Housing in Kazakhstan continues to rise in price. What is the reason for this and how will the cost of square meters change in 2022?
Real estate in Kazakhstan is growing in price. Last year, the cost of new housing increased by 15.2%, and secondary housing – by 23.1%. Against this background, those who are planning to buy real estate have many questions about the further development of the market.
Will apartment prices fall in 2022, when it will be profitable to invest in square meters and how the housing market will change, analysts were looking into finreview.kz.
There is a shortage of housing stock in Kazakhstan
The total area of Kazakhstan’s housing stock is 373 million sq. m. And there is an interesting feature here — more than half of the housing is concentrated in cities, while about 40% of urban real estate falls on three megacities – Nur-Sultan, Almaty and Shymkent. In the regions, not enough residential facilities are being built.
The shortage of housing stock is also confirmed by statistics on the provision of housing for the population, showing how many square meters there are per person living in the country. According to the UN international standard, the indicator should be at least 30 sq. m., but in Kazakhstan it is at the level of 22.6 sq. m.
To bring this value up to the UN norm, the republic needs to build another 180-200 million square meters of housing. The government plans to build only 103 million square meters of housing by 2025. If we take into account the average annual population growth of 1.3% and take as a basis the current dynamics of the development of the construction market, then even in this situation, the housing shortage will continue in the next 15-20 years.
In this regard, the state needs incentive measures that will allow construction companies to build more housing space and increase the desire of the population to purchase their own housing. Such a measure is a mortgage.
Early withdrawal of pension funds – as an impetus for the development of the mortgage market
2021 has become a year of growth for the Kazakhstan real estate market — both the number of transactions and prices have increased. The reason for this was the possibility of early withdrawal of pension savings. As a result, the volume of housing loans at the beginning of 2022 exceeded 3.3 trillion tenge. This is 1 trillion tenge more compared to the same date in 2021. And over a ten-year period, the increase in the amount amounted to almost 2.6 trillion tenge.
The initiative on early withdrawal of pension surpluses has become a kind of trigger of the real estate market. Indeed, over the past 10 years, there have been practically no additional tools on the market with which Kazakhstanis could raise funds to buy housing. State programs were not enough.
However, this initiative caused a speculative wave. Developers and owners of secondary real estate, seeing an increase in demand for housing, began to raise prices.
Market stabilization will begin after April 1, 2022, when new sufficiency thresholds for withdrawal of pension savings will begin to operate. After all, it was the hype demand for housing that provoked a sharp rise in prices both in the primary and secondary markets.
2.5 trillion tenge was withdrawn by UAPF depositors to improve housing conditions
In the wake of the hype, the UAPF depositors withdrew 2.5 trillion tenge to improve housing conditions. In total, as of February 1, 2022, the UAPF executed 781.7 thousand applications. Understanding that the amount of pension savings allowed for withdrawal will not return to the previous indicator, forced Kazakhstanis to purchase housing on market conditions — at rising prices.
About 606 thousand real estate transactions were made by Kazakhstanis in 2021. This is 96.8% more than in 2020. Almost 95 thousand transactions were registered in December alone. During the year, residents of Kazakhstan purchased 75.5 thousand apartments and 19.5 thousand houses. Most of the purchase and sale transactions took place in the capital and Almaty.
Why are real estate prices rising?
The shortage of new buildings forces buyers to reorient to the secondary market, where owners artificially inflate the cost. But the collapse of prices is not expected.
Firstly, there is a high demand. The 7-20-25 program is expected to be completed by the end of the year. Probably, those Kazakhstanis who did not have time to use the program will become more active, especially if they have savings in a pension account that exceed the sufficiency threshold. However, due to last year’s hype, the supply in the housing market has significantly decreased. Many new buildings are sold out even at the construction stage.
Secondary housing is also in high demand. It is supported by the “Otbasy Bank” programs. It is enough to accumulate 50% of the cost of housing, or to deposit them into the account at the same time, including at the expense of pension surpluses.
Secondly, there is a shortage of housing. At the moment, this is the main problem that will continue to affect pricing.
Thirdly, the high share of imports of construction materials. Kazakhstani producers are not able to cover the domestic market. Therefore, for some types of construction materials, imports exceed 80%. For example, glass is completely supplied from abroad. Of course, this has a negative impact on the state of the economy, as a high share of imports affects the country’s trade balance, increasing pressure on business, the population and the national currency.
Investments: two problems — one solution
The construction sector is one of the priorities for the development of the national economy. To stimulate it, support measures are being implemented within the framework of the state program of industrial and innovative development for 2021-2025, free economic zones have been opened, programs for digitalization of services are being implemented. According to forecasts, the share of the construction industry in the country’s GDP in 2021 took about 6.25%. According to the results of 11 months of 2021, the volume of construction works was completed in the total amount of 4.6 trillion tenge, which is 6.2% higher than a year earlier. It is obvious that investments are needed to increase the volume of construction work.
The volume of investments in fixed assets of the construction sector in 2021 increased 2.2 times compared to 2020, reaching 155.4 billion tenge. Kazakhstan’s national companies and their subsidiaries bring a significant amount of investment in the construction sector. For example, JSC “Samruk Kazyna Construction” in 2022-2024 plans to implement 23 projects for the creation of new production facilities, as well as the modernization of existing enterprises for the production of import-substituting construction materials. The total cost of the projects will be about 395 billion tenge.
The inflow of foreign capital to the republic is under the close attention of the Head of State. Speaking to the Government in January 2022, Kassym-Jomart Tokayev noted: “All conditions have been created in Kazakhstan to attract foreign direct investment.” The Eurasian Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Development Bank of Kazakhstan, etc. invest their funds in the development of the real sector of the economy. There is a Council on Attracting Investments under the Government of Kazakhstan, a special Task Force unit has been opened on the basis of Kazakh Invest National Company JSC to develop new approaches to attracting FDI. Through the AIFC platform, where its jurisdiction operates on the basis of English law, 5 billion US dollars have been invested in various sectors of the economy of Kazakhstan. Of these, 3.6 billion US dollars is foreign direct investment, and 1.4 billion US dollars is portfolio investment.
Private investors are also showing increased interest in Kazakhstani construction companies. In November 2021, a subsidiary of the BI Group holding, Megastroy LLP, issued coupon bonds worth 6 billion tenge on the Astana International Exchange. This is the third placement of bonds on AIX – in March and July, demand also exceeded supply.
What to expect from the real estate market?
It would seem that preferential housing purchase programs are being launched in the country, all related processes are being digitized, developers are commissioning new real estate, and the activity of UAPF depositors is gradually stabilizing. But prices per square meter continue to rise. According to the results of January 2022, primary housing has risen in price by 2.1% per month, and secondary – by 2.8%.
It is assumed that the adjustment of the cost of housing will continue until April 2022 within 10%. After the introduction of a new sufficiency threshold for the early withdrawal of pension savings, the market will restart. However, a significant correction should not be expected. It’s all about rising inflation and people’s desire to save their savings from depreciation.
As a rule, in a market economy, the cost of housing increases above the inflation rate. However, now, even without this, prices are inflated by 15-20%, which means that a cost correction must occur first. But it is unlikely, or rather housing prices will not fall, but will continue to grow within 5% during the first half of the year. This dynamics, which is below inflation, is a correction.
In the second half of the year, prices will grow within 10%.
