Residential construction. Focus on availability
In 2011, by retaining the volume of the commissioned housing at the level of 6.5 million m2, the Government of Kazakhstan succeeded to bring back to life the local construction industry mostly at the account of the state budget. Today, it sets a new benchmark for the industry – to bring the rate up to 10 million m2 by 2020. In the same time, the main focus will be set on large-panel construction of small-size and affordable housing.
If we analyze the results of all the state programs for housing development, implemented in our country since the mid-2000s, it can be said that they are quite complex. The first of them, planned for 2005–2007, was called to encourage the involvement of private capital in the sector and to increase demand for housing due to the development of mortgage lending and the mechanisms of shared-equity construction. Up until 2007, the sector actually experienced a true investment boom, but it led to the uncontrolled infill development, the growth of real estate prices and unaffordable mortgage loans rates. Eventually, the “bubble” in the real estate market burst, leaving dead construction sites and thousands of defrauded shareholders.
The following program for 2008–2010 can be actually described as a “fire-fighting and clearing the debris”. In order to support shared-equity construction we had to attract government funding in the amount of 263.4 billion tenge, and for the replacement of bank mortgages to bet on the development of housing savings system using an advance loan. In principle, “the patient was saved” – if in the IV quarter of 2007 (that is, at the start of the global financial crisis) in the Republic, there were 450 incomplete housing estates (62,889 shareholders), then as of January 1, 2011 it was necessary to finish only 58 sites (13,650 shareholders).
At the same time, against the background of the increased efforts of the state in the segment of housing construction, a trend of planned reduction of private investments has been indicated since 2008, which could cause a deficit of 1.5 million m2 of housing and the next round of growth in real estate prices by 2012. To keep sector indicators remained at least at pre-crisis level, a housing construction program for 2011–2014 was adopted in March 2011. It provided for three main areas of state support in construction sector: 1) the use of the housing savings system for construction and sale of housing, 2) the funding of second-tier banks for financing of construction and 3) the construction of utilities.
Through these measures, the Government planned to provide annual volumes of the commissioning of new housing at the level of 6 million m2. The results of the first year of the program implementation showed that this goal is achievable. Thus, in 2011 the volume of investments in housing construction totalled 417.1 billion tenge, or 119.2% compared to the level of 2010. 6.5 million m2 of housing was introduced, which is 8.3% above the plan and 1.9% more than in 2010. The first half of this year has confirmed the positive trend: 3,037.1 thousand m2 were built in the Republic, which is 14.3% more than for the same period last year.
However, according to the Chairman of the Agency for Construction and Housing and utilities, Mr. Serik Nokin, despite the measures taken, a number of issues remained unresolved. There is insufficient funding for the construction of rental housing for the persons on the affordable housing waiting list registered in akimats. The capabilities of the housing savings system are not used in full. An efficient construction industry market is not formed. In addition, it was failed to provide affordable housing for the general population, including young families. The latter is particularly important given the fact that the main goal of the state housing policy is to create conditions to provide citizens with affordable housing.
The results of the analysis of the labour and the real estate market in 2011, conducted by the Ministry of Economic Development and Trade to determine the characteristics of purchasing power of the population, remunerations and real estate prices are very indicative in this regard. Thus, the average purchase price per square meter of residential real estate in the last year was 156 thousand tenge – for the newly built housing and 113 thousand tenge – in the secondary market. While the average salary in the Republic amounted to 89 thousand tenge and the real one – 53 thousand tenge in a month (a correction factor of 0.6 has been applied based on the purchasing power of the population with average income). The opportunity to purchase housing for an average family of 4 people, two of whom work and gain real income – 106 thousand tenge per month, was calculated on the basis of these data. Expenses of the family are taken in the amount of 64 thousand tenge – 16 thousand tenge for one person per month. Where the free limit for buying an apartment is 42 thousand tenge (106 - 64 = 42). However, taking into account the real estate prices described above, the monthly payment for an apartment of 40 m2 on a mortgage loan for a period of 15 years at 12% per year in the new house was 86 thousand tenge, which is 2.2 times higher than the free limit, and for purchase in the secondary market on the same terms – 63 thousand tenge, which is 1.6 times higher.
As is seen from the above calculations, a family with an average income cannot afford to buy their own housing. Thus, today more than 6 million out of 8.4 million people of the economically active population are not able to improve their living conditions.
In order to provide a solution to this problem, on July 1, 2012 a comprehensive program “Affordable Housing 2020” was developed and approved under instructions of the President of Kazakhstan. Its main goal – to increase by 2020 annual volume of housing construction from the present 6 million to 10 million m2. In this case, by 2014 the introduction of rental housing should be increased to 1 million m2 per year.
As noted by Mr. Serik Nokin, these indicators can only be achieved through the application of industrial methods of construction. An updating of the Program for the development of construction industry and production of building materials in 2010–2014 is provided for this. Now, in addition to the precast-frame housing, as a priority is considered the development of large-panel construction. The experience of foreign companies – manufacturers of complete plants and equipment for the industrial housing has been studied. Akimats of regions have already started entering memorandums of intent and mutual cooperation with the companies that will be directly involved in projects on creation of new house-building factories. The commissioning of new facilities for the production of plate glass and ceramic tiles, increasing the production of radiant heaters and reinforcing steel, as well as other materials are provided to solve the problem of import substitution. All these innovations will reduce the cost of housing and shorten the time of its construction.
In general, the affordability of housing for the population will be provided through the following support measures:
· the state will participate in the implementation of priority parameters housing projects;
· the developers will be provided with land plots with hooked-up utilities;
· the citizens with low incomes be provided with the new financial instruments;
· favourable conditions will be created for the designers, builders, manufacturers of building materials for application of advanced technologies.
The fundamental distinction of the new program is the coverage of wide range of housing parameters, its construction and payment.
At the same time, the main criteria for determining the allocation of funding within the framework of the state support, will be the following: 1) The area of apartments – from 35 to 75 m2, 2) the cost of 1 m2 – from 80 thousand to 100 thousand tenge, 3) the average monthly rent or credit payment - up to 50 thousand tenge (based on the apartment area of 40 m2).
Thus, above all the state will support the design, construction and sale of small-size cost-effective housing (no higher than 3rd and 4th comfort category) and the development of such financial institutions as “Housing Construction and Savings Bank of Kazakhstan” (HCSBK) and “Kazakhstani Mortgage Company” (KMC), to provide the necessary level of payments.
In this case, the monitoring of compliance with the parameters of the construction and its cost and shall be imposed on the local executive bodies. The local budget shall provide a reserve of up to 10% of the funds allocated for construction projects from the state budget. And in the case of exceeding the fixed cost, the difference will be indemnified by means of the created reserve.
Now the regions are considering the availability of land plots for construction and their adequacy until 2020 in the localities. Among the important issues – the provision of utilities infrastructure and inventory of land plots. Furthermore, the need for changes in the master plans and projects of detailed gradings are under consideration.
In total, in 2012–2020 only from the national budget 1,951.453 billion tenge, or an average by 217 billion tenge a year will be allocated for the implementation of the new program. This amount should be enough to achieve the following target parameters by 2020:
· commissioning of 63 million m2 of new housing;
· modernization of 35 million m2 of secondary housing;
· upgrade of living conditions of almost 1 million households.
The share of national production of construction materials in the domestic market is expected to increase from 65% in 2011 to 90% in 2020.
Funding will be provided for the nine priority areas of the program, including:
· public housing for the persons on the affordable housing waiting list, registered in akimats;
· housing through the “Housing construction and savings Bank of Kazakhstan” (HCSBK);
· housing under the program of the “Kazakhstan Mortgage Company” (KMC);
· renovation of housing funds under the Modernization programme for 2011–2020 (secondary housing);
· housing within the framework of pilot projects for the demolition of hazardous dwelling;
· private housing construction;
· construction of utilities infrastructure;
· housing construction under the Employment Program 2020;
· housing construction by JSC “Samruk-Kazyna Real Estate Fund”.
In terms of housing affordability the first four priorities are the most indicative. So, returning to the example of a standard apartment of 40 m2, the average monthly payment for housing buyers through HCSBK will be 50 thousand tenge for all citizens groups, and for young families – 30 thousand tenge; respectively, through the KMC – 40 thousand tenge, and for the persons on the affordable housing waiting list, registered in akimats – 3 thousand tenge. It is obvious that this is significantly lower the average monthly mortgage payment of 86 thousand tenge in Second tier banks.
It is assumed that by 2015 the annual volume of construction through the “Housing construction and savings bank” will be increased to 530 thousand m2 (over 6,500 apartments), 330 thousand m2 (3,500 apartments) out of which – for all citizens groups, and 200 thousand m2 (3,000 flats) – for young families. As part of this mechanism the housing is built to the order of akimats for already formed pool of buyers and repurchased immediately after the acceptance of the construction project by means of the accumulated housing savings and housing loans provided by HCSB. As for the relations between the participants of the system and the Bank, then – by the standard procedure – the funds of citizens shall be accumulated within 3–3.5 years, after which HCSB provides a loan for up to 6 years at a rate of 5% per annum. Over 86 thousand people have already manifested their desire to gain apartments under this scheme. As for the category of young families, their funds can be accumulated in HCSB up to 8 years, while a family has been already living in the acquired apartment. At the end of this period, the housing can be repurchased at once, or a loan can be completed for a term of up to 15 years at 4% per annum if the funds are not sufficient. In both cases, a certain amount of savings in HCSB is 50% of the housing value.
The construction of 530 thousand m2 per year is planned under the program of Kazakhstan Mortgage Company. The organization of residential construction company that will cooperate with the best construction companies and enterprises of the construction industry is provided for the implementation of this mechanism. Repurchasing scheme is as follows: the tenant pays rent within the limit of 1 thousand tenge per square meter during 15 years, at the end of the lease term the housing becomes the property of the tenant.
In the line of rental housing for the persons on the affordable housing waiting list, registered in akimats, since 2014 it is planned to put into operation by 275 thousand m2 of housing (4.5 thousand apartments) every year. The apartments will be built only of 4th class with the area from 35 m2 to 73 m2.
In this case, the monitoring of compliance with the parameters of the construction and its cost and shall be imposed on the local executive bodies. The local budget shall provide a reserve of up to 10% of the funds allocated for construction projects from the state budget. And in the case of exceeding the fixed cost, the difference will be indemnified by means of the created reserve.
Now the regions are considering the availability of land plots for construction and their adequacy until 2020 in the localities. Among the important issues – the provision of utilities infrastructure and inventory of land plots. Furthermore, the need for changes in the master plans and projects of detailed gradings are under consideration.
In total, in 2012–2020 only from the national budget 1,951.453 billion tenge, or an average by 217 billion tenge a year will be allocated for the implementation of the new program. This amount should be enough to achieve the following target parameters by 2020:
· commissioning of 63 million m2 of new housing;
· modernization of 35 million m2 of secondary housing;
· upgrade of living conditions of almost 1 million households.
The share of national production of construction materials in the domestic market is expected to increase from 65% in 2011 to 90% in 2020.
Funding will be provided for the nine priority areas of the program, including:
· public housing for the persons on the affordable housing waiting list, registered in akimats;
· housing through the “Housing construction and savings Bank of Kazakhstan” (HCSBK);
· housing under the program of the “Kazakhstan Mortgage Company” (KMC);
· renovation of housing funds under the Modernization programme for 2011–2020 (secondary housing);
· housing within the framework of pilot projects for the demolition of hazardous dwelling;
· private housing construction;
· construction of utilities infrastructure;
· housing construction under the Employment Program 2020;
· housing construction by JSC “Samruk-Kazyna Real Estate Fund”.
In terms of housing affordability the first four priorities are the most indicative. So, returning to the example of a standard apartment of 40 m2, the average monthly payment for housing buyers through HCSBK will be 50 thousand tenge for all citizens groups, and for young families – 30 thousand tenge; respectively, through the KMC – 40 thousand tenge, and for the persons on the affordable housing waiting list, registered in akimats – 3 thousand tenge. It is obvious that this is significantly lower the average monthly mortgage payment of 86 thousand tenge in Second tier banks.
It is assumed that by 2015 the annual volume of construction through the “Housing construction and savings bank” will be increased to 530 thousand m2 (over 6,500 apartments), 330 thousand m2 (3,500 apartments) out of which – for all citizens groups, and 200 thousand m2 (3,000 flats) – for young families. As part of this mechanism the housing is built to the order of akimats for already formed pool of buyers and repurchased immediately after the acceptance of the construction project by means of the accumulated housing savings and housing loans provided by HCSB. As for the relations between the participants of the system and the Bank, then – by the standard procedure – the funds of citizens shall be accumulated within 3–3.5 years, after which HCSB provides a loan for up to 6 years at a rate of 5% per annum. Over 86 thousand people have already manifested their desire to gain apartments under this scheme. As for the category of young families, their funds can be accumulated in HCSB up to 8 years, while a family has been already living in the acquired apartment. At the end of this period, the housing can be repurchased at once, or a loan can be completed for a term of up to 15 years at 4% per annum if the funds are not sufficient. In both cases, a certain amount of savings in HCSB is 50% of the housing value.
The construction of 530 thousand m2 per year is planned under the program of Kazakhstan Mortgage Company. The organization of residential construction company that will cooperate with the best construction companies and enterprises of the construction industry is provided for the implementation of this mechanism. Repurchasing scheme is as follows: the tenant pays rent within the limit of 1 thousand tenge per square meter during 15 years, at the end of the lease term the housing becomes the property of the tenant.
In the line of rental housing for the persons on the affordable housing waiting list, registered in akimats, since 2014 it is planned to put into operation by 275 thousand m2 of housing (4.5 thousand apartments) every year. The apartments will be built only of 4th class with the area from 35 m2 to 73 m2.
If the state will be able to provide a compliance with all the parameters included in the program, the affordability of housing in Kazakhstan over the next eight years, can really increase substantially. An interest of professional market players in it also represents a pledge of this. Today, developers mainly provide demand for a new real estate in secondary and prime sector. However, in recent years this segment, “collapsed”, and therefore the state inflows will allow companies to significantly expand the scope of their activities. Housing construction market will become more structured, the various segments of housing, depending on the cost, quality and affordability will be presented on it. However, tight control over pricing policy from the state will be an incentive for developers to introduce new industrial technologies and modern equipment. Foremost, the quantity should not affect the quality, when the low cost is provided through the non-compliance with technology rules and standards of construction. But that is a topic for another discussion.
Table of contents
Kazakhstan to Modernize Transit Infrasructure Roman Sklyar
Telecom KZ: Always in Reach Saken Sarsenov
Maintaining Leadership Kuanyshbek Yessekeyev
Fast and Generous Alexander Vassilyev
The Moment of Truth for Mining and Metallurgy Sergey Gakhov
ENRC: Focus on Sustainable Development Felix Vulis
Kazakhstan's Economy Keeps Growing Yuri Shokamanov
