Tajik Mortgages Still Too Risky

The Tajik government wants to develop mortgage lending in an effort to boost housing development, but NBCentralAsia experts say shaky legislation and the lack of long-term loans make mortgages too risky for both creditor and borrower.



The Tajik office of the International Financial Corporation, IFC, has launched stage two of a Central Asia-wide project to develop mortgage lending, according to the Avesta news agency on May 21. The project is intended to help draft mortgage lending legislation, introduce modern lending methods and promote borrowing.



Housing construction is lagging well behind the demand and according to official statistics, only 500,000 square metres were built last year, less than half the amount built in 1991, the last year of the Soviet Union.



At the moment, Tajikistan’s seven million people occupy an average of eight square metres of housing space each, when the generally accepted international standard is 12 square metres per person as a minimum.



To ease the crisis, the ministry for economic development and trade, which the government has tasked with producing a national mortgage lending strategy to take the country up to 2020, is looking at whether mortages could be backed by government funding.



NBCentralAsia experts say inadequate legislation and the limited assets of Tajik banks will hold the market back.



According to IFC representative Dilshod Holmatov, creditors will be taking a huge risk if they offer mortgages before mechanisms to resolve disputes with borrowers are incorporated into Tajik legislation.



“There are no… independent institutions for valuing property and resolving disputes between clients and banks over how much a property serving as collateral is worth. Even more importantly, there are no mechanisms for giving out mortgages,” he said.



Larisa Dureeva, head of the Tajik National Bank’s commercial operations department, agrees that the law must be changed to reduce the risks for everyone involved.



“The system could start working, especially since the demand for apartments is so high. A clear strategy is needed to protect both creditor and the borrower from risk,” she said.



At the moment, Tojiksodirot, Tajik Export Bank, is the only one of Tajikistan’s nine commercial banks to offer mortgages. The terms it offers are not very attractive by global standards - buyers can only take out a mortgage for five years, and have to stump up 40 per cent of the property’s value immediately. Tojiksodirot will only lend money on finished houses, and will not finance construction.



Firuza Tohirova, a leading economist at Tojiksodirot Bank, explains that the money used to issue loans comes from customer savings accounts which are rarely held for longer than three years.



She said that if the banks were to work with construction companies when new housing projects were still at the planning stage, interest rates for mortgages would drop. “But there haven’t been any proposals for this kind of cooperation, and there are no mechanisms for doing it,” she added.



An economist working with one of the foreign banks present in Tajikistan, who asked not to be named, told NBCentralAsia that there will be no mass demand for mortgages until major foreign banks start operating on the local market.



Some of Kazakstan’s largest banks have already opened branches in Tajikistan, and he predicts that they will probably be the first to develop a serious mortgage industry.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)