The Chavez
admisnitration has passed a bill that makes mortages a not for for profit
business, by fixing the mortgage rate at 65% of the average lending rate of the
banking system, which today would be 11.65% in an economy with 20% inflation. There
is clearly no free lunch, the existence of this rate implies that others arre
paying for it, banks are simply going to translate the costs to the customners
on both side, the savesr and the borrowers. Additionally, banks have to lend 3%
pf their credit portfolio at this rate.
But less
than one month after the new mortgage protection bill came into effect,
President Chávez announced an even newer rate structure for the financing of
mortgages for those that make less than a certain monthly salary. Banks were
still calculating the adjustments and waiting for new regulations to implement
the changes, when they were hit by the new rate structure. So much for careful planning!
There were
two changes made: First, the Government issued a new decree that creates two
additional categories under the so called housing policy, by which those that
make less than Bs., 588,000 will have a special subsidized rate of half the
rate of 5.68% and those making between Bs. 588,000 and 1.61 million a month
will have to pay a rate of 8.52%, or
three quarters of the higher rate. Chavez seemed to suggest that the Government
will subsidize this difference, but banks have no clue as to whether this is
true or not.
Separately,
the Housing Council approved that banks should devote 3% of the financing to
mortgages and an additional 7% to builders.
While the
rates are clearly very attractive, well below the current inflation level of
nearly 20%, the truth is that the subsidy is hard to use for those in the
lowest ranges of the salary structure. The law limits monthly payments to 20%
of the monthly salary, implying that a worker could only pay a maximum of Bs.
117600 per month. Since loans will for 20 years, this implies that someone in
that salary level will only be able to borrow Bs. 18.000.000.
Given that
the most economic housing unit available is above Bs. 40.000.000, it will
require a down payment of at least Bs. 20.000.000. But recall that the
Government is now considering increasing the minimum salary to Bs. 400,000 a
month. To those making the minimum salary this is simply hopeless, as they have
no savings capacity and will be unable to purchase anything in the market.
In the end,
it is another populist measure which will benefit more those at the higher end
of the salary scale. So far, the Government has not announced who will pay the
difference in interest rates. Chávez’ speech seemed to suggest that the
Government will do it, but so far there are no firm indications that this is
the case. In any case, 3% of the credit portfolio of banks will only finance
some 17,000 housing units at the lowest price range, a drop in the bucket in a
country with a shortage of some 2 million housing units.
I find it
remarkable how the Chavez administration is looking for economic solutions in
areas where there are careful studies (by pro-Chavez people) that show that
what you need is a Government plan to build housing in a massive scale. The
problem is a US$ 50 billion problem, not an US$ 80 million problem as this
decree makes it. This is once again improvisation and populism at an
irresponsible scale. Maybe it is better that way, one day people will simple
get very tired of the repeated empty promises of the revolution.
8:20:50 PM 
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