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ARCO REAL ESTATE: rental market enlargement is a real support to young families

  • In opinion of Mr. Aigars Šmits, Chairman of the Board of Directors of ARCO REAL ESTATE, the draft law prepared by the Ministry of Economics stipulating provision of support to young families, who want to purchase a home, would not be an effective way to help people. In contrast, an increase of the number of municipal apartments for rent and offering the apartments for long-term rent would give real benefits, says Mr. A. Šmits.


In Western countries, the following principle has been dominant already for a long time: persons who are not able to buy a real property due to financial reasons, should rent a home rather than make a commitment to a bank, concluding a mortgage contract for 20 - 30 years and living from salary to salary, stresses the specialist. The best way to realize at the national level the desire to help families is to construct new apartment buildings and rent them out at adequate prices which, within the framework of the program, should be lower than those existing in the open market and higher than those existing in the social houses.

 

According to the information available to the real estate company, the average construction cost per square meter now is 850 EUR, which means that an apartment of 60 square meters costs 51 000 EUR. Assuming that a new family, in addition to the public utilities, would pay EUR 150 for the rent of a municipal apartment, which is a totally adequate amount that any family can afford, the local government would recover EUR 1800 of the funds invested in the construction.

 

The price of a square meter of a standard-type apartment now stands at 622 EUR, which means that a new family must purchase a 60 square meters large apartment for around 37 000 EUR. Taking into account the desire to implement the so-called "returned keys" principle, the size of downpayment requested by credit institutions will no longer be limited to 10 - 20%. In opinion of Mr. A. Šmits, the downpayment amount will increase up to 40% which will bring new family even further away from purchase of their own home, so that approximately EUR 14 800 will be required for the down payment, and EUR 2 000 from this amount would be guaranteed (and not granted, donated or written off) by the state to credit institutions under the planned state aid program, reducing the new family’s downpayment up to EUR 12 800.

 

Knowing that the main obstacle for young families to obtain a loan from a bank is absence of money to make downpayment requested by banks, an enlargement of municipal housing would be a viable alternative because for the said amount of EUR 12 800 a new family could afford to hire a municipal apartment for seven years, and without any credit liabilities, says Mr. A. Šmits.

 

The local government must not buy land to construct a multi-apartment house in an economically active area where young families would willingly rent apartments for a long time because the local government already owns both free land plots and the compensable land fund.


06.03.2014.

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