Yuriy Khramtsov of Visor Capital -

The Deputy Chairman of the National Association of Realtors, Oleg Alferov, expressed sceptical opinions about the future of high-price policies on the real estate market in Kazakhstan in his article, "Emergent landing," in the journal Expert Kazakhstan.

According to Alferov, the number of sell offers was more than 1.9 times the number of buy requests on the Almaty market as of the middle of December. The Association forecasts this indicator to decline to 1.6 by the end of 2008.

In Alferov's opinion, the "price correction" will continue until March 2008 and will have reached a 9% decline as of January 1. A further price decline, according to him, will be prevented by pent-up demand from the second half of the year. In the second quarter, it will be possible to purchase residential real estate at 2006 prices.

The market for commercial real estate will also be affected, as it was in 2007. The need for a reduction of costs by numerous non-construction companies in various regions of the country will prevent any equilibrium in demand and supply in the commercial real estate segment. As a result of finishing construction of projects, there will be an excess supply of A- and B-class offices, whereas low-class offices, trade facilities and warehouses will be in deficit.

In Alferov's opinion, the holders of residential real estate will modernize their property for rent, as the expected price for fixing the income is higher than current price of real estate. As the supply of property available for the rent increases, rent prices will stabilize or even decline. However, in our opinion, even at current prices (down by 30% in Almaty since August 2007) and increased interest rate on mortgages and mortgage payments are up to two times higher than corresponding rent payments. Therefore, if the demand for residential real estate is low at current prices, one cannot expect high demand at increased rent prices. Actually, the National Statistical Agency reported a decline in residential real estate rent prices in December.

Alferov says the cost of mistakes increases nowadays. There are no opportunities in 2008 to buy land in advance for future projects. Such policy has wiped out working capital of many construction companies. Full marketing research is a must now. One also cannot neglect the demand in low-price segments. The activity of construction companies should shift to this segment from the saturated elite sector of the capital, Astana.

A substantial part of market participants will leave the market in 2008. Already, separate projects (active phase of which should has already been started) are for the sale as land plus the corresponding building permits. Another category of participants will try to increase the efficiency of their sales. The growth in quality of marketing and management is expected. In Alferov's opinion, there will be a redistribution of assets in construction industry, higher concentration of capital, partially related to ambitious "Aktau City" and "G4" projects in Western Kazakhstan and Almaty. 2008 must become a recovery year from the "chronic disease" of increasing prices on every real estate object.

Recently the National Association of Realtors commented on 0.23% increase of 'Krisha' index. It was the first weekly increase since August 2007, so the Association does not consider it as a change in market direction.

We believe that there will be a decline in low-end real estate prices where prices are more out of line with the income levels of the targeted portion of the population.

Send comments to The Editor