Why are house prices in Uzbekistan rising sharply?

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In recent years, the price of real estate in Uzbekistan has increased several times. Prices may increase even more in the near future under the influence of several factors.

According to the Center for Economic Research and Reforms, in January-August 2022, house prices rose by 13% in Tashkent and by 7% across the country. According to the analyzes of the Central Bank, the price increase in the primary market in the first quarter of this year was 4.6 percent, in the second quarter it was 2.4 percent, the price increase in the secondary market was 10 percent in the first quarter, and 2 percent in the second quarter.

As of July 1, the highest average value of housing prices on the primary market in the regions is in the regions of Tashkent city (9 million 9 thousand soums per 1 square meter), Samarkand (8 million 16 thousand soums) and Tashkent (5 million 568 thousand soums), the most low prices were recorded in Khorezm (3 million 168 thousand soums), Jizzakh (3 million 495 thousand soums) and Syrdarya (3 million 557 thousand soums) regions.

As of September 1, the highest average value of housing prices on the secondary market in regions is in Tashkent ($836 per 1 square meter), Samarkand ($568) and Navoi ($475), while the lowest prices are in Nukus ($305), Jizzakh ($310) and Gulistan ($311).

Why did housing prices soar?

Over the past 5 years, real estate prices in Uzbekistan have risen sharply. For example, in 2018, according to the conclusion of the state expertise, the price of 1 square meter of multi-apartment housing is 3 million 982 thousand soums. organized However, today this indicator is more than 9 million soums. A number of factors may have influenced this.

First, the increase in the price of the main construction materials. In particular, in 2017, 1 ton of cement cost 135,000 soums, and in 2018, 305,000 soums. is sold.

Also, as a result of the liberalization of the currency policy, the increase in the price of imported construction materials and equipment also influenced the increase in the prices of housing construction.

Second, the increase in the process of urbanization. In recent years, urbanization has been encouraged, urbanization is expanding. In the context of the expansion of district and regional centers, as well as the capital, there is an increase in demand for housing. If urbanization had started earlier in Uzbekistan, the demand would have increased earlier. Now, real estate prices have skyrocketed to meet the growing demand associated with urbanization.

Thirdly, the middle class is the largest group that creates demand for housing. Due to the relative increase in the weight of this category of people and the abolition of the “propiska” system, which has been a painful problem for years and has been subject to constant criticism, there has been an opportunity and incentive for citizens from other regions to work in Tashkent city or region and buy real estate.

In addition, several other aspects may influence the increase in housing prices in the near future. It belongs to the government decision the order of privatization of the land owned by the citizens was approved, that is, the market price of the land will be formed in the next period. This causes land prices to rise at a very high rate. In turn, the price increase affects the price of apartments.

Also, by the President’s decision, from November 1, 2022, mortgage loans and subsidies for houses in the “box” condition permission is granted. This can further increase the existing demand in the market.

Rising demand for real estate as a safe-haven asset, rising devaluation expectations amid geopolitical instability, and double-digit inflation are likely to continue to put pressure on house prices.

What are the prices in neighboring countries?

As of July of this year, the price of 1 square meter of real estate in the capitals of Central Asian countries as follows:

  • in Ashhobod – from 2,867 to 3,055 dollars;
  • in Ostona – from 835 to 1100 dollars;
  • in Bishkek – from 830 to 900 dollars;
  • in Tashkent – from $825 to $900;
  • In Dushanbe – from 405 to 650 dollars.

Rental prices

The housing rental market in the city of Tashkent is growing due to the rising prices of housing purchases. On the one hand, the number of foreigners and nationals entering the capital is increasing significantly, on the other hand, more and more landlords are starting to rent real estate. The profitability of the rental business (rental yields – income obtained by renting out a house in one year) for the city of Tashkent is 10 percent, that is, the purchased apartment provides its value in 10 years. For comparison, this number is 6% in Romania, 5% in Poland, 3% in Germany, and 2% in Turkey.

According to the analysis of PMTI experts in July-August, the average rental price in Tashkent is $339 teng.

Let’s compare incomes and rental prices for the example of budget employees whose official salaries are disclosed:

The head of the young family is a doctor, his wife is a teacher, and he has one young child. A husband earns about 2.4 million soums (the average salary in the health sector), and a woman earns 2.5 million soums. Even if they live in a rental in the minimum budget option, it is clear that about 75% of the family income needs to be spent on rent. The answer is clear as day whether the rest will make a living.

Currently, many people from Russia and Ukraine are coming to Uzbekistan for temporary (perhaps permanent) residence. The fact that most of them are renting apartments has created a serious growth and shortage in the rental sector. Also, there are those who are buying real estate because of the high cost of rent, or because of connecting future plans with Uzbekistan. This creates a temporary or continuous demand and affects the increase in prices. Since the beginning of the year, the number of requests to buy or rent real estate in Azerbaijan, Armenia, Georgia, Kazakhstan and Uzbekistan by people who left Russia has increased by 2.2 times compared to last year. that’s it.

Conclusion

Housing and rental prices in Tashkent are significantly expensive compared to the income of the population. Spending 50 times GDP per capita to buy an average home need. But at the same time, breaking the market rules and trying to artificially lower the price of apartments can also have a negative effect. In this case, efficiency, that is, profit-oriented players will leave the housing market. Funds will not enter the housing market. That is, investors (foreign, domestic) leave the market. Imagine if you fixed the price of a certain good, the incentive to produce that good would disappear.

The main task of the state is to ensure inclusive economic growth in order to increase the income of the population, to fight against the artificially high prices of other goods (monopolies) in the conditions of high housing prices, to ensure the openness of the building materials market and high competition in it, housing builders the necessary infrastructure should be created.

Prepared by Doston Ahrorov.

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