The property market of Kazakhstan has been feverish for four months already. After record high indicators of transactions in early spring, the demand curve went down, yet prices per square metre continue to rise. According to experts, turbulence is affected not only by external factors caused by the conflict in Ukraine, but also by internal factors, i.e. termination of government programmes and increasing the sufficiency threshold when withdrawing pension “surpluses” from the Uniform Savings Pension Fund.
The housing problem in Kazakhstan was more actively discussed after the events of January 2022, when a social portrait of those citizens who took part in rallies was created.
Among other problems, residents of large cities complained that it was virtually impossible for young families to buy an apartment without a mortgage. Not every family can save a down payment for a mortgage, and most importantly, pay loans on housing without delay.
Kazakhstan ranks on par with developing countries in global housing statistics. According to the World Bank, in developed countries there are 60-70 square metres of housing per person, in Russia 25.8 square metres, in Kazakhstan 23.2 square metres. It is recognised that just a decade ago this indicator was much less, 18.7 sq. meters (data of the National Statistical Bureau of Kazakhstan).
The issue of house expansion is closely linked to income. Two key factors, median house prices and the average wage of all family members, have been linked up by economists in the housing affordability index. According to the information published by the monitoring agency Energyprom.kz, in the global ranking on housing affordability, the Republic of Kazakhstan takes the 44th place out of 112. The affordability index is 10.5. This means that the average cost of housing in the country is composed of 10 annual salaries of the average family. The leaders of the ranking (Saudi Arabia, USA) have 2.7 and 3.9, respectively.
The figures confirm that the main problems for Kazakhstanis remain limited space and difficulties in buying a more spacious apartment due to high mortgage rates. The following most important stress factors can show how the property market of Kazakhstan changed in the first six months of this year.
*When converting the national currency into dollars, we used the rate of the National Bank of Kazakhstan valid for each specific month.
No. 1 indicator. Total transactions
The main indicator of demand in the first five months of 2022 was highly volatile. According to State Corporation “Government for citizens”, demand for primary and secondary housing in the country gained momentum (plus 39.6 per cent) in the country, when Kazakhstanis closed 33 thousand and 46.5 thousand transactions, respectively. In March, the number of real estate purchase agreements broke the record of 67.8 thousand. This is 45 per cent more than in the previous month. And that was actually the end of the upward movement.
Since the second month of spring, Public Service Centres registering transactions in the state register recorded a decline: minus 23 per cent in April and minus 42 per cent in May. The largest consumer activity continued in such large regions as Karaganda region and Almaty. The least number of transactions was carried out in the cities of sparsely populated North Kazakhstan.
No. 2 indicator. Prices
The rate of apartment price change in the first half of the year was so high that prices in advertisements could change several times a week. Moreover, they could change one way or another. Sellers “probed” into the demand and enhanced the value. In general, the real property market indices in January to June 2022 broke the record of recent years. In this short period, new housing prices increased by 18.3 per cent, secondary housing prices increased by 26.1 per cent, and the cost of well-furnished housing rent increased by 21.3 per cent.
The detailed data from statistical digests of the National Statistical Bureau of Kazakhstan show that the biggest leap occurred just in the period of the highest consumer demand – in March. During this month, apartments rose by 5.5%. This is the record growth in the past five years.
In January, the weighted average prices of new buildings were about 386.4 thousand tenge (892 dollars), and in March one square meter in buildings under construction cost 408.9 thousand tenge (817 dollars, with the rise in the dollar in March by 15 per cent). By the end of May, the cost of new housing in the national currency increased by almost 3 per cent, to 419.3 thousand tenge (1 thousand dollars, but the dollar rate stabilised then). Growth continued in June, but it was already moderate (plus 1 per cent).
The situation was similar in the secondary housing market, where average prices were even higher than those in new buildings. From January to June, the cost of one square meter increased from 409 thousand tenge (817 dollars) to 465.5 thousand tenge (1.02 thousand dollars).
In regions, the difference in the price of apartments was quite significant, due to both the attractiveness of metropolises and urbanisation in large cities, and different paces of housing programme financing at the regional level. Thus, the price of apartments in new buildings in the capital of the republic – Nur-Sultan – this May was equal to 545.4 thousand tenge per square metre (1.26 thousand dollars). At the same time, in the regional centre of Zhambyl region – the city of Taraz – housing built under the Nurly Zher programme was available to persons on the affordable housing waiting list at 160 thousand tenge (370 dollars).
All about reasons
The direct impact of the military conflict in Ukraine on the property market of Kazakhstan was shown in a new round of tenge depreciation. Compared to February 23, the national currency of Kazakhstan weakened by 10.1 per cent (comparison of official rates of the National Bank of Kazakhstan). Since developers buy most of the building materials in Russia and other countries, volatility has led to an increase in the cost of building materials. This is evident from the six-month price indices compiled by the National Statistical Bureau.
Of the 32 types of building materials monitored for prices by the National Statistical Bureau, only four categories remained unchanged in January to June this year (veneer, plastic building products, ceramic tiles, lime and plaster). The indices for the remaining 28 building material items were above 100%. The highest rates were recorded in ten categories. Moreover, the list included the key materials for the construction industry – cement (plus 6 per cent), brick (plus eleven percent), water mortar (plus 8 per cent), metal structures (plus 10 per cent).
According to Vyacheslav Lazarev, General Director of Open Development Kazakhstan-based Construction Company, who spoke at the round table “The Best New Buildings of Kazakhstan”, the cost of new housing construction in the country began to rise just after the start of devaluation because of the increase in the price of building materials. According to him, 30-40 per cent of all components of the construction are imports from Russia.
To maintain the margin, the developer can no longer sell square meters at the previous cost. This forces him to push the price up, and the customer is just not ready to buy for this price. Hence, we have the distortion. The market overheated a bit. [...] We see that most construction companies have become active as sales started to fall. Almost all developers fell from 30 to 70 per cent. We have worked since May in this turbulence. We have some difficulties in two months, but I think this is a short-term trend,” said Vyacheslav Lazarev.
President of the Association of Developers of Kazakhstan Viktor Mikryukov agrees with this opinion. The head of the association notes that many construction companies have started to suspend their projects or stop the start of new construction. It’s all about increasing building materials prices and uncertainty in consumer demand forecasts.
“Some say about the overprice set by construction workers. But we know this is not so. If developers knew they had some reserves, some financial airbag, they would have cut the price, dump and take their market share amid turbulence. But, according to analytical data, we don’t see it. In contrast, some projects have been suspended,” Viktor Mikryukov said.
The decision of President Kasym-Zhomart Tokayev to extend the terms of withdrawal from the Unified SavingsPension Fund (ENPF) of so-called pension “surpluses” has had a serious impact on the consumer demand in the housing market in the first quarter of this year.
It’s a reminder that on December 3 last year, the ENPF officers announced that the threshold of sufficiency of pension savings doubled from January 1, 2022. This prevented most contributors from using their pension savings to improve housing conditions. After numerous appeals from Kazakhstanis, the head of the state decided to prolong the previous conditions until April 1, 2022.
This topic has been widely discussed in all media outlets. Market representatives explained the unprecedented surge in demand in March by the prolongation of the terms of withdrawal of pension “surpluses”. Kazakhstanis tried to meet the specified deadline – to manage to buy housing with the use of their capital from the ENPF by the end of March.
Another stress factor for the property market was the completion of the state mortgage programmes “Baspana Hit” and “7-20-25”. The first was completed in late 2021, the second one is projected until the end of 2022, but its finances are running low. According to the press service of the programme operator, Kazakhstan Sustainability Fund (a subsidiary of the National Bank of Kazakhstan), in the four years of the “7-20-25” programme, mortgage loans were granted to over 42 thousand Kazakhstani families at a preferential rate of 7 per cent.
These programmes could make the mortgage even more affordable, yet they had many restrictions. For example, the “7-20-25” programme was meant for new housing only, while the speed of new construction in the regions is not very high unlike metropolises. Therefore, there were long waiting lists for new apartments in regional centres. In the last few years. Public servants, physicians, teachers, the military, orphans, large families were the first in their right to buy apartments in a newly built house, and then they were followed by the citizens outside these categories.
In place of these programmes, the government has already proposed another option to support borrowers. According to the Chairman of the Board of “National Managing Holding ‘Baiterek’ Kanat Sharlapayev, who spoke at the meeting of the Cabinet of Ministers on July 5, in 2023 Kazakhstan is expected to have the unsatisfied demand for mortgage in the amount of about 500 billion tenge (1 billion dollars) or 35 thousand apartments. Therefore, the country will adopt a new programme “12-20-20”. In fact, it duplicates the terms of its predecessor, but takes into account new market conditions. Participants of this programme will be able to cut the loan rate by 7 per cent, which will be subsidised by the state.
Expert opinion
Larisa Stepanenko, Vice President of the united Association of Realtors of Kazakhstan, told CABAR.asia how consumer demand changes in the property market and what can affect it.
- Do you think that the conflict in Ukraine has affected the situation in the property market of Kazakhstan?
- I would not say that the situation has changed only because of the conflict in Eastern Europe. What is happening in Ukraine has not only affected Kazakhstan, but the whole world is seeing the changes in economy. It’s clear that the sanctions imposed on Russia are also affecting Kazakhstan, just like many other countries. This is an economic component. And the property market in Kazakhstan has visible traces of these events mainly because of the exchange rate.
Despite the fact that Kazakhstan has adopted a regulation on de-dollarisation, most Kazakhstanis are pegged to the American currency exchange rate in their property transactions. The weakening of the national currency affects the purchase of imported construction materials used in finishing works. Therefore, prices in the primary market are rising.
- How do you estimate the impact of internal factors on demand?
- Raising the sufficiency threshold for withdrawal of pension savings and completion of mortgage government programmes have immediately affected pricing and demand. Speaking about ENPF funds, their use, of course, stimulated the market and the number of transactions has increased since the beginning of this programme. Prices immediately began to match the increased demand. And when the sufficiency threshold increased, the index of property transactions decreased. There is no more such flow of clients who spend their money, including pension money, to buy property. The segment of such buyers has sharply decreased.
The closure of the top state programme “Baspana hit” has contributed to the dynamics of consumer demand, it operated until the end of 2021. Under the programme, it was possible to buy housing on both the primary and secondary market. It was the most popular and attractive property acquisition in the economy class sector.
Moreover, the “7-20-25” programme is nearly over. Officially, it is still in operation, as the residual funding is still available. But here is another problem – there is nothing to buy. Under the terms of this programme, the housing to be purchased must necessarily be from the developer, the facility must be put into operation and not exceed the approved limits on the cost. And amid today’s price conditions, not all actual construction projects meet these standards.
- And what does the consumer demand depend on now?
- On many factors. Geopolitical situation, economic crisis in the consciousness of our citizens makes us set priorities in a new way. Many are now beginning to think that they need to have some capital just in case. Both the pandemic and the events of January have taught us that we need to have a financial cushion in any crisis situation. In this regard, the property market is now in very high demand, as the population comes to the forefront with other tasks.
Another important factor is high inflation rate. Products, essentials, services get more expensive. More and more money is spent simply on living. No one cares about mortgage. Therefore, those who planned to buy a house have to leave for rent. As a result, the housing rental market now has the increased prices. And they remain. This is because after the beginning of the Russian special operation in Ukraine, many Russian citizens go to Kazakhstan to work.
- During the summer season, during vacations, there is usually a slack period. Will there be a recovery in demand in autumn?
- I don’t think there will be a revival. At least, in terms of selling of new buildings. In fact, the primary market is not in its best position. Developers, whether they want it or not, have to increase prices because of high price of construction materials. At the same time, low demand and economic factors hinder people from buying new housing massively. Just because it is too expensive, and those who buy often prefer the second market. As a result, the secondary market prices are also quite high.
- Will the new government programme of subsidising mortgage rates, which has just been announced in the news, stimulate consumer demand?
- There are a lot of people in Kazakhstan who need a roof over their heads, but they cannot afford mortgages at current rates - at 20-22 per cent per annum. These are simply enslaving terms. Therefore, if the state releases softer programmes, I think they will help a lot to Kazakhstanis. So far, the information has only been announced. It is planned to open “12-20-20” programmes and to start giving loans to young families at 7 per cent (in Otbasy Bank, author’s note). If these banking products are released and nothing extraordinary happens, we will at least be in the same situation as today, and I think it will stimulate the market of transactions.