Kazakstan: Building a Future

Monday, 21 February, 2005

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Marina Seitova

An ambitious housing programme in Kazakstan, which led to one of the leading officials responsible for it to resign in protest, has been accused of being populist and unrealistic.

The three-year programme aimed at providing cheap housing from next year was approved at a cabinet meeting on April 14, after President Nursultan Nazarbaev unveiled it last month in his annual address to the nation.

The government intends to build inexpensive homes and provide softer terms for the loans needed to buy them. Down-payments will be reduced, and lower interest rates charged over a longer period. Mortgages are used in about half the property purchases made in Kazakstan, and a typical arrangement runs for 10 or 15 years with the initial deposit set as high as half the buying price.

Trade and industry minister Adilbek Jaksybekov said the new scheme would offer considerable benefits, since apart from making housing affordable for the first time for many people, it will also create 45,000 jobs. "There will be more comfortable houses, the architectural landscape of cities and towns will improve, and more taxes from the construction business will flow into the government's coffers," he said.

But local analysts and business community representatives say that plan is unrealistic and compare it to the kind of giant planning exercise that was a feature of the Soviet Union - only now it will happen in a market economy.

Economists say the sums don't add up, building industry experts say no private firm is going to put up houses at a loss to itself, and private banks are adamant they won't fund the scheme unless they get subsidies.

The resignation of deputy prime minister Grigory Marchenko on the same day the housing programme was approved has been seen as a vote of no-confidence in it. Not only is he the leading reformer in government, he was also the official in charge of the scheme - walking away from it only three months into the job.

A government source in the capital Astana, speaking on condition of anonymity, confirmed to IWPR that Marchenko's departure was connected with disagreements over housing policy. The source claimed that Marchenko objected to the plans on several occasions, arguing that they failed to take economic realities into account.

Prior to becoming deputy prime minister, Marchenko was head of Kazakstan's central bank for three years, and is regarded as a leading member of the team that introduced the most progressive economic reforms in Central Asia. After handing in his notice in April, he was appointed as an adviser to President Nazarbaev - a post that carries less power than his previous one but indicates that the president does not intend to dispense with his services.

Critics of the housing programme believe that times have changed and the idea of building new homes on a massive scale will not work, not least because most construction work is now done by the private sector, for which the top end of the housing market brings in more profits.

According to political analyst Nurbolat Masanov, "There is a normal market mechanism at work, and no one will be able to change it, so the president's address was completely populist. It was not based on knowledge, facts or events taking place in the country."

Almaty businessman Kairat Ordataev was similarly sceptical, "I don't think the housing situation in Kazakstan will improve. Building apartments is too much of a profitable business, and it is unlikely that construction companies will want to lose out on any of the money that can be made."

Few would deny that many people at the lower end have been priced out of the housing market, which has undergone radical and difficult changes since Soviet times, when accommodation was available at virtually no cost - though with a waiting list.

Housing now comes at a premium, and city apartments sell for tens of thousands of US dollars. With an average national monthly salary worth around 80 dollars, buying a property rather than renting is an unachievable dream for many in Kazakstan.

"I have two children who are both students, and I need to pay for their studies," civil servant Natalya Martynova told IWPR. "Our two-room apartment is crowded for us, but we don't have any chance of buying something else - it's too expensive."

The government's plan to build homes at a cost of 350 dollars per square metre - much less than the current low-end average of 500 dollars - would bring the price of a reasonably-sized apartment cost less than 20,000.

Many people in the housing trade argue that the market should be allowed to decide prices. According to Denis Mazarov, director of the Inkom estate agency, it will be all but impossible to charge less, as the cost of building materials is rising all the time.

As Irina Maslova, sales manager of the construction company Astanastroyinvest, explained, "Quality construction that meets all the standards costs money. Good building materials are required, and they are very expensive, as we have to buy them from other countries."

Many builders import materials because locally-sourced material is in short supply and in any case is of lower quality. In addition, certain items like glass, insulating materials, and door fittings are not made in Kazakstan.

Changing the mortgage system will also create problems, bankers say. Many are reluctant to change lending rates and other terms.

"We are not yet forecasting a drop in lending interest rates," Gaukhar Keyubaeva, a consultant at Alyans Bank's information centre, told IWPR: "We will be keeping to the programme we had in the past."

Larisa Kokovinets, speaking for the leading KazkomertsBank, said the institution was prepared to lend on the new housing scheme, but that it had no plans to slash interest rates to suit the government.

"It all depends on the state," she said. "If it compensates us for the costs, then banks will accept all the conditions set out in the president's speech. [But] a bank cannot reduce interest rates by virtue of a mere [government] administrative decision, and work to its own detriment."

Marina Seitova is an IWPR contributor in Almaty.