Uzbek Mortgage Market Slow to Take Off

Despite legislation designed to encourage mortgages, the market has been slow to take off in Uzbekistan because the banks are hampered by a lack of capital and unprofitable lending rates, in an environment in which few members of the public can afford to take out a loan, NBCentralAsia experts say.



At the end of July, Uzbekistan’s Central Bank introduced a set of terms and conditions for issuing mortgages to homebuyers, restricting the maximum loan amount to 75 per cent of the property price. Loans will be granted for periods of between three and ten years at a rate of 12 to 17 per cent a year.



Mortgages were first introduced in Uzbekistan in 2006 with new legislation and the creation of the specialist Ipoteka-Bank. That same year, the government issued orders designed to stimulate housing construction and widen the property market. This was also meant to allow the banks to build up their assets so that they would be in a position to grant mortgage loans.



Lenders were granted a number of temporary tax breaks and instructed to seek new sources of investment. Borrowers were required to provide collateral, and the annual interest was set at a low five per cent.



However, local observers say these measures did not help the banks to build up their capital reserves, and these lenders had little interest in granting mortgages for such low returns. The result was that the property and securities markets did not take off, and most of the loans that were granted were underwritten by the state.



“Currently none of the banking institutions except for the specialized Ipoteka-Bank has the reserves to engage in lending,” said one observer. “It isn’t feasible for them to issue shares and securities [to bring in more money] given the economic instability and high inflation rate here.”



NBCentralAsia observers are sceptical that the latest arrangements the Central Bank has put in place will have the desired effect, mainly because there are too few people able to afford mortgages.



Oleg Borisov, an independent researcher on Central Asia, says such loans are beyond the reach of most. He cites as an example a ten-year mortgage for 20,000 US dollars, enough to buy a one-room flat on the outskirts of the Uzbek capital Tashkent. An average repayment rate of 15 per cent a year on this sum will translate into 322 dollars a month.



“Even the most optimistic financial scenario would presuppose a monthly income worth 900 or 1,000 dollars in real terms for a family of three, and a steady increase in salary,” explained Borisov. “Only then would it be possible to purchase the flat.”



The average monthly wage in Uzbekistan currently stands at between 120 and 250 dollars, according to local media.



An economist, who did not want to be named, agreed that there were very few people willing to take on a mortgage, and said he did not anticipate this changing in the near future.



He noted that Ipoteka-Bank has helped only around 2,400 borrowers since it came into being two years ago, a tiny number for a country with a population of 27 million.



“Loans must be paid for, but people are unable to pay,” he said.



Experts say the authorities should take a number of steps ranging from setting up mortgage insurance schemes to encouraging the banks to build up long-term reserves.



This will be difficult, given that the banks are still struggling.



According to one bank employee, “Despite a [2007] presidential decree requiring the banks to underpin their lending with more personal and commercial deposit accounts, it isn’t working.”



(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service is resuming, covering only Uzbekistan and Turkmenistan for the moment.)