Who can buy a house for us (we mean the young people)? Only the man, who has support from parents or parents of his wife-to-be and the ones, who had succeeded in business at young age (only very few are successful).
Prices of real estate bring up a variety of questions and it is difficult to give answers. Prices have been going up since 1990s. Specialists think that in the 90s the prices of real estate were really low compared to market prices and they should have gradually increased. The flow of refugees to Armenia also increased the demand and therefore prices went up.
On the other hand, at present the artificial price factor doesn’t have great influence. As for the flow of refugees, supposedly it should have lowered the demand since after Armenia’s Independence, a million people have migrated from Armenia.
There is another interesting factor. In general the higher the supply is the lower prices should be. We have an exceeding growth in the real estate market, which originates at the expense of newly built buildings.
Several days ago the National Statistics Service (NSS) publicized the 2005 social-economic conditions of Armenia. Let’s mention that the economic growth was 13.9%. According to the NSS the level of construction amounted to 34.2%. Nearly 1229 buildings (total space – 343078 square/meter) were built and exploited at the expense of the State Budget, humanitarian aid, organizations and citizens. There are 369 out of 668 buildings built at the expense of the population in Yerevan.
According to the NSS, the organizations have built 24 buildings within 2005 and all in Yerevan. It is supposed that the multi-floor “elite” buildings are built by organizations.
No one can deny that construction level is very high. The city has turned into a large landscaping area. This is the first thing that amazes the tourists who visit our country. How can we explain the prices of real estate, which have risen by 23% during 2005? This information was shared by the head of the RA State Cadastre of Real Estate Manuk Vardanyan.
The price rapidly increased especially in downtown Yerevan. Some people explain this by the fact that many Armenians who live abroad wish to buy an apartment in downtown Yerevan. It is a fact that it is impossible to buy an apartment for a person who has a job and normal income.
Generally, this issue is solved by applying mortgage credit. This means that credits are given to people who have a stable job and income. The credits are given at low percentage and for a long-term redemption.
This system works in RA as well but not quite productively. The reason is the high rates and short-term redemption. The following is a table which shows the comparison.
Country Annual % Redemption term (years)
USA 4-5% 20-25
Germany 4-8% 25-30
Latvia 4% 25-30
Russia 9-19% 10-20
Armenia 12-20% 4-7
As you can see the comparison is not in our favor. Commercial banks of Armenia, indeed, have reasons for that. The bank capital increases at the expense of deposits of citizens. In order to enable low rates and long-term redemption it is necessary to include long-term deposits. And this is the most obvious omission of our banking system. Recently there were rumors that there was certain international banks and grounds were created to give long-term credits. However by surveying the current percentage rates it becomes clear that nothing essential was done so far.
Bureaucratic hassle is also a great obstacle. Even when buying a TV set the citizen has to bring different documents and run to different doors to get those done.
There are also certain restrictions. In almost all banks of the world the real estate property is considered a mortgage, which may be reimbursed by the bank in case the debtor is not able to pay back the rates. Let’s mention that most of our banks do not pay more than 50% of the actual cost of the real estate.
Name of the bank Advance payment Annual % Credit terms
HSBC 75% 15% 7
Artsakhbank 70% 18-20% 5
Hayeconombank 50% 14% 5
Inecobank 50% 17% 5
Unibank 30% 14-18% 7
Let’s see how much income the person should have in order to take a credit to buy a thirty-thousand-dollar apartment (2 or 3 rooms). First of all he should have $15000 for advance payment. By applying the information placed in the website of one of Armenia’s banks we may find out that the citizen should pay about $373 in case he/she wants to take a mortgage credit. Therefore he/she has to pay $4476 a year. By taking into account the fact that the average income of citizens is $2500-3000 we may presume that they will hardly be able to buy an apartment.
Who are those multi-floor “elite” buildings built for? We know that very rich people are able to buy one or many apartments in downtown. There is no doubt about that. However their demand may hardly cover the supply offered by the market.
The well-known model, according to which the construction companies already have for their customers before the construction begins, isn’t applied in Armenia. The owners of the semi-constructed buildings are concerned and have applied to real estate agencies to get customers. The owners of multi-floor buildings will hardly fail in business because the prices are really high. However, no businessman wants to keep the money “stagnant”. Perhaps this issue will lead to the development of mortgage credit market in Armenia, which will be beneficial for both apartment buyers and constructors.