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Real Estate Prices In Armenia In Expectation Of A Nosedive

REAL ESTATE PRICES IN ARMENIA IN EXPECTATION OF A NOSEDIVE

ArmInfo
2009-01-21 17:27:00

ArmInfo. The fall in real estate prices has been observed in Armenia
since July 2008. However, if earlier officials spoke of "eventuality"
of price drop and its soon resumption, today nobody doubts the
tendency to a price collapse. The real estate market in Armenia is
developing in full compliance with the crisis situation in the world
real estate markets.

Over the last decade there was a building boom in Yerevan,
furthermore, not economy class but business class houses were built,
which were called by a stretch of imagination "elite housing". As a
result of the increased demand for new buildings, particularly, by
Diaspora Armenians, large officials and part of population receiving
transfers, the prices for primary housing in Yerevan were incredibly
puffed-up. ArmInfo experts think that the prices for 1 sq.m. in new
buildings of Yerevan exceeded the prime cost 5-8 times. The growth
in prices for secondary housing also kept the pace and, as a result,
in 2008 the average price for 1 sq.m. of housing in exploited blocks
of flats totalled 300 thsd AMD, and in the new buildings the price
grew up to 700 thsd AMD.

As the crisis in the US financial sector and afterwards in the world
economy developed, Armenia also faced the prospect of threat of
economic downturn.

The construction sector was most of all subjected to the global crisis,
the construction sector by 90% depends on foreign investments from
the position of both investment in housing construction and formation
of solvent demand for it. In the current situation, Yerevan has
become an "acid test" to check the local real estate market for the
"crisis virus".

The chain of interrelated reasons (such as: decline in world prices
for metal products an articles of chemical sphere, suspension of
work and staff reduction in a number of large local enterprises,
reduction of revenues of Diaspora Armenians, decrease in transfers,
worsening of the financial state of Armenian population) caused abrupt
decline in demand for real estate.

According to official data, 30% drop in housing buy/sell deals in
Yerevan was fixed in November 2008. As experts forecast, this is
not the limit. In expectation of further price drop, the demand will
continue weakening, and this will cause further drop in tariffs.

The survey conducted by ArmInfo has shown that most of the housing
market players have suspended the sale of housing because they have
failed to decide what price to ask for the houses. However, if they
continue this wait-and-see policy in hope for growth they may face
unprecedented losses.

That’s why in early 2009 construction and reality companies began to
revise their prices. Today, one square meter of newly built housing
in Yerevan has dropped by 25% to 450,000 AMD.

On the secondary housing market the drop is even more significant. In
Jan 2009 it was 35%. The point is that the sellers of this market
are ready to make bigger concessions in price due to bigger risk of
loss in case of drop in prices. Construction companies cannot keep
the prices within favorable limits even despite strong credit support
and are forced to reduce the prices following decline in buying power.

Considering that since 2000 housing prices in Yerevan have been
groundlessly raised by as much as 300%, the decline is expected to
be equivalent. Experts say that this situation may last for 1-2 years.

The prices of the housing rent market are also being revised. Since
Sept 2008 the rent has dropped by 40%. Experts say that the drop may
continue and may reach 70%.

Chavushian:
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