Published : 2013-10-03 19:20
Updated : 2013-10-03 19:20
The government’s new mortgage program has proved tremendously popular among first-time home buyers, raising expectations that it could increase housing transactions and revitalize the depressed real estate market.
The government has introduced two innovative, low-cost products, the likes of which people here have never seen before. One is a profit-sharing mortgage while the other is a profit/loss-sharing one.
Under the profit-sharing type, the government provides first-time buyers with a 20-year mortgage of up to 70 percent of the property price at an annual interest rate of a mere 1.5 percent. In return, homeowners have to give the government a maximum of 5 percent of the future increase in the value of their home.
For families that choose the profit/loss-sharing option, the government offers a mortgage of up to 40 percent of their home value at an interest rate of 1 percent for the initial five years and 2 percent for the remaining 15 years. The government and homeowners share both the future increase and decrease in the value of the property.
On Tuesday, the Ministry of Land, Infrastructure and Transport received applications for the two new products. Due to funding constraints, it has limited the number of successful applicants to 3,000.
Online applications poured in as soon as banks opened for business. The number hit 5,000 in less than an hour. The rush was more frenzied than ministry officials expected.
Several factors can be cited for the rush. For one thing, rents have soared recently, making a growing number of people think twice about renting a home. For first-time buyers, there is another strong incentive for home ownership ― if they buy a home within this year, they are fully exempted from acquisition taxes.
The most important factor, however, is the ultra-low interest rates on the new mortgages, which are up to 3 percentage points lower compared with the products from commercial banks.
The government has set the interest rates on the new mortgages even below its funding costs. It could do so as it will be able to compensate with its claim to a share of the profits when housing prices rise.
As the innovative new products have the potential to activate housing transactions, the government needs to make them more easily available. Currently, the scope of the homes that people can purchase with the mortgages is too narrow. And it is only available to first-time buyers.
At the same time, the government also needs to develop longer-duration, low-cost mortgages for households that have already purchased a home using mortgages and additional high-cost loans from nonbank financial companies.
If these households could roll their existing debts into low-cost mortgages, their financial burdens would be alleviated considerably. This would boost their spending power, which would in turn expand domestic demand and speed up the economic recovery.