Difficulties of purchasing land on credit

Investments in land always were the safest and the most profitable. In Ukraine it is realized not long time – prices for plots in an area of big cities is growing quicker than prices for flats.

However take a credit for purchasing land is still difficult. Bankers are afraid of unclearness of plots, absence of working out methods of land estimation and also long procedure of filling out the right of property. It is easier to get a credit for purchasing finished or development of the house. But this situation will not last long.

For now residential property is not the most profitable way of investing. On the first place is land. From December 2006 to April 2007 plots in the suburb of Kiev grew in price in average on 38% and in some cases on 50%.

Besides, the geography of purchase and selling deals become wider. So if, some time ago the perspective plots were those which were in 21,4 miles from Kiev but for today the actual area is 21,7 miles and for a couple years it will be 31 miles.

High interest is also in other parts of the country. The tendency for change investment interests was visible in Odessa, which is the second city after Kiev by attractive investments in real estate. Odessa realtors admitted that some of their clients, who invested money in residential property, now sell their flats that this money invests in land.

Of course, in these cases the quest for bank credits is become higher. However, Ukrainian financing enterprises for now give credits without wish. There are several causes of this. First of all, it is unclearness of the procedure plots’ separation. Plots which could have perfect filling out package of documents for today are very little. That is why, any of deals purchase and selling could be dispute by right of illegality of plots’ separation. In this case bank which gave a credit run a risk to stay without pledge.

One more specific difference land from other kinds of property is presents of servitude. According to the land Code of Ukraine, servitude is a right of owner or user of plot for limited paid or free of charge usage of not your plot. For these rights refers the right to lay out on your plot water pipe from foreign pond or through foreign plot, right of passage to pond through the foreign plot, right of passing and driving through foreign plot and etc. Moreover, land legislation foresees that work of land servitude safe in case of transferring rights for plot where there is servitude for other person.

If you have bought the plot through which your neighbors could pass to their house, so they will continue to do it. And in spite of this, it does not disturb to buy or sell land but it could make complicated the life of buyer and what is the most important could made complications of realization this plot by bank in case of not paying the credit.

Moreover, servitude could be fixed by legal process. It means that if you bought a plot without problems, your neighbors could ask for the right to let them pass and drive through your territory. It is actual if you buy expensive plot with own way to the pond.

Estimation of the land is one of the important factors which restrain the development of land credit financing. So if mechanisms of property estimation more or less good there is no need in estimation. The price of land is influenced not only objective but subjective factors as well, starting from proper infrastructure and finishing such notions as natural landscape or characteristics of the area.

Besides, prices for plots in different ways have different tendencies and predict which of these ways will be the most popular in a few years is very hard. And one more thing: if after development of the residential house its characteristics will not change (except those cases where in front of this house is building another one) then with land is not so easy. For example, near plot could be traffic artery or will be built combustion plant. Of course all these facts will be on price.

That is why, less than ten native banks give credits for buying plots (credits for land on security of buying plot). So it is not little, if take into consideration that fact that banks started giving such credits from middle of last year.

The middle term of credit financing of plots is 20-25 years. But in some banks you could get a credit for 30 years, and some is ready to give credits only for 10 years. Average credit rate is about 17,5 -18,5% in hryvnas and 11,5-14,5% in foreign currency (credits in Euro are a bit cheaper, credits in dollars are a bit expensive).

First payment is obligatory in all banks it could be from 10 to 25% of sum of a credit. However, some banks could not ask for the first payment but then they will ask for additional pledge in a form of liquid property. But this condition could be also in standard procedure of credit financing. In other words, banks take in security for as this plot which you are going to buy and also for example, a flat. In this way banks try to insure from risks which were mentioned above.

You also should be prepared that while estimation the bank could mark down the real price of the plot. In this case the correlation of the payment to the credit could increase not in favor of client.

Documents for receiving the credit – standard set of copies passport, certificates of getting identification code and certificate about incomes and also document for the land: copies of passports of plot’s owners, State act about the right of the property for plot, certificate about normative money estimation of plot which was given by agency of land resources and extract from State land registry about absence (presence) of limitations. Some of banks could also ask for the certificate of marriage and copy of labor book and also document which confirms payment of tax for the last 12 months.

The most important document here is State act about right of the property for plot. There should be written the expert estimation, target purpose of plot and also its size and location. For today it is possible to buy plots of two categories: for construction and servicing residential house and also for gardening. If you buy land for building a house there then you should buy a plot for construction and servicing residential house. According to the law on plot for gardening could be built only: necessary home” and “servicing constructions”.

That is why, bank loans are given on security for land for residential building. And here you should pay attention for one moment. As the filling out of right of property is a long process. First buyer conduct a purchase and selling contract and give money and then starting to filling out right of property which could be lasting from 3 months to 1 year. And land will be his only after he will get a state act for right of property (in the name of new owner). Consequently, this plot could be as a pledge only all of this.

At the moment of credit financing borrower sign with bank a contract of pledge the property’s rights for plot with obligation in a written term pass in mortgage the plot. For some period bank has not the plot but rights for it, what is an additional risk for financing enterprise. That is why some banks could make high percent rates for the period while plot will not be passed in security for.

It is easier to get a credit for already built house. This credit is given by majority of banks and sometimes they go to the structure of usual mortgage program. Credit is given on the same conditions as usual. Sometimes, it is easy to get a credit if you could prove that you will build a house on this plot. Then you should show the permission for construction, project-cost sheet documentation and contract from Construction Company. In this case you could relay on the big sum of credit, as it is about almost two credits (for land and house), which is given by turn. If you have your own plot then get a credit for development is very easy.

Credit financing in security for will be developing. Development of credit financing brings growing prices on land, as speculative part will increase as well. увеличится.