ARMENIA VS. GERMANY: THE LATTER FAR BEHIND

news.am
Dec 4 2009
Armenia

Like it is in the capitals of the former Soviet republics, in
Armenia’s capital, Yerevan, the "center" is a quite explicitly
defined concept. The most expensive housing in Armenia is known to
be in Yerevan. In turn, what is known as the "smaller center" is
"famous" for its prices for housing. Once a center of the city’s
scientific and cultural life, the Yerevan center has always had "a
high rating" as a residential district. That is the reason for much
higher market prices for housing in the center as compared with the
suburbs. Specifically, this September, the price for 1 sq meter of
housing in the blocks of flats in the Kentron (Center) community was
1.8 times as high as the average price in Yerevan. No wonder, then,
that the shady construction projects — erection of quasi-skyscrapers
— were launched in the city center. The elite district, North Avenue,
towering above the old large-panel buildings and miserable hovels,
is now the symbol of the new rich’s craving for what were once the
values of the Yerevan center.

In defiance of common sense, and of the historical architectural
aspect of the Yerevan center, several building companies – some of
them being unknown to the Armenian public — launched large-scale
construction projects there. The newly erected buildings were not
at all intended for those in need of housing. Evidence thereof is
dozens, if not hundreds, of empty flats in the elite buildings. Well,
dozens of millions of U.S. dollars were spent just to satisfy the
rich folk’s desire to acquire elite housing with a high investment
potential in the Yerevan center. With the housing prices rapidly
rising year by year, purchasing flats in Northern Avenue appeared a
rather successful investment to the owners.

The global crisis, which severely affected the Armenian economy,
dispelled all the illusions. Unlike the previous years, a 2% fall in
the prices for flats was registered in January-October 2009 as compared
with the corresponding period last year. In USD terms, influenced by
exchange rates, the prices fell by as much as 15.3%. The U.S. dollar
is a "standard of wealth" in Armenia, and the aforementioned fact
proved to be an unpleasant surprise for the owners of elite housing.

Since 2003, influenced by the world market situation, the U.S. dollar
had been steadily depreciating in Armenia. In many countries the U.S.

depreciation against national currencies was around 20%, while in
Armenia it reached 40%. That essential revaluation of the Armenian
national currency had opposite consequences: citizens with large
capitals in terms of Armenian drams grained, whereas the recipients
of money transfers from abroad, as well as foreign citizens wishing
to purchase real estate, "came off losers."

Many citizens, including experts, hold the opinion that the housing
prices have shown a sharp rise over recent years. They are right – to
an extent. There exists "a minor" exception. It should be noted that a
few years ago the RA Real Estate Cadastre indicated the housing prices
in terms of U.S. dollars its reports. That practice was, in a sense,
justified. Although the Armenian dram was the only legal tender in
the country, U.S. dollars were widely used in real estate businesses.

Well, the highest price for 1 sq meter of housing in the Yerevan center
was U.S. $970 or 561,000 AMD in 2003. On the other hand, last year,
which saw the highest housing prices, the figure was about 483,000
AMD for 1 sq meter. True, we have to use the official information,
which has not yet been verified. However, in terms of devaluated
U.S. dollars, the prices exceeded the highest limits imaginable.

To illustrate the absurdly high prices for housing in Armenia, we would
like to compare them with those in Germany, one of the most developed
European economies. The cost of 1 sq meter of a mansion in Altenburg, a
sleepy provincial town in Germany, is about â~B¬500 or 276,000 AMD. On
the other hand, this September the cost of 1 sq meter of housing in
the center of Yerevan exceeded 450,000 AMD – 1.6 times as high! What
is more, it is the price of an ordinary flat in an apartment building.

Well, as far as housing prices are concerned, we have reached, and even
exceeded, the much talked-about "European standards", which remain
unachievable for the other spheres of Armenia’s life. It should be
noted that, in market economy, extremely high prices can only be
formed if the solvent demand significantly exceeds the supply. Was
the Armenian real estate market in a similar situation?

Since 2001, hundreds of thousands of square meters of housing have
been put into service in Armenia. The highest figures were registered
last year – 515,000 sq meters of housing were put into service, with
372,000 of them on the population’s funds. Most of the construction
projects were launched in Yerevan, with 84% of housing put into service
here last year. The data call in question the argument that the price
rise was the result of supply exceeding the demand. Other factors
must have been the cause of the surprisingly high housing prices.

True, Armenia is not unique due to exorbitant housing prices among
other states. Similar developments were observed on the real estate
markets in the post-Soviet area, particularly in Moscow, Russia, Kiev,
Ukraine, etc… The recent price for one room in a prefab building
in the Russian capital was equal to that of a "nice and cosy" flat
in Paris No comments… What about the prices for new flats? Some
conjectures have been made. Individual Russian experts believe that
the cost of housing construction is "affected" by kickbacks up to
40% to high-ranking officials! As to the situation in Armenia, it
remains unclear.