The Promised Land: An Overview of the Almaty Land Market
By Stanislav Glazkov, general director of BG Consulting
Three years ago, the urban land market in Kazakhstan barely existed. Today its profitability is comparable to that of the oil business. The land market is developing most rapidly in Almaty with its urban land area of 29,000 ha (including adjacent areas of about 37,000 ha) and its total financial capacity of $130bn.
Analysis of the basic development trends of the Almaty land market allows us to identify the following tendencies:
· Continuous (occasionally uncontrollable and barely predictable) price increases. Thus, the average price of the Almaty land lots in November 2006 increased by 43% compared to August 2006.
· Increasing supply of large land lots (above 1 ha) with commercial designation. At present, the land supply includes lots of about 10 ha, as opposed to 2005.
· Decreasing supply of spare land lots (as per quantitative evaluation). The number of land lots designated for private housing construction is half as much as it was in the first half of 2006.
These facts are mostly due to active land purchasing by construction companies, as well as land withdrawal for municipal purposes.
Price increase is the most obvious and one of the most crucial tendencies of the Almaty land market. As well as other tendencies, these are influenced by factors such as the limited territory and the rising standard of living of Almaty citizens.
According to official statistics, the per capita income of the Almaty population in January-September 2006 increased by 23.7%. In an effort to keep or increase their savings, the middle class invest in real estate (flats in particular) considering it to be the most secure investment.
Thus, the increase in the population’s income, ability and willingness to invest in real estate leads to a rise in the price of newly built housing (it rose by 20% in the nine months of 2006). These factors encourage construction companies to increase production output and therefore to purchase more land.
Almaty's attractiveness as a financial centre of Kazakhstan and its incapability of expansion in all directions stimulate investors' demand. While in early 2006 the average price of 100 m² (in prestigious districts as well as in suburbs) was about $30,000, by November it was $45,000. While at the beginning of the year $100,000 per 100 m² seemed outrageous, today it is considered the norm. In addition, owners often hold on to spare land with the intent of gaining an even bigger profit in future.
Land price depends primarily on its location. For example, the price of 100 m² in the so-called "gold square" is $300,000, whereas in outlying districts like Darkhan, Ozhzhet or Ulzhan it is $3,000.
Bostandyk district is first on the average price level list; 100 m² of land designated for private housing construction (PHC) costs $37,000, while that with commercial designation costs $86,000. In addition, the larger the land lot, the higher the price for 100 m² (excluding land lots of about 0.75 ha). However, the weighted average price parameters only provide a rough idea of the real situation. Thus, the lowest price for 100 m² (depending on the location) is $5,000 for PHC and $36,000 for commercially designated land. The highest price for 100 m² is $130,000 for PHC and $200,000 for land lots with commercial designation.
Almaly district is second on the list. Land lots for PHC cost $43,300, and commercially designated lots $82,600 per 100 m². The lowest price for PHC is $8,000 and for commercially designated land $32,000. It was in Almaly district that the highest price was offered in October 2006 – $300,000 per 100 m².
The third place is occupied by Medeu district with its average price of $29,200 for 100 m² PHC land, and $76,800 for commercially designated land. With its relatively high weighted average price, the district has the lowest registered cost for 100 m² PHC land – $3,000. The highest prices look quite sound against the land market in general: $113,000 for 100 m² PHC land and $150,000 for commercially designated land.
At first sight, the land lots in Zhetysu district seem to have rather a low price. Thus, weighted average price of 100 m² PHC land is $23,200 and $45,000 for commercially designated land. The district also includes the most attractive areas (conditionally spare lots round the Central Department Store (TsUM) with a potential price of $300,000 per 100 m²) and the cheapest land in the Northern Circle ($4,000–5,000 per 100 m²). However, none of the lots are presented on the open market, and the PHC land sold has one of the highest minimum prices – $14,000 per 100 m².
In fifth place is Auezov district. The average price for PHC land is $20,000 and for commercial land $44,000 per 100 m². The lowest and highest price parameters range from $4,000–5,000 per 100 m² for PHC land to $100,000–125,000 per 100 m² for lots with commercial designation.
In last place is Turksib district with its average $10,800 per 100 m² PHC land and $22,200 for commercially designated land. The district also has the smallest gap between the lowest and the highest prices for 100 m²: $4,000–20,000 for the PHC land and $8,000–35,000 for commercial lots.
As far as the Almaty market is concerned, the lowest price of $3,000 per 100 m² PHC land in Medeu district and the highest of $300,000 for that of commercial land in Almaly district allows us to calculate the weighted average price per 100 m²: $30,300 and $66,000 respectively (Table 1).
The volume of the Almaty land market (as well as other markets) is defined by three independent parameters: supply, demand, and price.
Continuous monitoring of the Almaty land market shows that in the last 6 months of 2006 the total supply of spare (or conditionally spare) land has been gradually decreasing along with the increasing lot area. That is to say, there are fewer small land lots sold (up to 2,000 m²), while large (above 1 ha) and even huge (up to 50 ha) lots are offered for sale.
At present, there are about 1,000 lots offered for sale weekly, with the total area of about 1,260 ha and a total cost of $1.5bn.
In the last year, a peculiarity of the Almaty land market has been a supply of slum private houses at the price of conditionally spare land lots (without adding the house price to the total cost of real estate). This tendency can be explained by willingness of potential buyers to build their own project on the lot, as well as by the planned development of the city through withdrawal (purchase) of such lots.
Today almost each Almaty family would like to have its own land or a house with some land. Therefore, potential demand can exceed supply as well as the real urban area. However, there are fewer people that can afford a land lot, and that is why the actual demand is much lower. Thus, the total supply exceeds the actual demand by 25-30%.
Meanwhile, it is difficult to measure the demand volume by standard surveying methods. Firstly, not all of potential investors or buyers announce their willingness to purchase land; secondly, demand price is much lower than supply price.
According to our estimate, least in demand are small (up to 600 m²) land lots designated for private housing construction, while most in demand are small (up to 600 m²) lots with commercial designation located in downtown Almaty. Demand for large (above 4,000 m²) land lots is high as well, irrespective of their designation.
Purchase and Sale
Due to the intensification of construction companies and Almaty Akimat's activities in withdrawal/purchase of land for municipal purposes, the actual relationship between buyers and sellers has undergone considerable changes.
The actual market purchase and sale of small (up to 600 m²) PHC land in downtown Almaty (limited by Rayimbek St. – Al Farabi Ave. – Dostyk Ave. – Sain St.) is gradually disappearing. It is being replaced by non-market purchase of designated land with slum housing by construction companies or dealers. Fair prices are formed only in the course of purchase and sale of commercial and/or large land lots (above 2,000 m²).
According to preliminary data, about 100 actual market purchases and sales of land were made in Almaty in October 2006 at a total cost of $300m. A comparison of price parameters evidences that land prices in Almaty have increased by 43% since August 2006.
As far as district price changes are concerned, the most significant price increase (by 46.67%) was registered in Auezov district. Originally, the district was barely attractive from the land market point of view, and, therefore, the land price was relatively low. As the deficit of, and demand for spare land grew, the district began to be involved in the active market. In addition, compared to downtown Almaty, Auezov district has relatively low building density and large spots of spare land.
Land lots designated for private housing construction in Zhetysu district have the lowest price increase (less than 1%). This is due to the newly incorporated areas in the North Circle with a price of $4,000–5,000 per 100 m² that are rather unattractive from a market point of view. However, the district has a high potential for price increases on account of the Central Department Store areas that are extremely limited and virtually unavailable on the open market.
As for the average price increase throughout the city (+31.74% and +48.98%), these figures might only be interesting to experts. Almaty with its varied territories (like Dostyk Ave. and Ozhzhet outland district) has enormous price variation (from $3,000 to $300,000 per 100 m²) which evens out the final figures.
At present, the Almaty land market with its financial capacity of $130bn is open at about 75%. The rest is a closed or a so-called grey market. Although the open market dominates in total area, the closed market appears to be more profitable due to the most prestigious and expensive lots sold there. Occasionally their prices amount to $140m. And it is not over yet…
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