Purchasing a home
A dream too far?
4 minutes
Is it doable? Yes. Is it hard? You bet.
Housing is a major concern for many Maldivians. With ever increasing rent prices and issues with living together with several people, it seems that purchasing an apartment is on the wish-list of just about everybody.
Renting vs Purchasing
“Paying rent is just filling a bottomless bucket. At the end, you’re really not going to have the water.”
You may be motivated to purchase a flat because each month you’re only lining up the landlord’s pockets and not a step closer to having something to call your own.
Is this really logical? Yes and no.
Yes, because you can live indefinitely on rent and would never transform that house to a home.
No, because – financial reasons.
The average price of a 2-bedroom apartment ranges between MVR 2-3m meaning that even if you take out a loan for 15 years, you’d still be paying around MVR 30,000 per month. That’s excluding the usual expenses and utilities. How practical is this in comparison to paying half the price or less when you’re living on rent?
The truth is ugly, and housing is truly not at all affordable for the vast majority.
It is perfectly fine to ignore those voices in your head (or at coffees) to purchase a flat if it means financial ruin. Take some time to think about what you would need to forgo in terms of your standard of living just to make this happen?
Things to consider when purchasing an apartment
1. Options available
If you’re entering the market now, it may be difficult, truth be told. When the first batch of private flats were announced there were several choices out there but right now, only a few remain unsold; these are usually outrageously priced.
Worry not, at the time of writing, there are reports that more flats are proposed to be built in Hulhumale’ and if they adhere to the government regulations, it is expected to be cheaper.
Although cynical, there is a good chance that existing flats encumbered by loans may be up for resale in case the current borrowers are unable to pay. Most real estate developers hoped to create a secondary market in the future where it is normal to buy and sell pre-owned flats.
The best place to start is to contact these developers directly and find out which properties are still available for sale.
2. Down payment
Unless you’ve got a cool few millions lying around, you’re likely going to have to obtain a loan to purchase the flat. Usually, the down payment is between 10-30% of the apartment’s cost – the percent tends to be on the higher end for most lenders.
Therefore, you may be looking at anything between MVR 200,000 to MVR 400,000 or beyond. Yikes!
It is no easy task, and this is one of the major reasons why private housing remains unaffordable to many. If you would like to start saving for this, please read our article to learn how to begin.
Pro Tip!
Some lenders accept your accumulated Pension as a down payment. You can reach the Maldives Pension Administration Office (www.pension.gov.mv) or better, download their mobile app to know how much you have. Also, if you’re borrowing alongside someone, for example your spouse, you can combine both of your pension funds towards the loan. Speak to your Bank to confirm the options available.
3. Borrowing options
Now that you’ve managed to get the down payment organized, it is time to seek a lender.
Several banks and other lending institutions have specific housing loan products, but you may reach out to them directly even if it is not advertised but they generally would not have the most ideal terms.
Before deciding on your lender, identify the following:
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Down payment percentage
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Interest rate
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Loan duration
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Each lender would also have their own set of requirements that you need to clarify such as:
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Do you need to transfer your salary to that Bank?
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Will they accept if the apartment is not completed and/or if a title deed is not available?
4. Repayment capacity
You need to have a strong understanding of your financial position i.e. your inflows and outflows to be able to prove that you can repay the loan.
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Banks officially refer to this as the Debt Service Coverage Ratio (DSCR) which determines your repayment capacity. Don’t let the jargon scare you, it’s very simple. First, calculate how much the monthly payment of the loan would be and then what your net income is (income minus expenses). The ideal figure should be 1.2-1.5x
For example, if your income is MVR 30,000 and your expenses are MVR 10,000, then your net income would be MVR 20,000. Let’s say that the monthly loan repayment is MVR 15,000. Then 20k/15k = 1.3x
The higher the DSCR the better.
The lender will expect you to support this with evidence so try to have adequate documents available such as your bank statements, recurring bills and letters from employers.
One day.
Affordable Housing Scheme (MMA)
The Maldives Monetary Authority (MMA) has implemented a housing loan scheme across all the Banks which remains to this day, the most ideal option for borrowing.
Currently, the scheme is in Phase II with key features includes:
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Down payment of 5-20%
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Average rate for commercial lending requires 20-30%
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Interest rate between 5-6%
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Average interest rate for commercial lending is 12%
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Minimum loan duration is 20 years
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Average housing loan duration is between 10-15 years
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Borrowing under the AHS Phase II would mean an average monthly loan repayment of around MVR 13,000 while commercial terms with regular banking loans can be in excess of MVR 25,000 per month.
So why is this not the most popular option?
Unfortunately, this is only applicable for flats costing no more than MVR 2,200,000 which is a rarity in today’s market.
Some Banks may have set a limit of loans they wish to provide under the AHS so your first choice Banker might be not able to accommodate your request.