What goes on in real estate market?
Economic growth of the first two months of ongoing year was impressive-about 6%. Double digit growth indices for industry and services, foreign trade were impressive as well.
However, there is one index, which doesn’t comply with the temp of economic activity. It refers to real estate market. Usually real estate market is very sensitive towards changes of economic condition and similarly reflects to them.
If growth is recorded it activates and become passive when decline is recorded. What goes on in Armenia’s real estate market throughout the first two months? We should a bit develop data issued by the National Statistical Service of Armenia (taken from the State Committee of the Real Estate Cadastre of Armenia). National Statistical Service on a monthly basis introduces general number and structure of implemented deals per regions and type of the deal.
Comparison with the same period of the previous year isn’t provided. We have taken data referring to number of real estate deals both for January-February 2017 and 2016. Based on total number and share we have calculated change of total number of not only deals, but also changes per types of deals. Thus, 22113 real estate deals have been implemented in January-February 2017 in Armenia compared with the 23048 of the same period of the previous year, i.e. number of deals has decreased by 935 or 4.1%. This already doesn’t comply with the “spirit” of economic growth, however, to go further in conclusions changes per types of deals should be observed as well.
Mortgage deals have grown by 557 or 27.5%. What can this mean? Real estate is pledged in 2 cases—while taking a mortgage loan or borrowing from physical persons or taking other types of loans. For those not familiarized with the process we should clarify that in case of mortgage loan the property is pledged to the bank as a mortgage, i.e. at the same time both a mortgage and alienation deal. And if mortgage growth was conditioned by growth of mortgage loaning, then the dynamics of alienation should have also been recorded. Not by the same volume, however, at least by comparable temps. However, number of alienation deals has decreased by 658 or 10.5%.
In the period of January-February 5587 alienation deals have been concluded in Armenia compared with previous year’s 6244. This indirectly means that real estate mortgage deals have been recorded to involve other types of loans or debts. In short, this means debt burden for the population has become heavier.
At the same time initial registration deals have increased. Compared with January-February of the previous year 2552 registration of real estate has been implemented, and in the same period of ongoing year—3086. The quantity has grown by 534 or 20.9%. It should be stated that initial registration is when, e.g. the developer finishes construction of the house or one building and registers it in State Committee of the Real Estate Cadastre. Can rise in initial registration deals be linked to the growth of mortgage deals?
Theoretically—yes: it isn’t excluded that after finishing construction of the building and acquiring respective documentation developers may mortgage it to apply for a loan. However, this isn’t again a mortgage loan and doesn’t edify of real estate market activation. Number of heritage deals decreased by 20.7%, other types of deals—11.1%. Renting deals have grown by 11.5%—reaching 1239 from 1111.
It should be taken into account here that only officially registered rent deals are considered (on contractual basis and by cadastre). However, it isn’t a secret that especially in case of rent of residential real estate considerable part aren’t properly formulated to avoid income tax and formalism. Moreover, growth of rent deals may also be conditioned by control strengthening and reduction of shadow in the field.
In any case, it should be stated that by saying activation or passiveness, perhaps the most important criterion is alienation deals. 10.5% decrease in the field shows that the market won’t recover. Of course, to reflect to economic growth certain time is necessary. And if growth temps are maintained, at least by semester results certain move in real estate market should be recorded.
By Babken Tunyan
