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Foreign direct investment (FDI) has been rising as the Kazakh economy has strengthened, and has steadily increased since the crisis of 2008.

According to an Ernst & Young survey, real estate and construction are among the five most attractive sectors for foreign direct investment (FDI) in Kazakhstan, outranking even growth areas such as high technology and telecommunications. The government sponsored 2011-2020 Housing and Utilities Sector Modernization Program, intended to renovate condominium facilities and the Affordable Housing 2020 program have both provided a significant stimulus to growth.

A number of factors underlie gains in the residential real estate market: the local market is structurally undersupplied as construction activity is insufficient to meet the country’s housing needs. Since 2006, the number of new apartments built in Kazakhstan has remained more or less unchanged despite continued growth in the population and an increasing number of younger people. Around 65 percent of Kazakhs are under 35 years of age. Kazakhstan ranks at the lower end of the spectrum among the developed/emerging world when it comes to number of apartments built per thousand people. As of 2011, just under 20 square meters per capita of residential stock was available to Kazakhs while only 3.3 new flats were built per 1,000 people.

The quality of housing stock still remains poor, with the majority of housing old, dilapidated and in need of replacement sooner rather than later. Kazakhstan has a total of 283 million square meters of housing stock, of which around 82 million square meters was built after 1991. The remainder was built during Soviet times and is of poor quality. The housing stock is also energy inefficient: UNDP estimates that over 65 percent of housing in Kazakhstan consumes two to three times more energy than European homes.

Mortgage Lending

The availability of mortgage lending also remains an issue affecting demand. Since 2008, banks’ willingness to extend loans for real estate projects and other construction activity has been generally quite low. Over the past five years, total loans outstanding to the real estate sector have declined by over 5 percent. There has been some revival in loan growth in the last two years, however, average mortgage rates remain prohibitively high for the majority of the population. Rates vary between 15-18 percent and banks charge additional fees on top of that. Most Kazakhs buy their homes for cash when construction is completed. In the past there were numerous cases of fraud committed by developers unable to finish construction due to lack of financing or misappropriation of funds.

Following the February 2014 tenge devaluation, new house prices shot up by almost 18 percent in tenge terms, keeping up with the dollar. New house sales dropped by 16 percent the following month, but quickly recovered after construction companies started offering discounts commensurate with the drop in the value of tenge vis-à-vis the dollar.

A 2013 Ernst and Young Kazakhstan attractiveness survey reports that the most attractive sites in Kazakhstan for investment projects/main markets for developments are Astana (34%), Almaty (22%), and Western Kazakhstan –Atyrau (13%) and Aktau (10%).

While Almaty is still viewed as the commercial capital of the country, there has been a considerable shift in business focus from Almaty to Astana. According to the latest statistical data, the number of visitors to Astana increased by 53 percent in the first quarter of 2014 compared to the corresponding period of 2013. Nearly 50 percent of the visitors were in the capital on business.

Office Space

The demand for office space in Astana is strong, driven by both the public and private sectors. Predictably, the focus of construction activity has come from the public sector as a substantial proportion of the national budget has been spent on establishing Astana as the capital city. Projects including the Presidential Palace, Pyramid of Peace and Harmony and Baiterek Tower all have been completed in the 2000s. But the corporate sector has also been expanding rapidly, and there has been a noticeable increase in the number of international and domestic companies establishing a presence in Astana.

As a result, the total stock of modern office premises (grade-A and B) in the capital has increased to almost 500,000 m². Construction in the pipeline remains at a relatively high level, and the supply of modern office premises is expected to grow significantly, in large part due to the construction of Talan Towers, a 120,000 m² mixed-used development (including 26,000 m² of office space) by Verny Capital, one of the largest groups in Kazakhstan specializing in direct equity investments into private companies.

Enter Łukasz Skowroński, a real estate professional with years of experience in the industry. A member of the Royal Institution of Chartered Surveyors who speaks five languages, Skowroński moved to Kazakhstan to join the Global Development team in 2012. He had previously worked in Bulgaria and his native Poland. As the Commercial Director of Global Development, Skowroński manages a property portfolio comprising seven business centers and supervises the day-to-day commercial property management of 55,000 square meters of office space in Almaty, Astana and Kokshetau. Global Development is one of the leading players in the commercial real estate market in Kazakhstan. Its parent, Verny Capital holds a respectable international portfolio of commercial real estate and luxury hotels, including the Ritz Carlton Hotel in Moscow, the Ritz Carlton Hotel in Vienna and the Hyatt Hotel in Minsk. “Our Park View Office Tower just won the CRE Week 2014 Award for The Best A-class Business Centre in Kazakhstan, ” said Skowroński. “Talan Towers, a multiple-use complex, will be completed for the 2017 International Specialized Exhibition hosted by Astana. The event will focus on future energy and global sustainability issues. EXPO 2017 is expected to bring new investment and give the city a new, modern image, increasing its international status and impacting the commercial real estate market in a positive manner,” added Skowroński.

“The year 2013 was rather successful for commercial real estate. Both the rent and total scope of construction have increased in comparison with 2012 and we believe this trend is going to continue,” concluded Skowroński.

EXPO 2017 will be important in the development of the Astana hotel sector as the capital is expected to be inundated by hundreds of thousands of visitors. Currently, Astana has 146 registered hotels with a total of 5,570 rooms. Three quarters of the hotels are uncategorized, with just 2.7 percent in upscale hotel developments, 7.5 percent in upper-midscale hotels, 12.3 percent in midscale hotels and 1.4 percent in lower scale facilities. During 2013, the total number of rooms increased by 12.4 percent compared to 2012.

The growth came mostly from the number of lower-range facilities and the opening of the upper-midscale Park Inn by Radisson with 248 rooms. Despite the increase in the total number of rooms, the quality mid-range hotel segment is still under-represented in the capital. Astana has four upscale hotels operating under internationally recognized brands with the total of 744 rooms. The base rate for a standard single room in upscale hotels declined slightly compared to the same period of 2013, staying in the range of $300 – $450, VAT and breakfast included.

The average daily rates of mid-range hotels also decreased slightly. As of the second quarter 2014, the price of accommodation ranges within $80 – $270, including VAT and breakfast.

A new mid-scale branded hotel, the Hilton Garden Inn Astana, has recently commenced operation, increasing the market room stock by 229 units. And the new Marriott opened in Astana on August 1 further expanding the hotel business in the booming capital.

Development activity in the Astana hospitality market remains high with ongoing construction including the following projects: IBIS (scheduled to open its doors in the third quarter 2014 as well), The Ritz-Carlton (2017) and Abu Dhabi Plaza (2017). Subsequently, the current stock is expected to expand by almost a quarter in the next 3 years.

Despite the apparent weakening of the Almaty hospitality market, several hospitality projects are currently underway in the former capital. Ramada Plaza and Park Inn by Radisson are both scheduled to open for business by the end of 2014. Additionally, Novotel is scheduled to commence operations in July 2015. In May of this year, Hyatt Hotels Corporation announced plans to build a new Hyatt Regency Hotel in Almaty. The hotel is planned to open in 2016 – 2017 and will mark Hyatt’s return to Kazakhstan.

While oil and gas may get all of the attention and much of the investment, Kazakhstan’s real estate market is a sector that is growing and quietly providing solid investments for those who know where to look.

edgekz.com