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“Gedhoruveriyaa Loan” – a debt trap?

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Last night Housing Minister Mohamed Aslam announced a housing financing scheme called “Gedhoruveriyaa Loan” for locals living outside of the Greater Malé city area. The project will be aimed at decongesting the  Greater Malé city area by providing housing financing opportunities for those residing outside of the  Greater Malé city area.

According to Minister Mohamed Aslam, the financing scheme will be conducted in collaboration with the Housing Development Finance Corporation (HDFC). Under this scheme, individuals will be entitled to applying for a housing loan of MVR 700,000.00 to be repaid in up to 20 years with an interest rate of 6%.

It is noted that the loan scheme does not require any additional processing fees, but individuals are required to invest 20% of the project cost. In addition to this, 2 applicants are required for each application along with the mortgaging of the property.

While the  loan scheme is purported to be “low interest” and an affordable housing financing scheme, it has been noted that the authorities conveniently left several important aspects of the loan when they announced it.

Low interest rate?

The reported MVR700,000.00 loan with an interest of 6% over a maximum period of 20 years would result in the interest amounting to 71.9% of the MVR 700,000.00. Meaning that over a 20 year period, an individual would be required to pay the MVR 700,000.00 along with an interest of MVR 503,604.18 making the total payable amount MVR 1,203,604.18.

Below is a table showing how this works for individuals applying for the loan ranging from 15 years to 20 years.

Duration (Years)

Loan Amount (MVR) Interest rate Interest Amount (MVR)

Total Payable (MVR)

15

700,000.00 6% 363,259.60

1,063,259.60

16

700,000.00 6% 390,572.49

1,090,572.49

17

700,000.00 6% 418,267.90

1,118,267.90

18

700,000.00 6% 446,341.43

1,146,341.43

19

700,000.00 6% 474,788.46

1,174,788.46

20

700,000.00 6% 503,604.18

1,203,604.18

And the claim that it is a “low interest” loan is also questionable as according to the “Business insider”, the average global interest rate for a 15 year housing loan is only 2.60%. At this rate, a loan of MVR 700,000.00 would only carry an interest of MVR 146,098.62 making the total payable MVR 846,098.62.

 

Is it feasible?

Based on the current construction industry rates, the idea that MVR 700,000.00 would be enough to finance a housing project is also questionable. According to industry insiders, the current rate for construction for 1sqm is MVR 12,500.00 for a medium quality construction project. For a better finishing, this would be anywhere from MVR 13,500.00 to MVR 16,000.00.

Based on this rate, under the proposed housing financing scheme, the MVR 700,000.00 would only be able to finance a housing project with an average finishing quality of a land area equal to 56m2 or 602.779 ft2. This would undeniably make the “Gedhoruveriyaa Loan” unfeasible as most land plots outside of the capital city are larger than 1,000 ft2.

Then there is this additional costs associated transportation, accommodation and set up outside of the capital city. Construction projects like this would incur a transportation cost of up to MVR 200,000.00.

This further weighs in against the “Gedhoruveriyaa Loan”, in that it is simply not enough to even finance  a single story house outside of the capital city. And while it it is unlikely that the homeowner would end up losing their homes, the “Gedhoruveriyaa Koan” is nonetheless an additional burden with very little capacity to finance a proper home, lending credence to notion of the “ Gedhoruveriyaa Loan” being a debt trap.

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Maldives records increase in tourist arrivals.

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After a steep decline in tourist arrivals due to the COVID-19 pandemic, an increase in the number of tourists arriving in Maldives has been observed.

A total of 101,281 tourists have been recorded arriving in the Maldives in July. In March 109,585 tourists have arrived in Maldives. According to the data collected by the Tourism Ministry from 1st of January to 28th of July, a total of 600,252 tourists visited Maldives. This is an 8% increase in the total number of arrivals recorded in 2020. Last year a total of 555,494 tourists visited Maldives.

The highest number of tourists visited have been observed to be from Russia. A total of 140,824 tourist have arrived Maldives, this year. The second most visited nationality is Indians standing at a total of 99,643. The third highest numbers of tourists arrived from Germany, with 33,361 tourists.

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Chinese logistics sector outperforms its pre-pandemic levels.

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Chinese logistics sector has outperformed its pre-pandemic levels according to the latest data.

According to the data, the logistics sector continued to recover and ultimately outperform itself when comparing the first half of 2021 and 2019.  China’s social logistics sector was valued at $23.24 trillion, up by 15.7% year-on-year.

The combined revenue of the logistics sector was reported as 5.7 trillion Yuan for the first half of  2021, 22.8% higher than that of the last year.

It is estimated that the total value of China’s social logistics sector would continue to rise by 9-10% throughout the year as its economy continues to recover from the COVID-19 pandemic.

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BML faces harsh criticism as net profit hits MVR 299 million while imposing a limit on cards.

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Bank of Maldives has come under criticism after it revealed that it had made MVR 298 million as profit during the second quarter of this year.

According to the Bank of Maldives, its gross income topped out at MVR 785 million for second quarter of 2021 while its operating profit was reported as MVR 496 million. The bank reported a net profit of MVR 299 million for the second quarter of 2021.

Public criticism was targeted at the Bank of Maldives, with netizens accusing the bank of profiting off of the public amid the COVID-19 pandemic. Many complained that the bank was making profits while enforcing a limit on their cards and foreign transactions.

Prominent musician Fezu from the Detune Band also expressed her concerns on twitter.

A netizen also noted that the bank should be subjected to more stringent oversight as she was charged a fee, which she did not receive. She also noted that the bank she uses in the UK does not make as high profits as the Bank of Maldives, and questioned whether the bank should be investigated.

The former Economic Minister and current Maavashu Constituency MP Mohamed Saeed also expressed concern on the subject. In a tweet made earlier today, MP Mohamed Saeed stated that the public was forced to purchase US Dollar at 18.45 when leaving abroad to seek medical treatment, noting on the limit imposed on the credit/debit cards.

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