Outflow of population and passivity of the Diaspora pushes property prices down

ArmInfo. The State Committee of the Real Estate Cadastre published average market prices for real estate in Armenia in 2017. The downward price dynamics, according to official figures, is accompanied by an increase in the number of transactions for the purchase of sales and mortgage deals. At the same time, the economic activity of Armenia increased by 7.7% during the reporting period. However, with such a positive scenario, prices for real estate are declining. In an interview with ArmInfo, the director of the Real Estate Exchange, Artem A. Pribylsky, explained the situation in the real estate market of Armenia, and described the key factors of the price decline.

Mr. Pribylsky, real estate is one of the defining indicators of economic growth. The National Statistical Service has not yet published the final data on the results of 2017 on GDP growth. However, given the growth of economic activity, and quite good indicators in terms of accelerating industrial growth and increasing revenues of other areas - we can assume good results for economic growth. At the same time, according to the State Committee on Real Estate Cadastre, a significant price decrease is observed in the market. How can this situation be explained? It would be worthwhile to expect a positive price trend in connection with GDP growth, but the situation is different. What, in your opinion, is the reason for this "inconsistency"?

The fact is that in a country like ours - the economy cannot be an absolute indicator for the formation of a price policy in the real estate market. Because our prices are formed not only at the expense of economic growth, although this is a determining factor. Equally, foreign capital plays a role here, that is, the participation of the Diaspora, which along with the citizens of Armenia is a serious player in the market.  Looking at the results for the year, I cannot say that the Diaspora was active. In this scenario, the decline in prices, in my opinion, was affected by the intensification of migration processes. 7% growth in economic activity cannot satisfy anyone. We have not yet reached the level of indicators that had by the beginning of the 90s. The whole world has gone ahead, and we are standing still. Although I see certain positive developments. In other words, the real estate market is now a situation formed some kind of parity. We will wait for what will be.

You noted positive progress. What did you mean?

Today the market is growing interest in real estate for industrial purposes. If you exclude residential real estate and take only commercial - the situation is as follows. Stagnation in the market of real estate objects of commercial purpose and service sector lasts about 3 years. On the industrial segment of real estate - stagnation lasts long enough. Today, in terms of increasing supply and purchase, I see positive trends. But I say all this for a reason. Such a country as ours, this is an axiom, can develop only if it participates in some kind of large association, union. Unfortunately, we have been going for this for a long time.

However, today we can already talk about concrete progress, in particular in the sphere of manufacturing, namely agricultural products.

As for heavy industry, I find it difficult to assess. If the engineering industry raises its head, then it will be already possible to talk about real economic growth. Here, of course, I have more skepticism than vice versa. Because the industry requires large capital investments.

In other words, today it is not necessary to consider real estate as an attractive investment tool?

Today the situation is more than incomprehensible. As I said, there is some interest in the manufacturing sector. But when the country wants to get out of the collapse - engineering cadres - this is one of the foundations of economic development. And I still do not see any accents. In a country like ours, which, unfortunately, is equated with the status of a belligerent- investments are not made because of fears. The money we receive from international financial institutions is not invested in the real economy, but cover certain deficits.

Nevertheless, with the decline in prices, deals are growing both in Yerevan and regions, in particular, mortgage loans. How can this be explained?

The answer to your question remains the same migration. Relatively speaking, having 100 units of real estate, in developed countries, there are potentially 5 units sold per year. With the intensification of migration processes - the supply indicator increases to 10-15 units, it is noteworthy that this process is accompanied by a fall in prices. What we have today. In other words, the growth of deals with a decline in prices is possible only under such a scenario. Regarding mortgage deals - of course, I can note positive trends. Interest has increased significantly. When in the early 90's in the US 90% of real estate transactions accounted for a mortgage, in Armenia this figure was only 0.5%. Today, in the total volume of transactions with real estate, the share of mortgages has reached 50%. This is quite normal if we take into account the level of incomes of the population and the tendency of lowering interest rates over the past two years. If the regulator will follow this process, it is possible that mortgage rates will continue to decline.

And what can we expect in 2018? What trends can be traced?

At the best, stagnation of prices is waiting for us, if the growth in the manufacturing industry continues.  This is at best. Figuratively speaking, stagnation can be equated to the foundation of the building that they want to build. How will the "foundation" - then you can count on some growth. But to stagnate it is still necessary to come. In addition, I do not see the concept of development of joint-stock companies, which, in principle, ensure the development of primarily capital-intensive industries.

To improve the situation in the first place, in my opinion, we need cheap loans for the construction sector, the legislative order from the local authorities and the real economic growth. Therefore, emphasis should be placed on industrial development. Industry is our tomorrow. Otherwise, migration will intensify.

According to the State Committee of Real Estate Cadastre, the average market value of housing in Armenia decreased by 2.8% in 2017, making 178.8 thousand AMD ($ 370) /1kv.m., Versus 0.2% growth for 2016.  According to the source, the average apartment prices in the year (2017 to 2016) fell by 3.8% - to 173.7 thousand AMD / 1 sq. M. In particular, the price of an apartment in Yerevan was 265.3 thousand drams / 1 sq.m. (With an annual decline of 3.5%), and in the regions - 82.2 thousand. AMD / 1 sq.m. (With an annual decline of 4.9%).

Meanwhile, prices for private homes on average for 2017 fell by 1.8% to 183.8 thousand drams / 1 square meter. In the capital cost of 1 sq.m. private house for the year decreased by 2.3% to 280.2 thousand drams, and almost the same decline was recorded in the regions - by 2.5% - to 87.5 thousand AMD.

In total, the price of 1 sq.m the capital's residential real estate (multi-apartment buildings and private houses) fell by 2.9% on an annual basis, an average of 272.7 thousand AMD. In the regions, prices for 1 sq.m. Residential real estate (multi-family houses and private houses) fell 2.6% to 84.8 thousand AMD.