But the cash crunch, thought to have been the ripple of the American subprime mortgage crisis but is in fact all too Kazakh, is now seen as hitting not so much financial speculators as people who never had anything to do with the affair.
The first sign on the wall: A growing amount of real estate on sale in Kazakhstan’s cities which no one seems to be interested in buying. According to experts, the crucial moment of purchasing opportunities on the cheap has not yet come. How long the business stalemate is going to last, no one knows. Meanwhile, people on the downmarket end increasingly suffer. Prices paid by buyers of real estate have reached their record-high in Kazakhstan, and in its metropolis Almaty in particular.
Country-wide, prices went through the roof by more than 30% in comparison to the previous year through 2007, a Bloomberg report reads. On average, prices per square meter in the residential sector reached 161,300 Kazakh tenge ($1,341.37) throughout the country, with prices in Almaty soaring to more than double that amount. Excessive generosity by banks in providing credits for construction and mortgages for owners has led to a cash crisis in Kazakhstan hanging as a dark cloud over most of its banks. And for the banks, worse is to come if the present trend persists. “Residential property prices nationwide fell 0.6% in December from the month before,” Bloomberg’s report reads. “Prices in Almaty dropped 2.4%.”
A silent nod
For the current year, the National Bank of Kazakhstan has reserved $1.4 billion in order to help banks keep up with their obligations in terms of repayments of loans granted by global banking syndicates. Whether this will be enough if prices drop further remains doubtful. Most banks have put credit commitments towards new construction projects that have yet to take off and now concentrate on completing sites already under construction. Commentators on the sidelines tend to give a silent nod to the suggestion that the market has become too big for its boots. Now, the boots get tight, and feet are getting cold. For local and foreign investors who are looking for real estate to use for their business and personal comfort, it may be too early to start buying. As one sector insider who requested not to be named whispered in a rather social ambiance: “One year ago, no one wanted to sell, and everybody wanted to buy. Now, no one wants to buy while more and more people are becoming eager to sell.”
Back to reality
In other words: the coin has been flipped. Kazakhstan’s fledgling entrepreneurial class must have thought that the sky was the limit and the stars would shine ever more brightly in times to come. Unfortunately, calculators do not cherish such dreams, and tend to pull people back to reality. Selling property to people who do not intend to make money on using it but on other people who might or might not be willing to pay more to repurchase it resembles the notorious pyramid schemes according to which debts can continuously accumulate by paying them off through people, who take on bigger debts, thereby gradually increasing the gap between real and imaginary money. The notorious Jabez Balfour tried it in Victorian times and ended up in jail for nearly a decade-and-a-half for it.
No use in pointing fingers
Meanwhile, infrastructures in Kazakhstan’s cities is crumbling down. In Almaty, the city’s central heating system gives no warmth to speak of, leaving pensioners and other have-nots such as students from outside the city and labor migrants in poorly constructed suburbs in the cold, both, literally and figuratively speaking. In other cities, worse situations are reported to exist. Inflation in Kazakhstan, according to provisional calculations, is expected to have amounted to more than 20% through 2007. But then, this is the overall figure, and primary needs in Almaty now cost nearly 50% more than a year ago, with increases in wages lagging behind. Generating increased purchasing power among the population is the obvious answer. But creation of new employment stagnates, and if there is one specter that haunts the ruling class it is massive unemployment which will bring living standards down to unacceptable levels for a large part of the population. There is no point in pointing fingers, but something very drastic will have to be done to correct the situation. In all to put it in an amicable way: it is an understatement to say that there are a lack of challenges in Kazakhstan. (Asia Property Report)
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