«An average Kazakh citizen that steadily allocates 100% of his salary to savings will need about 11 years to purchase a 540-square-foot apartment, » notes project manager at Eurasian Center for People Management and CABAR.asia School of Analytics participant, Aslan Nurzhanov in the article.
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The housing issue will pose one of the 21 century’s main social challenge. Regardless of the historical tendency of the nomadic lifestyle, the modern industrial world settles us in one city and compels us to find our corner.
From ancient times, a roof over one’s head, along with warmth and shelter, was believed to indicate one’s well-being and confidence in the future. In today’s Kazakhstan, however, not all can say they have “attained” that.
To date, there are ongoing housing stock studies, measures to increase the number of dwellings, and encourage people to pursue their unfulfilled ambition to own the housing. But in practice, the entire system is subject to control due to improper implementation, and for some reason, owning the square foot becomes the “Kazakhstan dream” for an average family. Along with this, the Government of Kazakhstan held an extended meeting in early 2020, at which President Kassym-Zhomart Tokayev has addressed the housing issue. The housing issues of 25 thousand families, including 5.5 thousand large and low-income families and 3 thousand employed youth, have been addressed in 2018-2019. In his speech, the Kazakh President stated that the government plans to allocate large funds to provide housing for those with a pending request[1]. Hoping that the best days are yet to come, I suggest we take a closer look at the country’s housing market and assess the Kazakh citizen’s potential to purchase an apartment in the present country situation.
Calculations
To analyze the country’s housing market, let’s have a look at the average cost per square meter of predominantly new housing. According to Kazakhstan’s National Economy Ministry, the average value per square meter in the country has been increasing annually. Only state program apartments are sold at a relatively fixed price. There is a strong price dispersion by regions, among other things (see table 1)[2].
The country’s current and former capitals, Nur-Sultan and Almaty, as well as the Kazakh oil capital Atyrau, are top-ranked in prices per square meter. The twofold difference in prices between the most and least “expensive” cities is striking (hence, questioning the difference in average salaries and living standards in these regions). In March 2020, the average cost per square meter in the country amounted to 297.2 thousand tenges (705 US dollars).
Having somehow collected data on the cost of housing in the country, we need to consider the average monthly salary per employee. Thus, according to the National Economy Ministry, the average monthly salary in the Republic of Kazakhstan in the first quarter of 2020 amounted to 199,206 tenges (472 US dollars)[3]. A similar pattern emerges in a substantial wage gap across the country’s regions, as in with the housing cost.
To begin with, we will focus on 3 regions in the country with different average salaries; we sample regions, where the average salary is high, low, and roughly equal to the republican average. Then, we will calculate how many years a Kazakh citizen needs to purchase a 540-square-foot housing (50 sq meters) if he saves 100% of his salary every month:
1) the average 50-square-meters apartment in Nur Sultan city will cost 18 million 640 thousand KZT (44 thousand US dollars). With an average income of 277 016 KZT (660 US dollars), the Kazakh capital resident will have to save up 100% of his salary for 67 months (or 5.5 years);
2) as for the Zhambyl region, and in particular Taraz city, a 50-square-meters apartment under the state program will cost 7 million KZT (about 16.5 thousand US dollars). A resident of this sunny city with an average salary for the region needs to spend 4 years of his life to save up for “shelter”;
3) West Kazakhstan Region does not go far in value, where an apartment will cost 8 million 580 thousand KZT (about 20 thousand US dollars). To save this money, a resident must work for 3 years and 9 months without spending on anything else.
The per capita income of Kazakh citizens is 260 US dollars. But it must be stressed that the real picture is not consistent with the above calculations. It has to do with the fact that the average monthly salary does not necessarily reflect the real people’s earnings. Some use the nominal per capita income (PCI) indicator as it is close to reality. According to official information, the per capita income as of February 2020 in Kazakhstan is 109 733 KZT (260 US dollars)[4].
If we further model the savings for housing purchases based on per capita income, we conclude that an average Kazakh citizen that steadily allocates 100% of his salary to savings will need about 11 years to purchase a 540-foot-square apartment.
What about state support?
For objective evaluation, we also need to consider state support to acquire housing since the state plays a major role in creating conditions. Today, various state programs have stimulated the country’s housing market in Kazakhstan, most evident in the last few years. The major housing programs are “Bakytty Otbasy” – a loan program for low-income families to acquire housing, “7-20-25”, “Baspana Hit” of the National Bank, “Orda” of Kazakhstan Mortgage Company, “Svoy Dom”, etc. We will focus on the latest very popular state initiatives. The Baspana Hit and 7-20-25 programs stand out in the mortgage market.
Kazakhstan’s housing market began to intensify and break unprecedented records. According to the National Economy Ministry, in July 2019 alone, there have been more than 32 thousand transactions for the sale of residential property. The positive trend is seen broadly in light of the last five years[5].
And now let’s briefly review the key conditions that arouse a strong encouragement among the country’s population. We need to distinguish between the programs since similar conditions often confuse the average citizen:
- By participating in the “7-20-25” program, one can only purchase the primary market housing, while the “Baspana Hit” considers both the primary and secondary markets;
- in both programs, the borrower can receive up to 25 million KZT for distinct cities, and up to 15 million KZT for other regions. An exception is the city of Shymkent, for the Baspana Hit program participants[6];
- The annual nominal interest rate in the 7-20-25 program is 7%. In “Baspana Hit”, the interest rate is calculated at the base rate of Kazakhstan’s National Bank + 1.75%, which today will be 11.25% per annum[7];
- the loan term in “7-20-25” is limited to 25 years, while in “Baspana Hit” program the time-limit is 15 years;
- down payment for both programs is 20% of the cost of housing purchased.
Conclusion
Summarizing the above, I suggest reviewing the calculations and proceeding to a conclusion. The cost of apartments in considered cities remains the same, but the required amount, equal to 20% of the final cost, is changing. Consider estimations according to the “7-20-25” program criteria using the average monthly salary:
- the cost of a 50-square-meters apartment in Nur-Sultan city is still equal to 18 million 640 thousand KZT (44 thousand US dollars). The citizen now needs to accumulate 3 million 728 thousand KZT (8800 US dollars). For this, s/he will need about 13 months of total economy (no spending items other than housing);
- A Taraz city resident needs to work for about 10 months;
- West Kazakhstan region creates the conditions for saving this amount in 9 months.
As we said above, these are rough, sometimes even idealistic estimation. In our case, the income of an average citizen is based only on the average salary, which is not always the reality. Coming back to the nominal per capita income, we can conclude that a citizen will need two years and three months to save up for the down payment only (if he allocates 100% of his salary to savings).
Findings:
- Kazakh citizen’s unfulfilled ambition to acquire the housing is one of the urgent and pressing issues;
- Saving up for the apartment, considering all other unavoidable costs of a person, becomes principal for a citizen without his/her apartment;
- The state supports and creates conditions, as evidenced by a significant increase in the number of residential property sales;
- Citizens, however, have difficulties saving up for the down payment. This requires a more in-depth analysis of both the programs and citizens’ welfare;
- The housing issue does not go unnoticed by the Government, which facilitates a positive forecast for the next few years;
- Coronavirus pandemic as an enormous “black swan” is a new and very critical distortion factor. We are unable to categorically claim the reaction of the real estate market. But it’s most likely there will be a declining purchasing power of the population.
This material has been prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project. The opinions expressed in the article do not reflect the position of the editorial board or donor.
[1] Statement by President Kassym-Zhomart Tokaev at an expanded meeting of the Government of the Republic of Kazakhstan. The official website of the President of the Republic of Kazakhstan. Link: http://www.akorda.kz/en/speeches/internal_political_affairs/in_speeches_and_addresses/vystuplenie-prezidenta-kasym-zhomarta-tokaeva-na-rasshirennom-zasedanii-pravitelstva-respubliki-kazstan
[2] New housing prices in the Republic of Kazakhstan in 2001-2019. https://stat.gov.kz/api/getFile/?docId=ESTAT092174
[3] The average monthly salary in the regions of the Republic of Kazakhstan. https://www.stat.gov.kz/api/getFile/?docId=ESTAT102277
[4] Per capita nominal income (monthly data). http://stat.gov.kz/api/getFile/?docId=ESTAT105615
[5] How the real estate market comes to life. http://www.baspana72025.kz/actual-information/kak-ozhivaet-rinok-zhiloy-nedvizhimosti-149
[6] Baspana hit market mortgage product terms https://baspanahit.kz/files/BaspanaHit_Conditions_rus.pdf
[7] The base interest rate of the NBK. https://nationalbank.kz/?docid=1549&switch=russian