Creative Solution for Housing is a Lebanese real estate advisory and consultancy firm. Established in 2009, the company aims to introduce a ‘pay as you grow’ housing loan scheme for aspiring home-owners with limited incomes.
Executive sat with Mark Sleiman, the company’s managing director, to discuss the new scheme and Lebanon’s lending market.
E What is ‘pay as you grow’?
We are trying to become the middle point between the real estate developers, the buyers and the banks, and to service all three from a financial and a real estate perspective.
The ‘pay as you grow’ scheme is different from the conventional housing loan, because payments adapt to income over time. People’s income increases, so it makes sense that the payment rises in line with their income.
It exists in the United States but in a very different way. We changed the financial formulas that they use and we registered the concept as intellectual property.
I find the buyer the appropriate property within his budget and I manage the financing with the bank. We are reaching a new market which could not afford to buy houses before.
E Has introducing a new concept to the market been challenging?
When buyers are committing to paying double what they are paying now in 10 years time, it is a big commitment. [The challenge is that] you have to first educate people about this type of product, which takes time.
E Are their special requirements to obtain the loan that differ from conventional requirements?
[The requirement] depends on the bank. This is only a loan repayment concept. We give [banks] a method of calculating payments based on interest and growth in income. The rest is all based on the bank.
E in Lebanon income does not grow with inflation, so how will you calculate the increase in payments?
We took all the numbers available at the Central Administration of Statistics and we realized that we have 4 to 4.5 percent growth in yearly income on average. We capped this growth to 3 percent. The person whose income today is $1,600, we consider that in 15 years it will be $2,400. It is very conservative but we don’t want to take the risk.
It is hard to calculate the numbers [but] you can predict the minimum. This product is not for everyone, there is a profile for the [right kind of] buyer, what he studied and where he is working.
E If the buyer’s circumstances change, will the plan change?
We can refinance, reschedule, or give him more money. The basic point is flexibility.
E Lending is becoming increasingly available. Will this affect demand and prices?
Yes, but the demand [we are targeting] already exists. In Lebanon [there is demand for] between 50,000 and 70,000 apartments per year. There are around 25,000 marriages per year, 7,000 divorces; all these create a certain housing demand. What we are trying to do is give that demand access to the supply… to target the real demand, not the speculators or investors, but those who have a real need for housing.
E Do you think there should be regulations to stop price hikes?
You cannot do that in a free economy. I think rents will increase substantially, as it is the only alternative to buying. When rents rise, [property prices] will drop. Maybe not in prime areas like Achrafieh, but it could do, for example, in Metn or Keserwan.
What is scary is that the leverage ratio is increasing. The banks are financing up to 95 percent of the [cost of a] house, and some banks even 100 percent, depending on the person. This is what is dangerous and is what caused the financial crash abroad.
