As a rule, prices for real estate reflect the situation of a country’s economy. When the economy develops, prices for real estate develop as well.
During economic slump and crisis usually real estate prices go down, and even sometimes they fall drastically resulting in a mortgage market shock. We have the example. When Armenia used to have double digit growth (in such situation the quality of growth does not matter), the prices for real estate properties significantly grew up. During the crisis in 2009 the demand to real estate properties was cut down resulting in 15-20% price reduction.
After that the situation of the economy stabilized. The minister of economy at that time Nerses Yeritsyan was assuring that the crisis would be overcome in the beginning of 2010. According to the official statistics, in 2010we had over 4% economic growth, which continued during the 9 months of 2011 as well. According to the same source, the incomes of people have grown too. Trade banks and the Central Bank have announced reduction of interest rates for credits, especially mortgage credit. The government is implementing projects to help young people buy apartments.
It is logical that the prices for real estate properties would increase as a result of this or at least would not go down. However, the reality is the fact that the crisis in the real estate market has not finished and the prices continue falling.
According to the information of the state cadastre, the number of transactions, as well as prices for real estate properties have gone down in Yerevan. During the first nine months in 2010 there were 9344 real estate transactions in Yerevan, however in the same period of this year the number of transactions is 6817.
The changes of the prices compared to the previous financial year are shown in the chart above. In all communities of Yerevan, besides Avan community, the prices for real estate have fallen. If we compare the prices in September of this year to the same period of last year, we will see that the highest reduction was observed in Shengavit and Kanaker-Zeitun communities – 7.5 and 7% consecutively. In Yerevan the price of one square meter of apartment has fallen by approximately 5.1% and made AMD256k.
The poor situation in the real estate market is proven not only by the official statistics, but the participants of the market as well. Real Estate companies do not speak about this openly in order not to frighten people and create even more panic, however brokers discover this information in private conversations. They say that people do not have money. Furthermore, they say that the government’s project for supporting young families does not give anything either. First, the main problem of young people is the 30% downpayment they have to find for buying an apartment. Second, there are limitations, due to which it is senseless to use this project. For example, the project has a condition that the price of an apartment in Yerevan should not be higher than AMD16mln. “This means that a young family has to find an apartment for 16 million drams, and what is more surprising, this apartment should be renovated so that can live in it. It is almost impossible,” say brokers.
By the way, the business of brokers is going down too because on the one hand the active is not active, and on the other hand the developed information technologies reduce their chances. If buyers and sellers can meet in the Internet, their service is useless already.
Why are the prices still low if the economy is developing, people are making more money and there are transfers from other countries?
Definitely the reason is the fact that notwithstanding the official statistics and information, the living standards of people are going down. The real incomes of people are the same, but the inflation rate is too high, as a result of which they are not able to save money for buying apartments. Young people simply are not able to pay for mortgage credit. In a word, the slump of prices in the real estate market by 5% shows that the living standards of people have gone down by 5% too. It is also worth mentioning that the reduction of demand to real estate properties shows that the emigration flow is high. Potential buyers are leaving or intend to leave. Especially there is a group of young people in Armenia, who do not connect their future with their country and want to leave, thus in such situation they don’t think about buying an apartment.