fend for themselves, retired people in our society nowadays are living longer and lonelier than their forefathers and are not quite aware of how to cope with advancement of their age or with fallibility of their health as they could not get a scope to learn how to grapple with extremities of old age from their fathers or grandfathers who had died when they were comparatively less old---and perhaps less lonely.
How many people (or architectural engineers) in our society do know that an apartment where an octogenarian may live should be equipped with an individual alarm system interfaced with the bed and the bathroom the old man uses (not really an expensive workmanship) so that in any emergency s/he can alert security people on duty on the ground floor of the apartment complex?
Living in self-contained apartments is safe and convenient for any group of people, young or old. Any individual retiring from work plans to spend his/her twilight years in a compact home like an apartment, even if the apartment is a studio apartment of 500 SFT or a tiny bedsit (known as flatette in Australia) of 300 SFT which are very hospitable towards senior citizens in Singapore and England as those tiny abodes are equipped with all the amenities, including even hospital bed elevators, old people may need to use anytime round the clock.
But a retiree in our society is afraid of investing a part or full of his/her nest egg (savings for future use) in buying an apartment---an asset which is very hard to cash in full and impossible to cash in parts.
With an eye on uncertainties of future and cash requirements on emergencies the retirees instead opt for investing their nest eggs in products like the government-sponsored 'pension savings certificates' knowing full well that an investment in pension savings schemes depreciates while an investment in real estates like lands or apartments appreciates.
A little modification in the HBFC-proposed 'home loan' scheme providing a window for equity extraction could motivate these pensioners to turn their eyes from savings certificates to home building loans.
"Had there been a way my investment or equity in my home where I myself have been living", a retiree may muse, "could offer me periodical earnings in cash without my renting or selling it out I would have been the last person to buy bonds like pension savings or fixed deposit certificates". His/her musing, though a bit fanciful, is not illogical altogether.
We invest money and time in planting a tree, in rearing a milking cow, in tilling a field or in purchasing a bond---all these investments give us some returns in cash. "Why then should I not expect some cash returns in emergencies---when I am very old, when I have to pay my medical bills or when my children don't take care of me---from my investment or equity in my one-room flatlet the value of which has steadily been increasing? I cannot rent or sell the flatlet out as I am living and wish to die in it." This question was answered by bankers in most of the developed countries many years back though we the bankers in Bangladesh are a little shy about it.
Answer to this retired gentleman's wondering is hidden inside what in banking parlance is known as 'home equity loan' which a retiree may be allowed, as is allowed in many countries other than in Bangladesh, to take for emergencies like medical expenses at old age etc., by offering the lending bank the equity in his/her mortgaged home as collateral for creating a second charge. Home equity loan---if allowed to buy luxuries or provided by subprime or predatory lenders---may, however, be homicidal and abusive.
An old person who is not taken care of by his/her children or who does not have a source of monthly income may also be allowed to enjoy a monthly pension after a particular age, say 65, in the form of a revolving home equity loan which HBFC may declare in their advertisement as an innovative product: "Invest your money (equity) in homes, not in papers (savings certificates). Homes appreciate and papers depreciate. And also enjoy a monthly pension from your mortgaged home when you are mellower or when you are not cared".
The above imaginary advertisement of HBFC, if advertised in reality, may wake up the retiree, the guy who retired with his last basic pay drawn at Taka 16,000, to run to HBFC to avail of a small home loan of not more than Taka 1.0 million (10 lakh) to buy a cute bedsit, what the Australians dotingly call flatette, provided there is an attached cantilevered balcony of 15 SFT (5 feet by 3 feet) open to sky and facing east or west where he can relax and smoke a Havana cigar, his wife beside seeping tea, while watching the sun rising or setting.
The writer is General Manager, Bangladesh Krishi Bank, who may be reached at:
maswoodalamkhan@gmail.com
To turn a mortgaged home into a cash cow
FE Team | Published: November 08, 2007 00:00:00 | Updated: February 01, 2018 00:00:00
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