With property prices around the country appreciating significantly, more and more Lebanese are trying to beat the inflationary trend by buying a home. And the country’s banks are offering a plethora of home and housing loans.
The rise of real estate prices and stagnation of consumers’ purchasing buying power in regards to acquiring property, especially homes, has compromised individuals’ ability to purchase a home in Lebanon, according to Société Générale de Banque au Liban (SGBL). “The weakness of the local rental offer in regards to meeting consumers’ growing needs and high demand, in addition to the over- cautiousness of these local lenders, has magnified the severity of this situation,” said Michel Fiani, strategy and marketing manager at SGBL.
Banks have identified this need and targeted a population of prospective homeowners with housing loans that may vary from one banking institution to another, whether in their features or their potential market.
The Intercontinental Bank of Lebanon (IBL) home loan is dedicated to a large client base whether employees, member of syndicates or entrepreneurs, Lebanese residents or nonresidents, whose age may vary from 21 to 64 (at loan maturity). Borrowers are expected to earn a minimum wage of $600 while salary domiciliation is required for employees who also ought to have a minimum two years experience in their respective field. The minimum amount for the IBL loan varies between $5,000 and $500,000 (special cases for more than $500,000 are also treated on exceptional basis), while the total amount of the loan will not cover more than 90% of the property price. Interest is digressive and based on the US-$ LIBOR.
Last June, SGBL introduced a new version of its SOGEHOME loan. The program has carefully adapted and responded to the current needs of the market and most individuals’ financial profiles and capabilities. The SOGEHOME loan from SGBL is characterized by a longer amortization period that may stretch over 25 years, a diminution of the personal down-payment requirement (starting from 14%), as well as, for a limited period of time, a 0% interest rate granted on home loans acquired before the end of 2008.
The home loan offered by Credit Libanais is also destined to finance the purchase of a residence or land as well as the renovation or the enlargement of a property. While repayments are usually done in equal monthly installments with each equal to or less than one third of the borrower’s salary, no ceiling is actually imposed on the amount lent. In addition, loan applicants benefit from a grace period of up to six months and the bank is ready to cover as much as 80% of the property value. Credit Libanais offers a special interest rate of 4.5% for the first year, and afterwards the interest rate is revised annually depending on market rates (LIBOR + 4.5% with a minimum of 7.75 %). “To succeed in our corporate mission, we at Credit Libanais have developed a new approach to serve retail customers and marketing our countless products. We have turned each branch into a one- stop-shop that offers clients a wide variety of products and services to meet specific needs,” said Alain Hakim, assistant general manager at Credit Libanais Group.
Range of loan options
The Lebanon Home Loan offered by HSCB, “allows customers in Lebanon and throughout the region to arrange all financial transactions regardless if they’re in the country or in, say, Dubai, since HSBC has such a wide regional footprint,” said Tony Graham, senior manager at HSBC Lebanon. And because HSBC Lebanon is a branch of HSBC Middle East Ltd. it profits from Moody’s AA2 rating, and can offer the lowest international rates at LIBOR plus 2.75%.
Byblos Bank offers a loan dubbed “the doctors and dentists housing loan,” which caters to this particular segment of professionals. Single applicants are expected to boast a minimum monthly income of 900,000LL ($600), and 1,200,000LL ($800) if married. Like for other loans, candidates are required to have been employed over two years in the same company, or the same sector if they are self-employed. The loan amount covers 80% of the price of property in the case of a finished apartments, 60% of the rent amount for rented apartments, 50% in the case of a house construction project, and 100% in case of renovation of house as long as the investment does not exceed 50% of the house value. The bank does not place a limitation on the loan amount and the interest is calculated on the base of LIBOR to which 3.5% are added. Repayment period is usually between seven and 30 years.
At BBAC, home loans usually cover an amount of up to $500,000 or its Euro equivalent, on which is applied an interest rate of LIBOR plus 4% when the loan is dollar denominated, or Eurobor plus 4% when denominated in Euros. A grace period of up to 18 months is granted, while first year interest is an average of 5%.
Muhiedine Fathallah, head of consumer credit product at Bank Med, where home loans also know no ceiling or limit whether on the salary amount or property value, underlined that most home loan products are all linked to the LIBOR, varying from 7% to 10% on average. “In the last year, we have noticed an impressive growth in the home loan market. More and more people are buying property in order to either try beating the towering real estate market prices or for investment purposes. This has prompted the Lebanese Central Bank to issue a circular preventing banks from lending an amount covering more than 60% of a specific property value to borrowers who already have one apartment,” he added.
The manager expects the interest on home loans to remain low for the next two years, a factor which should further encourage clients to seek home loans. “Loans provided by the Housing Bank (Iskan Bank), which is an institution jointly owned by most large Lebanese banks offering special loans up to a certain value [$250,000] and excluding registration fees [on average amounting to 6%] have nearly doubled this year alone,” Fathallah said.
In addition to the loan offered by the housing bank, most Lebanese banks also offer the Iskan or PCH loan in coordination with the Public Corporation for Housing (PCH). “This product is relatively the same from one bank to another, the only differences residing in the down- payment on the property and insurance fees” said Charles Mansour, head of loans at IBL.
At Bank Audi the PCH loan amount range is between 20,000,000LL ($13,300) and 180,000,000LL ($120,000). This particular type of loan provides financing for 80% of the property value with an interest rate based on the price of two-year treasury bills (40% of two-year T-Bills to which 3.5% is added).
The repayment period is scheduled over a maximum of 30 years split evenly between the bank and the PHC, and when a loan is destined to renovation works, the amount will cover up to 50% of the apartment value. The loan is free of any registration, mortgage or stamp fees. Eligible candidates’ income may vary between 1,000,000LL ($666) and 3,000,000LL ($2,000) if they are employed in the private sector and between 800,000LL ($533) and 3,000,000LL ($2,000) if in the public sector. Borrowers will have to opt for the domiciliation of their salary at the bank and provide a proof of registration in the National Social Security Fund (NSSF).
Like in all housing bank loans, monthly installments should not exceed one third of the borrower’s revenue and one quarter of his income if he is self- employed or belonging to a liberal profession. For the latter two categories, candidates are expected to submit proof of income: a balance sheet covering the last three years of operation, a statement of account and legal documents when borrowers are also shareholders of a company. File fees are applicable to the loan, which amount to 1% of the total loan along with life insurance premiums, calculated on the base of the applicant’s age and tenure.
Loans in phases
In addition to these loans, in August Bank of Beirut (BoB) unveiled its new housing loan. Roger Dagher, head of the finance department at Bank of Beirut underlined that the PCH Plus loan offered by his bank, although similar to regular PCH loan, carries additional interesting features. Like the regular PCH loan, PCH Plus is granted over a maximum of thirty years, depending on the borrower’s age at loan inception. Eligible candidates are required to earn a monthly maximum of as much as ten times the minimum official salary (equivalent to $2,000). Like in regular loans, the maximum monthly payment should not exceed one third of the average monthly income of the borrower. The PCH Plus time period is divided into two equal phases like the regular PCH loan, where the borrower pays back to the bank the principal of the loan during the first phase and the accumulated interest to PCH during the second phase.
The loan interest is set by the PCH protocol and reviewed every two years, being tied to the two-year T- Bills coupon rate. The borrower is required to deposit 10% of the loan amount in the bank at inception, which will be discounted from accumulated interest during the first phase. In addition to a first degree mortgage, a mandatory insurance including life and fire coverage for the whole loan period is settled during Phase One.
The main difference between PCH Plus and the regular PCH loan, Dagher explained, “resides in one variation that allows the borrower to pay back only the principal of the loan during Phase One without paying back the accumulated interest to the PCH during the second phase, which is why we call this particular product the ‘zero interest loan’.”
In order to benefit from this cost saving, the borrower is required to make a deposit representing up to 11% of the chosen loan amount. This deposit earns interest at the regular loan interest rate and can be returned to the borrower at his request, if he chooses to end the relationship prior to loan maturity, which is subject to full settlement of the loan. With the PCH Plus program, BoB finances up to 100% of the loan, contrary to other housing loans. The customer may pay to BoB, as the required deposit, the down-payment he would pay to the owner of the apartment.
Dagher believes that the PCH Plus loan is more borrower friendly as the bank settles accumulated interest on behalf of the customer. In addition, the property will also be free of any lien at the end of Phase One, which provides the borrower with a greater margin of freedom.
“The PCH Plus loan provides young Lebanese the possibility to finance property at low interest rates. This particular loan emphasizes the social role Bank of Beirut is currently playing,” Dagher added. On the other hand, the manager estimates that this particular type of loan offers the bank greater exposure and reinforces its leading position in the marketplace.
“We believe this product will definitely be successful because it provides borrowers with flexible and advantageous conditions. In my opinion, the product has massive potential: it is possible for Bank of Beirut in one year to grant clients more than 1,000 loans”, Dagher said.
Around, the city, large billboards touting the merits of various home loans seem to be mushrooming. And the campaigns certainly generated popular interest. As Fathallah concluded, “Not only is it attracting attention on the banks commissioning the campaign, but it is also encouraging clients of the different institutions to seek home loans from their own bank as they become aware that buying a house on credit is a relatively easy and affordable process.”