RESIDENTIAL MARKET OVERVIEW. ALMATY
During the last couple of years the residential real estate market of Almaty showed noticeably higher levels of activity. We have observed the continuing construction of residential projects not only under the "Affordable Housing – 2020” program, but also of Business and Elite-class residential developments.
It should also be noted that 1,700 families have already received their apartments under the “Affordable Housing – 2020” state program.
However, the devaluation of the national currency at the beginning of 2014 and the negative events taking place in the economy of the Russian Federation have cooled the market and reduced the number of residential sales transactions by 19.3% during the period January - December 2014.
Also, the devaluation lead to the official increase of real estate prices in 2014 by 15% in KZT equivalent (according to official figures), and to a 5% decrease in USD equivalent (according to Scot Holland data). This was the market reaction to the 20% devaluation of the KZT, as the owners set their selling prices in USD.
The implications and impact of the global economic downturn have “cooled down” the Residential market segment, as a result of which many players have left the market. However, the stronger and more financially capable developers have continued their construction activities, although at slower rates.
The total residential space commissioned in Almaty during the period Jan-Dec 2014 comprised 1,330,856 sqm, which represents a 14.5% increase compared to the same period of 2013.
Despite the increasing number of incoming requests for sale & purchase of apartments/houses and land plots, the real estate sales market still remains slow. Property owners still quote high prices, which affects the market in a negative manner, as potential buyers still cannot afford purchasing housing at relatively high prices.
The volumes of commissioned residential space in Kazakhstan in the period January - December 2014 were somewhat higher than in the same period of 2013 and showed an increase of 9.8%. According to official statistics, the largest shares of residential space in this period were commissioned in Almaty (17.71% of total), Astana (16.05% of total) and Almaty province (9.5% of total).
Regardless of the relative overall improvement of the market situation, the activity of real estate market players remains quite moderate. This can be explained by the ongoing process of overcoming the consequences of the market downturn, as well as the low level of confidence in the property market and caution with regard to real estate investments.
The increase of supply of mortgage products from specialized institutions, such as ‘KMC’ and ‘Zhilstroysberbank’, shows the wish of the Government to stimulate the construction sector. Following that, second tier banks have also increased the volume of offered mortgage loans.. Increased competition between the mortgage market players resulted in somewhat eased financing terms and lowered interest rates of mortgage loans. ‘Zhilstroysberbank’ moderated the terms for the participants of housing construction saving system, which mainly means decrease of the interest rates. In addition JSC ‘Mortgage Organization ‘Kazakhstan Mortgage Company’ also changed its credit conditions for purchase of housing and interest-shared participation in the construction of multi-family residential houses, by decreasing the interest rate.
However, despite the above, the system of evaluation of borrower’s solvency remains strict. The banks continue to check solvency and paying capacity of customers very thoroughly.
Based on the instructions issued by the Head of State, starting from 2011 a new residential construction program is being implemented. Its main purpose is to stimulate supply, in order to prevent a rapid increase of property prices, which may take place due to the current increase of demand and shrinking of supply on the residential market. There are practically no new developments due to financing difficulties arising from the cautiousness of investors on the one hand, and high interest rates on foreign loans for local commercial banks on the other hand. The housing development program in the period 2011-2014 assumes the commissioning of 6 Mln sqm of residential space per year.
The program for Government support of the residential sector includes 3 major support schemes:
• construction of affordable housing by local authorities using the residential savings system,
• allocation of funds to second-tier banks for the subsequent financing of construction and mortgage lending,
• construction of utility infrastructure.
In addition, one of the goals of the State Program for the Development of Residential Construction in the Republic of Kazakhstan is to increase the affordability of housing for wider public through a better development of housing saving system. In particular, this program stipulates that JSC ‘Housing Construction Saving Bank’ (‘Zhilstroysberbank’) will grant loans to the special-priority groups of the population at an interest rate as low as 4% per annum.
The new "Affordable Housing - 2020" residential construction program was given a start during Q2 2012. The construction of a new residential project - ‘Asyl Arman’ - was started during Q3 2012 under this program. The sales of apartments will be implemented through the “lease- with subsequent buyout” option. The government programs are aimed at achieving a volume of construction of new residential space at the level of 6 Mln sqm per year, and reaching 10 Mln sqm per year by 2020.
It should be noted that in contrast with the pre-crisis period, when a large portion of buyers was willing to participate in shared interest construction projects, today this method of purchasing a housing unit is the least popular among potential buyers due to the facts of non-bona fide activities of development companies using this scheme.
At the same time, another scheme of purchasing residential units in unfinished projects is rather popular – storage of the buyers’ funds in a so-called ‘escrow account’ with different commercial banks until the commissioning of the residential project.
Currently the largest part of potential buyers are either considering the use of mortgage loans or their own funds, or would proceed with the state housing program for obtaining an apartment. We would also like to note the relatively higher attractiveness of some residential projects on the Almaty property market offering their own “in-built” installment payment programs to potential buyers.
As was noted earlier, the number of actual sales and purchase residential transactions decreased significantly in comparison with the same period of the previous year.
Despite this fact, an increased interest in the property market of Kazakhstan in general and Almaty in particular can be observed on behalf of local and foreign investors and construction companies, due to the higher property investment yields in Kazakhstan compared to other cities in Europe and the CIS. However, it should be noted that today’s low global oil prices have forced both local and foreign developers to choose a ‘wait and see’ position.
It should be noted that after the devaluation of the Tenge, many developers on the primary residential market have applied a certain marketing strategy and offer apartments for sale at "their own" exchange rate, which is significantly lower than the market average, in order to attract a larger number of buyers.
With regard to the secondary housing market, no significant changes in prices in US Dollar terms were observed.
Despite the relative "revival" of the real estate market as a whole, one of the recent trends on the rental housing market is that corporate clients are now coming in with much lower budgets to lease apartments for their employees. For example, several large companies are looking for housing (both apartments and stand-alone houses) at around USD 2,000 per month, while the group of potential tenants with a budget in the range USD 4,000 - 5,000 per month is somewhat smaller.
We have also observed situations when tenants move from expensive houses to more affordable ones. Landlords are now going to have to tighten their belts and offer their properties at much more realistic prices. The boom time of leasing prices, at least for the moment, is well and truly over.
Rental rate levels continue to hold although landlords seem to be slightly more willing to negotiate. High end properties are in demand (though much rarer) but unfortunately good ones are now proving extremely difficult to find, which indicates of a very limited supply of properties with an actually good quality.
In conclusion, we would like to note that the average price levels on the Almaty primary and secondary residential markets have remained practically unchanged in the course of Q4 2014.
