We have referred to the increase of construction material prices in the last edition of 168-Zham newspaper. As a result of this the real estate price will also increase as certain predictions tell. In this regard we interviewed the founding director of the ESKO Concern CJSC Sargis Aghabekyan.
– In the pre-election and post-election periods the purchase and sale of real estate was in a quite passive state. What about now? Does it still continue?
– During the 16 years of existence of the newly independent Armenia it was the first time that the results of elections didn’t essentially affect the real estate price in terms of price decrease. This means that the market is strengthened and that the supply and demand coordinate each other and there is a realistic growth of demand in the market. In the meantime I should mention that during the past years there was a 24-28% annual growth of real estate price. And we can predict that this year there is going to be price increase based on the demand. Besides that in certain sectors, such as business and others there is an actual motive of price increase regardless of elections. And during the pre-election and post-election period we can say that the number of transactions has slightly reduced. But we cannot claim that this caused a price slump because as surveys show the current demand and supply cannot cause price decrease. I would also like to mention that if during the pre-election period there was a little bit freezing of business projects now there is nothing like this. People become more interested in obtaining real estate in Armenia. Of course, to say that the election process doesn’t affect the market would be wrong but I’d like to optimistically mention that the market got so strengthened that election processes just don’t affect the market.
– It is understandable that perhaps elections don’t affect the quality of the market. But taking into account the unstable political situation in the country will the foreign investors keep purchasing property?
– As of investment projects I mentioned that there is certain freezing. Investments mostly depend on various factors, which are connected with the given country. But I also want to mention that Armenia belongs to the group of those countries, where the capital of real estate still brings profits. Therefore, the potential profits compensated the possible risks.
– Doesn’t this inflation in the real estate market conduce to making the foreign investors make investments in some other more stable and developed country (e.g. European states)?
– I have personally conducted a two-month monitoring in Europe. We have examined the dynamics of real estate prices in about 30 European states. I have an opposite answer to your question. At present the price of real estate in European states is stopped and they have low consumption. The reason is that the European economy is not in a very good shape. Of course, it is stable but not good. The GDP annually grows by approximately 1.8-2%. Besides that Europeans are citizens of developed states and their housing needs were sufficed long ago. It means that there is low demand and this causes both price freezing and consumption rate reduction. We even have facts that at present in Spain, where major urban projects are being implemented, they have certain problems with consumption. We have slightly different situation in Armenia. In the meantime we should mention that many Diaspora Armenians are selling their property in foreign counties in order to buy property in their fatherland.
– During the past several months the construction material prices have drastically increased. How can this conduce to the increase of real estate?
– A number of factors affect the prices of apartments – price of the land, which gradually increases as there is almost no land left for construction. The second factor is the price of communications because it also gets expensive. And finally the price increase is stipulated by the increase of construction material price and taxes. These are all the basic factors, which affect the construction. As of construction material price there is of course price increase, which continues now. It is connected with the fact that money is being devaluated regardless of the currency type. The amount of money in the world gradually increases. Construction material is type of product, which net cost consists of production expenditures (in the whole world fuel price increases), transportation costs, customs costs and the total cost. When we examine all the factors we predict that the construction price is going to increase. In the meantime manpower becomes expensive. If in past in the construction sector the workers would work with 2500-3000 AMD now they demand 5000. Technical conditions have also been changed. The technical parameters, which have been applied for 10-15 years, are not presently applied. At present technical equipment is at a higher level. For example, after the earthquake they have started to apply the 9-point seismic stability system, which brings to the higher demand of metal and concrete. In terms of the market the competition is so high that the constructors have to provide quality. All these factors enable to claim that there will be price increase because of the net cost as well.
– On one side elite buildings are being built and on the other side they speak of the low social state of the people. Do the elite buildings find their buyers?
– In regard of only the market what’s built and sold cannot ever remain. It may be sold in a few months but it will ultimately be sold otherwise no one would build. The capital is more sensitive than our subjective wish. First, today in Yerevan only few buildings can be considered elite because they only partly conform to those standards or don’t at all. But what’s built has demand. As of the Northern Avenue the price was about 300-350 thousand AMD per square meter then now it is probably hard to get an apartment at 650 thousand AMD per square meter. And the price of the repaired apartment teeters from around 1 million to 1 million 200 thousand. Of course, the prices are quite high for people, who don’t have such incomes. However, this demand comes from certain indigenous residents, Diaspora representatives and foreign citizens. As of the Diaspora these prices are not very high. For example in Spain, in not many good cities, one square meter costs 2500 Euros and reaches up to 7-8000 Euros and even 10.000 Euros. In Armenia the average price of the square meter is 500 Euros. In Yerevan the average price is 800-900 Euros. In terms of price growth we don’t lag behind from other markets. For example, in Ukraine there are buildings, where the square meter is 30.000 USD. In Yerevan the most expensive apartments cost no more than 1 million 200 thousand AMD.
– By your forecast how much the real estate price will be raised in the near future?
– It can only be my personal opinion and I cannot confirm that. Time will show. But this year I predict a 17-18% increase of real estate price. But in certain sectors it may reach 20-25% and even 30%.