Alpha and Omega of Almaty's Property Market
By Stanislav Glazkov, general director, BG Consulting
The main development trend observed in the Almaty property market is a constant (although not stable) growth in prices. Some two years ago, investment was mainly in housing and office space in the secondary market, whereas most recently there has been an unprecedented jump in the price of land – both unoccupied (empty) and built-up land.
We believe that the main factors that influence this process are:
· The dynamic development of the economy which has increased disposable money channelled into the property market;
· The significant profitability of investment in property;
· Relatively "cheap" mortgages;
· The authorities' desire to grant Almaty the status of a regional financial and economic centre;
· The world trend of growth in prices for property in major cities such as Moscow, Berlin, Beijing and so on.
In addition, Kazakhstan's prospective membership of the WTO, expected to take place in 2007, has a certain impact on the Almaty market (not only the property market).
As usual, secondary housing in blocks of flats occupies first place in terms of the number of deals concluded in Almaty. The average price (mainly for housing built in the 1960-70s) has almost doubled to $1,300-$1,600 a sq.m. in the first half of 2006 against $570-$800 a sq.m. in 2004. The growth trend in this segment of housing looks like continuing in the future, although a little slower. At the same time, the price of one square metre of housing built in the 1960-1970s will increasingly reach the price of one square metre in "elite" housing in five to seven years. This is explained by the fact that the difference in size (40-45 sq.m. in a one-bedroom flat built in the 1960-70s and 60-90 sq.m. in a modern one-bedroom flat) will always make the total prices for old flats significantly cheaper than those for new high-quality flats.
Average investors (those ready to invest up to $1m) have been increasingly showing great interest in buying modern newly-built flats in high-rise blocks of flats (the so-called elite housing). The price for this housing’ depending on location and category, varies from $600-$900 a sq.m. in unequipped flats to $1,500-$4,000 a sq.m. in "ready-to-live" flats.
Most likely, this is not thanks to people's desire to improve their living conditions (although this is a factor, too) but to fact that they are only able to invest relatively small sums in liquid property. That is why investors in this category, as a rule, buy several "elite" flats because they do not have the money to buy more profitable commercial or office property (which requires investment of over $1m).
The detached houses sector has also undergone significant changes. The following main trends have been observed in this sector over the past year:
· Drop in prices for "mansions". The average price for this class of house stood at $0.9m-$1.5m in spring-summer 2005, whereas it is $0.75m-$1.3m now. At the same time, the price of this housing was defined last year by the size of a house without taking into account the plot of land it stands on, but the price now is taken as the average of the price of the house and the plot of land. For example, a mansion with a living area of 300 sq.m. and a plot of land covering 1,200 sq.m. can be estimated at $0.9m. This figure can be derived either from $3,000 a sq.m. for the house (as it used to be estimated last year) or from $75,000 a 100 sq.m. of the plot of land (as unoccupied). It turns out that there is no longer any difference in the way of calculating.
· Increase in the lower margin of the average price for usual detached houses – from $40,000 (in summer-autumn 2005) to about $55,000 now.
· General stagnation of prices for cheap housing (houses built of frame-cane fibre, adobe and so on).
All these trends are connected to the market's reaction to a possible expropriation of plots of land for public use and a jump in the price of land.
Property Yielding Profit
This category of housing, against the background of general trends, is the most stable and predictable at the moment.
There is a slight growth in prices (about 10% a year) for office property built in Soviet times (the average price in the city is $1,500-$1,600 a sq.m.). The highest growth (from 20% to 40%) is observed in newly-built or "well-promoted" business centres, prices for which may reach as high as $5,000 a sq.m. We do not believe this price constitutes a "ceiling", although a certain stabilisation should take place in the second half of 2007 when most of buildings that are currently being built are expected to be commissioned.
More significant growth (from 40% to 50% since mid-2004) has been seen in prices for commercial property. Ground-floor spaces in newly-built buildings are enjoying high demand and their prices start from $1,500 in unequipped premises to $2,400 in "ready-to-occupy" premises.
As for industrial property in the secondary market, the situation is increasingly in favour of land consumers, when the existence of buildings and their size do not have any significant impact on the final price of a plot of land. This means that storehouses and production facilities are being sold at the price of unoccupied land.
The highest growth (a jump reaching 100% in March-April 2006) has been observed in the land market.
In the most attractive districts in Almaty (the square made up of Rayymbek St, Luganskiy St, Khadzhi Mukan St and Momyshuly St), the average price of 100 sq.m. of land fluctuates within the following ranges:
· Plots of land designed for individual housing covering an area less than 800 sq.m. – from $20,000 to $60,000 a 100 sq.m.;
· Plots of land for individual housing and low-rise blocks of flats covering from 900 sq.m. to 4,000 sq.m. – from $40,000 to $90,000 a 100 sq.m.;
· Plots of land for low-rise blocks of flats covering over 5,000 sq.m. – from $60,000 to $100,000 a 100 sq.m.
These prices are sometimes illogical and are explained by the "burning" desire of major investors (building companies and developers) to buy plots of land that are still unoccupied to build property, mainly housing, which yields huge profits.
We believe that prices in this segment have not yet reached their maximum. However, growth in prices for plots of land, naturally, leads to growth in prices for the "finished" property, although profitability decreases somewhat.
Housing to be Expropriated for Public Needs
Under the General Plan for Developing Almaty, the majority of detached houses and low-rise blocks of flats will be demolished, and the market has already reacted to this inevitability.
Compared with other segments of housing, prices for houses which will be expropriated are growing more slowly. However, houses with significant plots of land (over 1,000 sq.m.) are an exception.
Land prices in the Almaty suburbs have also grown significantly. They leapt by 200% to $1,500-$3,000 a 100 sq.m. against the level in the first half of 2004. But we believe that this is not a trend, although a natural growth in prices will, of course, continue.
Intermediary Services in the Property Market
Over the past two years, the number of "black brokers" in the property market has fallen significantly. This is because, firstly, as a lot of new construction has been commissioned, the investing companies themselves or their affiliates have started to sell property directly to customers without middlemen. Secondly, people have started to approach legal brokers to avoid problems that emerge when working with more shadowy brokers.
Long-term Prospect for Developing the Property Market
Making any long-term forecasts is a thankless task, because everything depends on the economic situation or local conditions. Moreover, there has been a feeling of a certain "price chaos" which is explained by speculative demand for plots of land to build profitable property. For example, after a quite understandable growth in prices for land the owners of other types of property also started to push prices up. However, we believe that the market will adjust its prices.
Still, let us try to make certain forecasts regardless of the developing situation.
Firstly, at the moment statistical methods of detecting trends are of little use and can be relied on only after a certain stabilisation has set in, or at least a year after the current land speculations started.
Secondly, prices for property will continue to grow at different paces depending on the category, location and terms:
·The highest growth of 20% to 100% a year will be observed in prices for plots of landcovering an area of 4,000 to 10,000 sq.m. that will be used for building profitable property;
·Quite high growth (from 20% to 50% a year) will be observed in prices for administrative buildings and newly-built business centres until end-2007.
·Growth in prices for flats (from 10% to 40% a year) and low-rise detached houses(up to 50%) will depend on the final prices for plots of land and builders' expenses to develop them.
·Prices for industrial property will depend only on prices for similar plots of land.
Thirdly, a certain stabilisation of prices should take place in the second half of 2007 and it may last until spring 2008.
Thought-provoking Information. A decade ago when the average price for housing was $285 a sq.m. in Moscow, many analysts, including estate agents, valuers and marketing specialists, forecast its growth to a ceiling of $800-$900 a sq.m. However, the level of prices for Moscow flats has already reached $3,000 a sq.m. and $30,000 a sq.m. in some elite blocks of flats.
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