The current situation can be viewed in three dimensions – financial, political and market. Each of these echelons raises troubling issues that can no longer be ignored.
Financial sector: stable profits amid instability
Commercial banks have become the key and most protected beneficiaries of the program. It is they who receive a stable margin, while the risks are transferred to the borrower and the state.
Illustration in figures:
– Prima Casă interest rate increased to 8.8-9% per annum (NBM prime rate – 5.82% + bank margin ~3%);
– for a 70,000 € apartment, the monthly payment increased from 451 € to 587 €;
– the annual overpayment is 1,630 €, or 41,000 € for the entire term of the loan;
– without state compensation, the total burden can reach 88,000 €.
Formally – the rate has increased due to inflation. But in practice, an increase in the prime rate does not always effectively curb inflation, especially in an economy with a high dependence on imports and energy resources and a low share of the real sector. At the same time, the reverse movement of the rate is a slow and not guaranteed process. Meanwhile, people are already paying more, business is slowing down, and the risks of credit defaults are increasing.
The National Bank remains neutral, citing independence, but this does not cancel out the consequences. The measures taken work as a “medicine with side effects”: they solve the inflation problem at the cost of social destabilization and a possible downturn in the housing industry.
Government: a vanishing guarantor of trust
Prima Casa was initially presented as a program with government support and protection. Today we are witnessing:
– The absence of a protection mechanism (limiting the growth of the interest rate) – while European systems have such instruments;
– the virtual disappearance of compensations, especially within the Prima Casa 2, 3 and 4 subprograms, despite the previously announced conditions;
– silence of the authorities against the background of growing problems – no public explanations, exit plans or social support.
People who counted on the state were left alone with growing debts. Young families, civil servants, and professionals in the regions now feel cheated. When the program has become an economic trap, the silence of the authorities is perceived as a blatant evasion of responsibility.
Questions to the government are obvious:
– Why wasn’t an “insurance mechanism” for fluctuations in rates initially envisioned?
– Why were publicly promised compensations de facto rolled back?
– Why did communication stop just when people were facing real risks?
– Who is responsible for the artificial stimulation of demand and the subsequent overheating of the market?
Real estate market: speculative growth and lack of responsibility
Not the least role in the crisis of Prima Casă was played by the market players themselves: developers, agencies, banks, appraisers. Against the backdrop of high demand caused by preferential loans and state guarantees, the market behaved predictably – but irresponsibly.
Problems:
– Overpricing of housing – including low-quality or substandard apartments;
– aggressive advertising – promises of “affordable housing without risk”, without disclosing full information about rates, overpayments and legal nuances;
– Lack of quality control – delivery of properties with violations, insufficient finishing, poor legal transparency;
– speculation on the secondary market – mark-ups and resales, provoking further price growth;
– lack of awareness on the part of banks – in terms of risks of floating rates and debt consequences.
Thus, instead of adapting to the new social model, the market went into the zone of speculative profit. The program conceived as a social one became a source of profit – at the expense of the borrower.
A credited country: what silence leads to
Today, Moldovan society faces an obvious trap for the beneficiaries of the “social initiative”. What have they faced in practice, having believed the state’s promises of “affordable housing” and guarantees? Mortgage overpayments become unaffordable for many of them. It is difficult and unprofitable to sell an apartment, and it is almost impossible to refinance a mortgage. The state has withdrawn itself from both the guarantees and the problem as such. Banks are initially insured against risks, as well as developers.
For many families, included in the Prima Casă program, it is not just an increase in payment. It is a blow to the family budget, stress, threat of non-payment and confiscation.
What to do in this situation, what measures can the state take?
First: to limit the growth of the rate. There is no need to invent anything – use the practice of European countries to protect borrowers.
Second: to resume compensation at least for large families, civil servants and young professionals.
Third: provide an opportunity to switch to a fixed rate on mortgage loans by temporarily freezing rates.
Fourth: at least start a substantive and constructive dialog with all stakeholders – borrowers, banks, developers. The government should come out with explanations and proposals, instead of hiding behind the NBM.
Finally, the participants of the program, who found themselves, in fact, in a debt trap, should unite to protect their rights and interests. Civil pressure is necessary, otherwise political inertia will lead to tens of thousands of personal financial disasters.
Bottom line: who wins and who pays
The winners were banks, large developers, and those who profited from speculation. The losers were young families, the state image, the rental market, and social trust.
Prima Casa began as a tool for development. Today it is a symbol of systemic error, greed and shortsightedness. And if the authorities do not recognize their mistakes, it will not just be an economic problem. It will be a political and social crisis.
Dmitry TEREBURKE,
real estate valuation expert
