By Guest Author: Ahmed Riza
Owning an apartment or a row house is always one’s dream. Affordable housing has become the biggest socio-economic barrier of this nation and the root cause of many socio-economic problems. Affordable housing plays a key socio-economic role and represents the wealth of the low-to-medium income earners in most developing countries. The UN estimates that the world’s population will reach 8.5 billion (85,000,000,000) in 2030, just in less than a decade’s time. At least 60% of that population will be living in urban centers by then. An estimated 3 billion people will need new housing and basic urban infrastructure by 2030. Against the backdrop of rapid urbanization putting pressure on housing delivery systems, many urban poor will not be able to afford formal housing without proper housing finance solutions. This puts the issue of housing finance at the forefront of the global development agenda (World Bank, 2019).
Let’s look at the above statement in a more realistic way! Owning an apartment or even a row house is a life-long decision. Buying it at the age of 25 or 41 or even at 53 is a good deal. Not everyone goes at the same speed! It simply does not come without a cost. It can be so hard that you may even have to work a decade to get it done. Sometimes a few years isn’t enough to buy what you really want! It’s not about how long it may take to buy one, but rather if you are willing to sacrifice or compromise certain expenses to save for an apartment. If that is not even enough for what you are looking for, then the next best alternative is to look for a home financing facility through a bank or a housing financing institution. Now, the possible questions will be: do we have options in the financial market to acquire a home? And does the supply side of the housing market cater to the required varieties of potential buyers?
What’s the market condition right now? How does it look for the next couples of years?
One could say the housing market is only supplying for the luxury market at the moment and there are only a few who could own those expensive places. That statement is not totally wrong as the existing options in the market are at premium rates. Looking back at the last 5 years into the industry we have seen only luxury apartments being built and are occupied by high-income earners. However, the housing market looks quite favourable for average-medium income earners, first-time-buyers, in the next 3 to 5 years’ time. The housing market, especially in Hulhumale’, is expecting approximately 3000 medium-range units by end of 2023. All these units will be supplied by private sector developers. End of 2020 Government has provided permission to few developers to build apartment units in Hulhumale’ Phase 1 and phase 2. Most of them will be built in phase 1 facing phase 2. I hope you got it right! Yes, you read it correctly.
As announced by the Government recently, Apollo Holdings is about to start the biggest private sector project in Hulhumale’ phase1 located in the plots south to Ameen Avenue buildings. According to Apollo they will be constructing 660 units (2 rooms, 3 rooms, 3+1 rooms) in 6 towers and expected to complete by mid 2024 and i.e. after 3 years. Apartments are expected to be in the range of MVR1.8 million to MVR2.4 million for 2 rooms and 3 rooms respectively. Apollo isn’t the only developer who will start their projects in 2021 while Glut Investments and RCNC are getting ready to mobilize resources to their sites. Further, there are other developers in the league who are expecting to complete their projects in the next 3 to 5 years down the line. So, this is the best time to start your initial investment and once the properties are ready to be sold you will have enough funds to get through with bank finance as well.
What are the available options in banks?
Equity financing is the best option available in the market. Meaning you as the buyer must have a certain amount with you before even applying. On average banks and other institutions require you to have at least 20% equity as one of the conditions. For instance, if I am buying a three-room apartment which costs MVR2,500,000, that will require me to have MVR500,000 as equity and the bank will finance only the balance MVR2,000,000. Let’s say I’ve got MVR300,000 in cash in my savings now and need further MVR200,000. A pension fund could help me to solve that and get the remaining balance if I have some funds available to collateral through pension. However, in this case, the bank will finance MVR2,200,000 (including the amount collateralized through pension).
At the moment commercial banks and housing financing institutions are the only hope for those who are looking to own an apartment and not all of them offer home financing facilities. However, that also comes with a high cost of borrowing. Currently BML, MIB and HDFC only caters to the wider society. Others go case by case, maybe! As of today, home financing rates are between 10% to 13% in Maldives. BML Islamic and Maldives Islamic Bank offer Shari’ah compliant alternatives to those who wish to acquire a home through an Islamic option.
How do I get myself ready for this opportunity?
Start saving now! Do additional work! Don’t just stick with 8 hours working. There is a lot of magic that everyone can do to get extra income! It all comes from hard work and a lot of sweat. Let’s say if you want to buy an apartment which costs MVR1.8ml then you need at least MVR360,000 as equity. In simple terms, you need to earn extra MVR10,000 per month for the next 36 months. If you feel you can’t do this alone go ahead with the next human being, get your spouse, parents or even siblings into it, if that is what it takes to do it. Banks allow borrower to finance individually as well as collectively. Now it is the time for saving! Start saving today and spend only for what is needed now. Keep the luxury wants aside for a while, postpone some vacations. Take a decision today to invest on a property and that will keep you achieving the dream. Let’s work and find an alternative for paying rent for the rest of our life.