Interview with Gevorg Manukyan, Head of Mortgage and Auto Lending Direction at Ameriabank

As market offers more and more favorable mortgage lending terms and various preferential programs, some rush out to get loans while others prefer to wait for further improvement of terms and lowering of interest rates. Does this make sense? What is more likely to happen first: rates going down or home prices going up?

There are several factors contributing to growth of demand for mortgage loans. There is significant activeness in real estate market: the more real estate deals, the higher demand for mortgage loans. Secondly, it’s the interest in real estate as investment. And last, but not least, it’s the government tax refund program designed to cover mortgage interest. As most real estate deals are primary market deals, the chance to pay interest out of income tax is certainly a contributing factor. 

Generally, real estate market and mortgage loan market are closely interrelated. Growth of real estate drives growth of mortgage lending and vice versa. Notably, during the last year there have been more people showing interest in Armenian real estate who work and live abroad and often are not Armenian citizens. There are such people among Ameriabank clients, too. It’d rather say we have the general favorable environment in our country to thank for this. 

More deals means higher prices, that’s the demand-supply law. Growth of real estate prices in Armenia is an established fact, but the market is not static, meaning prices could down as well as up. Currently demand is high and prices are going up. Moreover, it is my forecast for short-term outlook that demand will grow. There are objective preconditions for this. There has been no major housing construction in Armenia quite a long time. But we need new buildings which would live up to modern standards and needs of people. And our needs have changed: young families want their own homes, separate from their parents’. They want each kid to have their own room. They have higher requirements to quality of home. This means we are in for robustly high demand for housing. 

As for change of mortgage lending terms, that’s a continuous process. Money is a market commodity and its price can go up and down just like other commodity prices. Currently mortgage interest rates are not going up, rather the contrary. What with interest subsidizing programs of the government and competition between banks, we have fairly stable interest rates with minor upward or downward adjustments. I would rather not make longer-term forecasts.

If you don’t want to overpay on interest, you might want to refinance your loan at a bank offering a lower rate. Do your customers know about such programs, do they use them actively?

Mostly mortgage loans have floating rates, meaning that the approved rate of your loan can go up or down depending on what’s happening on the market at that particular time. Certainly, for the buyer there is always the risk of interest rate hike. But the bank is exposed to the same risk of drop in rates. Recent trends are more downward, which is indicative of tough competition among banks. But if at any point you are not happy with your interest rate, you can get your loan refinanced with another bank on better terms. Moreover, with increasingly high property prices it is meaningless to talk about overpaying on mortgage loans.

I saw some mortgage lending stats and, I must say, they were completely mind-blowing. In as much as a year and a half Ameriabank's mortgage portfolio skyrocketed into number one on the market. How was this possible? What does Ameriabank offer that others are missing on?

Well, market surveys show that people need long-term, “speedy” loans with affordable terms and balanced risks. And, of course, they expect quality service. 

As I said earlier, primary market is what drives real estate market in general. Which means the second most important part of our work is developers. We were like, if we want both the seller and the buyer to get the most of it, we need to make sure they cooperate effectively. We probed the market and its key players – developers – and with some of them we were able to come to agreement about financing purchase of apartments in their buildings subject to certain conditions. For buyers this is an extra risk control. 

Let me explain why this is important. When we say that primary market fuels growth of real estate market, this means that the buyer pays for a home which has yet to be constructed. This is regulated by law. According to the Civil Code, until the construction is complete, the buyer acquires the right to purchase. The law also has it that all proceeds from sale of future apartments are kept on a special account which the developer can only use after they deliver the ownership certificate to the buyer, unless the buyer permits them to use part of those funds. Basically, this account is what secures the buyer’s right to future apartment. This is a very important point, which many overlook. Sometimes buyers just do not realize what risks are associated with purchase of unconstructed apartment and how they can be managed should unpredictable circumstances arise. Yes, market trends are now positive, but risks should never be overlooked. For the developer, the money on the special account which they will get when they finish the construction is an extra stimulus and an excellent financial motivation to complete the construction on time. This is what our approach is about: we require that this special account of the developer should be pledged to secure the loan, and the buyer’s rights to it should be preserved. Thus we minimize the buyer’s risks, which is one of our important advantages. We always insist that the contract should contain a provision on how much of these special account funds the developer is allowed to use. I’d like to stress this to all potential home buyers, whether or not they use Ameriabank loans – read the contract carefully.

Note that our interest rates are not among the lowest, nor our loan terms the longest, but we offer perhaps the most balanced product on the market – quality service, simplified paperwork, excellent price/quality and term/interest rate correlation, quick decision-making. That’s how we become the bank of choice. On average, we provide 3 billion AMD worth of mortgage loans each month. 

Our terms are very clear: specific interest rate, no extra service fees. We do not require insurance for property or accident insurance, we do and pay for that ourselves. We have simplified many processes and standardized requirements, created mechanisms allowing our clients to get the loan approved quickly at any branch office of Ameriabank. If the client is creditworthy, it will take no more than a couple of days to approve their loan.

We are also planning to launch an online platform, a place where you can browse through available offers to find the one that suits you best preference-wise and financially, and apply online. All to make things quicker and easier. 

There is always the reverse side of the coin, though: attractive loan terms are typically accompanied by very tough requirements to borrower and pledge. How likely is it that the average borrower will be able to get a mortgage loan at Ameriabank?

Our number one requirement to the borrower is creditworthiness – the ability to pay, documented by income. Putting value of pledge before creditworthiness is not our method. There are two common myths among certain borrower groups. First, that creditworthiness is not important if there is pledge, and second: banks will go to any lengths to get hold of your property. I want to stress again that bank business is not about getting hold of and selling the borrower’s property. It’s about giving loans and earning profit on it. It’s better and much easier for the bank if the loan is repaid on time and the bank is able to lend those funds to another client, than having to deal with endless problems and complications the sale of even the best and most expensive property can cause.

This does not mean, of course, that we don’t consider the quality of property. We consider it, we pay much attention to location, liquidity, regardless of loan-to-value ratio. If the property is not eligible, it is not eligible, no matter how much of it the borrower wishes to pledge. 

We have a very flexible advance payment policy. Our advance payments start at 10% for apartments in newly-constructed houses. Overall, if we combine everything we get quite an interesting offer. For example, you want to get a 20-year loan to buy a 25 million AMD-worth apartment. Your advance payment will be 2.5 million and monthly loan payment about 240 thousand. If your monthly income is 500-600 thousand AMD and you can documentarily prove that, you can quite afford buying an apartment. And for 25 million you can buy a 2 or 3-room apartment in a newly-constructed building in Yerevan. Most of the deals we finance are in the mid-price segment. 

So you prefer to finance purchase of newly-constructed apartments?

We prefer to finance whatever our clients choose. We provide loans for purchase of realty of various classes, private houses and mansions among them. But as buying an apartment is more affordable, most demand is concentrated in this segment. So we are where our clients are. 

I think the biggest change that will happen on real estate market is construction of new residential blocks, not just buildings. Blocks with their own infrastructure to make life comfortable for tenants. Housing is also developing in regions. New apartments are being built and we are ready to finance also the purchase of apartments in those buildings as well.

I also want to point out that much has changed in our country. People have become more optimistic. If you travel across Armenia, you will notice buildings being constructed everywhere. This means people see their future and the future of their kids in Armenia.