CENTRAL ASIA PROVIDES A RARE HIGHLIGHT IN TODAY’S CHALLENGING REAL ESTATE INVESTMENT CLIMATE

For many, the housing and wider real estate markets have had a miserable year. Interest costs have increased alongside inflation of general running costs and buyers are few and far between, making prices look frothy. But Central Asia is providing a rare ray of sunshine in this sector.

KAZAKHSTAN

The real estate market in Kazakhstan is active and dynamic across several sectors. Astana continues to grow as a ‘new’ capital (population 1.1mn) with many new residential projects whilst Almaty (population 2.3mn) short of free land, still presents excellent opportunities for Developers can secure prime sites by clearing old ‘private sector’ property, compensating existing owners with negotiated fair market value.
The fastest-growing commercial sector is logistics with current prices for warehouse space surpassing prices in Manchester and Dubai. This is credited to Kazakhstan’s central location on international trade routes such as the Trans-Caspian International Transport Route and connecting China to the EU. Rental prices have increased by 2.7% since 2022 and are predicted to grow further.

Offices in Kazakhstan are the most developed sector with more than 1.6 million square meters of supply between Astana and Almaty alone. Rental rates have been growing since the pandemic, which can be attributed to supply not meeting the demand (especially for A-class office space) and high occupancy rates meaning that rental rates increase. Current A-class lease rates are up to $70 per square metre per month.
The residential market in Kazakhstan is unique as there is 95% homeownership. The market experienced a rapid price increase in 2020-2021 due to increased demand but prices decreased in 2022 and 2023 as the outstanding demand was met and the market has slowed down. Average sale prices for comfort class are approximately $2,000 per square metre (sqm), whilst elite class is up to $5,000 sqm. Mortgages are still very expensive with annual interest rates of 18-20% so most buyers use cash or take advantage of instalment schemes offered by developers on new-build projects.

Tourism has been noticeably increasing in Kazakhstan both International and domestic tourism especially in Almaty particularly after the pandemic. Domestic tourism makes up 70% of the total number of visitors to Almaty. This, coupled with state-supported initiatives, will lead to growth in tourism and an increase of demand for hotels in Kazakhstan and specifically Almaty. There are at least 3 new five-star hotel projects which should be realized in the next 2-3 years.

Retail and shopping centres have been seeing rapid growth due to the economic progression of the country with 28 shopping and entertainment malls being commissioned in 2023 alone (the highest in the last 9 years).

UZBEKISTAN

The real estate market in Uzbekistan is still in a ‘boom’ period which started around 5 years ago soon after President Mirziyoyev became the new leader. Tashkent (population 3mn) is currently a ‘sea of cranes’ and this scene is also reflected countrywide. A new airport opened in the 2nd largest city Samarkand (population 600,000) in 2022 with an investment of $83mn whilst the popular high-speed Afrosiyab train line is also being extended along with many other important infrastructure projects.

Uzbekistan with a 37mn population is the largest market in Central Asia. An annual growth of 500,000 people has created strong demand for every property type, including foreign investors. New residential developments are the most popular sector with both economy class prices now doubled up to $1,000 per square metre (sqm) whereas as luxury units such as the stylish Mirabad avenue have sale prices up to $3,000 sqm.

The catalyst for this construction explosion was a visionary project called Tashkent City IBC built on a-80-hectares site of old private sector housing demolished in the city-centre. 3 metro stations are conveniently adjacent.

The site was divided into 8 plots and sold off to private developers under an approved ‘green-hearted’ masterplan creating a vibrant attractive mixed-use zone with exciting options for all city residents. Most of the construction was completed from 2018-2022 with the vast 225,000 square-metre Tashkent City Mall opening in March this year. Nearby is the two-storey Congress Centre which comprises a spectacular 70-by-70 metre sub-dividable main hall, sitting adjacent to the 22-storey 5-star Hilton hotel. Next-door is the iconic 51-floor Nest One tower which has high-class offices, apartments, hotel, restaurants and a luxury shopping gallery.

Another major construction project underway is the $290 mn Olympic village in Tashkent for the 2025 Asian Youth Games. Unfortunately, due to pandemic-related delays these games have recently been relocated to Bahrain. However, these state-of-the-art facilities will now be focussed on developing Uzbek sports to a new level and will be fully prepared to host major international sports events in the future.

Finally, ‘Tashkent New City’ is a new twin capital for Uzbekistan. This masterplan is on a vast expanse of 20,000 hectares of land immediately east of the existing city. A new airport city, trade district, CBD and administrative district covering 300 hectares represents the first phase of this amazing legacy project which will ultimately almost double the city population to 5.5mn.

TAJIKISTAN

Tajikistan has experienced strong growth in its real estate market in recent years with it now valued at $66 billion. The residential market represents about 90% of this figure. Over the next 5 years it is also expected to grow on average at about 4.75% per year. There has been good demand for luxury apartments in the capital Dushanbe (population 1mn). Current trends are for high-rise construction plus an emphasis on green buildings. There has been increasing investment from China with agriculture, infrastructure and manufacturing seeing a lot of new projects.

The construction ‘boom’ has been further supported by the government under a simplification of procedures for obtaining construction permits and specific tax incentives. As in other Central Asian countries the demand for housing has been driven by a growing population and an increasing number of young professionals seeking affordable and modern housing options. Recent economic growth has resulted in an increase in disposable income and improved living standards.

A major catalyst for property development in the country was definitely the first mixed-use project built by Qatari Diar more than 10 years ago. Diar Dushanbe is a unique construction in a stunning location on the shores of Lake Javanon comprising premium residences, serviced apartments, commercial space, retail units and a boutique hotel with 117 rooms and 69 serviced apartments.
ADB has, however, identified key constraints facing the general housing sector including limited stock, lack of affordability, poor maintenance and weak institutions. The average monthly salary is $120-150 while the average cost of a new residential building in Dushanbe is in the range $500-1,000 per square metre. The 22% interest rate and short tenure of housing mortgages make them inaccessible for most citizens. The housing stock has in general been poorly maintained and about 50% of multi-storey houses plus 22% of single storey homes are more than 50 years old.

However, leading the current residential boom especially in the high-rise residential sector are progressive national companies such as Armon Development and Elite Story Servis whilst another Qatari developer Qamar Group is also prominent. This will help the country immensely increasing its level of urbanisation from a low 26% now up to 43% as projected by 2050. Busy exciting cities should be the engine driving further economic growth and prosperity.

by Roger Holland, Founder & Managing Partner leading dynamic property advisory firm