The situation in the real estate market is frozen and it I not clear what will happen next. Buyers are waiting for further depreciation in the real estate market to buy real estate.
Certainly this point of view is justified but only the government and major construction companies believe (or want to believe) this point of opinion. They are explaining that this was the reason why the construction capacities fell down resulting in the decrease of GDP as well. Construction companies and real estate agencies are trying to convince people since the crisis that it is the right time to buy real estate and that the prices will not go down any more. Furthermore, since the operation of the mortgage fund rumors were activated that the demand in the real estate market might grow resulting in growth of prices. However these efforts have not brought to a positive result and the process of depreciation continues. The recent announcement of the state cadastre committee can prove this fact too.
In August 2009 the number of real estate transactions was 12858, which is by 1,6% than in the same period of 2008, and less by 8,5% than in July 2009. The capacity of transactions to sell real estate was reduced by 18.9% compared to the same period in 2008. And compared to July this number was less by 4.4%, which shows that the dynamics is negative.
As for the transaction with mortgage credits, according to the same information in August 2009 only 88 transactions with mortgage credits were made in the country, 62 out of which were in Yerevan. At the same time, it is not clear how many of these transactions had the real goal to buy real estate property because the pledge could be private property other than real estate as well.
It would be logical if the prices of real estate fell down. The state cadastre committee informs that there has been some reduction of prices. The price of apartments in Yerevan have reduced by 0,9% compared to July month.
People who are informed of the real situation will be surprised once they want to buy an apartment because the constriction companies and real estate agencies will offer so high prices that you will think you are back in the times of construction boom. Of course the deals are made at lower prices, especially when such transactions were made without intermediaries. In a word, the prices have fallen but not too much. It is not surprising because in the past several years the prices grew much.
When we try to look for logic in the dynamics of the real estate prices we understand that in our country the prices are kept high artificially. Let’s try to understand how they do this. It is not a secret that the construction business of high storey buildings as always been a highly profitable one. Approximately the profitability is 100%. Plus, there are no outsiders in this business and the main players have been in the sector for many years. It means that during these many years these businesses have made a lot of money; they have made millions as a result of unjustified growth of prices and not paying taxes (till 2007 the owners of high storey buildings were not doing business formally; their properties were registered as private property and sold without VAT). Suddenly these people understood that the inflow of millions is not the same as before and there are no buyers any more. When there are no buyers usually businesses should reduce the prices in order not to lose much. Bu it did not happen in our country. The construction companies claimed that they did not have money to finish the construction of buildings. No one asked where was the money they had received from the other buildings constructed in the past. Instead of this the government provided millions of dollars o these companies. Furthermore, the government tried to ease this process and reduced the interest rates of such borrowings provided to construction companies. Many banks which announced that they would provide mortgage credits are not doing so now and are selecting extremely low risk clients only. They are providing mortgage credits to those people who are buying apartments in the buildings that have received loans from them to finish the constructions.
Which of the construction companies would agree to reduce the prices of their products if they have the support of the government? Why would they do if the government is working for them? It is hard to say what the real purpose of this policy is. Maybe the reason is not the interests of a group of rich people and businesses but the government believes that by doing so it may fill the budget as a result of selling expensive apartments However such expensive apartments are not available to people even if they have the most beneficial mortgage credit interest rates. The ones who can afford such apartments are again representing this “small group of people”.