July 10 – finprom.kz

 

Housing is poorly affordable in the Republic of Kazakhstan. An effective support tool is shared construction participation

We write regularly about the shortage of housing in the Republic of Kazakhstan. Thus, for example, if we compare the indicators of housing provision in the Republic of Kazakhstan and European countries, as well as USA, then Kazakhstan will be at the very bottom of the rating, taking into account the ratio of the population to the number of residential facilities. In addition, more than 70% of families of the Republic of Kazakhstan live in dwellings with living space less than 20 square meters per person.  It is worth reminding that according to UN standards, the indicator should be at least 30 square meters.

Buying a home in the Republic of Kazakhstan is not an easy issue, especially given the fact that the growth of wages of Kazakhstanis was “devoured” by inflation, and the purchasing power in the country fell in the first quarter of this year.

In such conditions, a very popular way to purchase housing in Kazakhstan is shared construction participation. This method is popular due to the lower cost of housing in comparison with the purchase after commissioning or in the secondary housing market, where there has been a significant increase in prices in recent years. Thus, for example, in the primary market in 2019, housing price was an average of 293.5 thousand tenge per sq. m, and in this May — 486 thousand tenge per sq. m (a difference of 65.6%). In the secondary market, at the end of 2019, the price of square meter of housing was an average of 200.4 thousand tenge, and in this May — 505.7 thousand tenge, that is 2.5 times more.

Average price of housing (thousand KZT per sq.m.)

Primary housing              Secondary housing

Average monthly nominal salary (thousand KZT)

From January 22 – weighted average price

Based on data of Office of National Statistics ASP&R RK

For comparison: the average monthly nominal salary in the Republic of Kazakhstan amounted to 340.6 thousand tenge in the first quarter of this year. On the one hand, this is 82.3% more than the average of 2019 (186.8 thousand tenge). On the other hand, as discussed, growth does not cover inflation, and the purchasing power of wages decreased by 0.6% over the year.

If we compare wages with housing prices, the problem becomes obvious. For example, let’s take an ordinary family consisting of two working people (that is, we will count on two average nominal wages per month), and a standard apartment with an area of 54 sq.m. Even if such a family can save a one third of their total earnings for an apartment at once, then in order to accumulate at least 20% of the cost of an apartment (standard initial payment), they will have to save moneys for 1.9 years based on the cost of an average new housing and 2 years — in the case purchase of housing on the secondary market. In order to save moneys for full cost of housing, it will take 9.6 years for new and 10 years for secondary housing.

Note: at the same time, we make a fantastic assumption that for the duration of the entire saving period, the cost of housing will not change, which is impossible, which means that the real term will be longer — and quite likely a multiply. In addition, we used data on nominal average monthly wages, although the median* salary, which amounted to only 225.7 thousand tenge in the first quarter of this year (and 204.1 thousand tenge by the end of 2022), is much more indicative (we have already explained why this is so). The level of modal* wages is also indicative, which amounted to only 68.6 thousand tenge in the Republic of Kazakhstan in 2022.

Meanwhile, the specialists of the analytical centers Urban Reform Institute (USA) and Frontier Center for Public Policy (Canada), based on the standards of the UN, OECD, Joint Center for Housing Studies, etc. determined the criteria for housing affordability. Housing in the country is considered affordable if it takes less than 3 years to purchase an apartment of average size and cost, medium-affordable — from 3 to 4 years, unaffordable – more than 5 years. Thus, housing in the Republic of Kazakhstan is not affordable according to such calculations.

* median salary is the value located in the center of the distribution of the number of employees by the size of the accrued salary and dividing it into two equal parts — with a salary below and above the median
** modal salary is the value most often found in the distribution of the number of employees by the size of the accrued salary

Saving period for purchase of housing in Kazakhstan (years)

Primary housing

Full amount, Initial contribution of 20 %

Secondary housing

Full amount, Initial contribution of 20 %

Based on data of Office of National Statistics ASP&R RK

In such a situation, it is not surprising that the mechanism of con-funding of housing construction, where the cost of housing is up to 30% lower than the cost after commissioning, is in demand in our country. However, it is important to keep the pitfalls in mind.

Let us recall that in accordance with the Law “On co-funding of housing construction”, the sale of housing at the construction stage is allowed only through the conclusion of equity participation agreement (EPA) in accordance with the approved standard form.

The standard form of equity participation agreement was approved by Order No. 345 of the Ministry of National Economy dated July 28, 2016. The contract is concluded in writing, and it is necessary to pay attention that after signing, the EPA must be registered with the local akimat through the Unified Information System of Equity Participation in Housing Construction “Kazreestr”. Upon registration of the EPA, a corresponding statement is provided, which prevents the fact of a double sale and is the basis for payment.

If the buyer enters into another contract with the developer (provisional reservation agreement, investment agreement, assignment agreement), he/she is not considered a shared-construction participant and will not be able to protect his/her rights in a critical situation — for example, developer’s long delay, sale of one apartment to several people, etc. – to protect his/her rights as a shared-construction participant.

In turn, the conclusion of EPA and attraction of funds of shared-construction participant in accordance with the law are possible only if the developer has the appropriate permission from the local executive body or guarantees of Kazakhstan Housing Company JSC (KHC). The developer shall present these documents to the potential shared-construction participant.

The KHC’s guarantee is issued to the developer after a thorough reliability check: financial indicators, pricing policy, sources of financing, volumes and cost of construction are analyzed; permits and title documents are reviewed and check for absence of judicial or tax proceedings. In case of developer’s default, the KHC shall complete the construction of the facility and transfer the housing due to the shared-construction participant.

Shared-construction facility

All facilities

Completed

Under construction

Based on data of Kazakhstan Housing Company JSC

Thus, the conclusion of EPA in accordance with the requirements of the law can protect the shared-construction participant from unscrupulous developers, the number of which is significant in the Republic of Kazakhstan.

However, to date, the issue of sale of shared-equity construction facilities without the appropriate permission and in violation of the law is still relevant. In order to provide the population with reliable and complete information on shared-equity construction facilities, KHC places the register of contracts for provision of guarantees for facilities under construction and information on progress of construction of residential complexes on the official website www.khc.kz , in the section “Individuals” and the subsection “Shared-construction participants”,

KHC has also developed an information system “Housing Portal” www.homeportal.kz , where the list of legal shared-equity construction facility is posted. In addition, the “Housing Portal” publishes information about developers who do not have the appropriate permission or guarantee to attract funds from shared-construction participants (according to data of local executive bodies).

It is extremely important for future buyers of long-awaited apartments to double-check the developers’ documents before buying and to know their rights as shared-construction participants.

 

 

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