The rise in prices in the real estate market in Armenia and the increase in lending are mainly a result of the latest political developments in 2018. According to the Cadastre Committee of the RA publications [1], there has been a real estate market price hike in Yerevan and also in outlying regions and an increase in the number of transactions with property purchase. Transaction price indices on an average 1 square meter on residential buildings in Yerevan have increased by 10.8% in 2019 compared to those of the previous year.

The same trend continued in 2020, particularly in January, when the average market price per 1 square meters in Yerevan increased by 16% compared to that of January 2019. Also, in the Centre’s administrative district the same index increased by 53.9% reaching 659,500 AMD compared to January 2017.

In 2019, the highest number of transactions in the purchase of real estate in Armenia- 186,061 was registered in the country. This number shows [2] an increase in 2019 by 45.4% compared to 2017 and by 29.7% compared to 2018. 51,508 real estate sales transactions were made in 2019, which is unprecedented since 2009, including that the highest rate of transactions, about 34.6% was registered in Yerevan and the lowest rate, about 1.5% was registered in Vayots Dzor.  In 2019, land transactions also increased amounting to 64,857, increasing by 21% compared to the previous year.

In 2019, the interest from foreign citizens in the real estate market also increased. Foreign citizens made 6,204 real estate transactions, which makes 12% of the total purchase of property. 47.7% of the property bought by citizens of other countries are based on apartments, 19.2% - land, 18.9%-residential houses. 53.3% of the transactions were made by Russian citizens, 14.2% by the US and 12.4% by the citizens of European countries’.

In order to observe the picture more completely, let’s present the data published by the Yerevan Municipality, according to 2019:

1,853 design permit (architectural plan assignment), increasing by about 3.6% compared to last year,

2,612 permits for construction, increased by about 76.4% compared to the previous year,

497 completion act (operation permit), decreasing by about 6.5% compared to last year.

If in 2018, 1480 construction permits were issued and 497 completion acts in 2019 resulting in a 4.6% growth in construction when taking into account the results of 2019, construction will grow at an even faster pace in 2020.

Increase in Lending

T he demand for loans is constantly growing, and activity in the real estate market in parallel with the increase in property sales has in turn increased the demand for loans. The second factor that influences lending is the interest in real estate as an investment. The third factor is the state plan to return income tax to repay the interest on mortgage loans. Most of the transactions for purchasing the apartment is carried out in the primary market, which is facilitated by the opportunity of paying the interest at the expense of income tax.

As a result of these significant changes in the last two years, the number of mortgage loans being given out has increased, the credit burden has also eased due to the introduction of income tax compensation which is an additional incentive for borrowers.

1. Change in the price age of the spouses  from 65 to 70
2. Changes in the secondary market • The apartment price is up to 25 mil. AMD • Maximum percentage is 9,5 % instead of the previous 10,5% • Prepayment is 30% or 10%, if there is a second property pledge, or insurance in the amount of 20% of the value of the apartment •Subsidy: 2% in Yerevan, 4% in the regions	3. Changes in the primary market • The apartment price is up to 30 mil. AMD • Maximum percentage is 7,5% •Prepayment is 20 % or 10%, if there is a second property pledge, or insurance in the amount of 10% of the value of the apartment •There isn’t any subsidy (instead of it, there will be indirect subsidies in the form of income tax refunds) • The term for loan is up to 30 years

Table 1. Changes in the mortgage lending system.

The real estate market and mortgage lending are interconnected and the growth of mortgage loans contribute to the increase of the real estate market, both in terms of increasing the construction volume and transactions in the secondary market.

Over the last 2 years, interest rates on AMD loans in Armenia have fallen by about 3% and dollar loans by 1%. Due to this as of December 2019, the total loans provided to residents by Armenian commercial banks increased by 16.7% compared to that of December 2018. Although mortgage loans account for 11% of the total loan’s portfolio, the growth was 40.5% as of December 2019 compared to December 2018. The same trend continued in January 2020.

According to the State Revenue Committee [3], 7 bil. 900 mil. AMD paid income tax was returned to creditors and co-borrowers in 2019, which exceeded the results of 2018 (4,683,712.8 AMD) by more than 3 bil. AMD or by 68.7%. 2017 results by 226.9%. 7152 beneficiaries were involved in the process compared to last year’s results (4021 beneficiaries) and the growth was 77.9%. 

Subsidizing the percentage of the mortgage loans becomes a huge burden on the state budget. Recently plans to make changes in the income tax return and boosting social housing programs have been discussed.

A number of improvements were made to important lending programs in the mortgage market over the past two years and as a result of which the availability of lending to different groups of beneficiaries have significantly increased.

International Trends in Real Estate

G enerally, in 2019, growth in real estate was registered in both developed and developing countries throughout the world. Moreover, the study of the general price indices shows that the real estate prices in the world are at its highest since 2008. According to a number of forecasts real estate prices will go on rising. Particularly, according to Daniel Hale, Chief Economist of the well-known real estate website realtor.com, Chinese investors will try to save by moving their money to a safer US real estate market.

While the spread of the coronavirus continues to have its negative impact on China’s real estate market, a positive trend is noticed in the US real estate market. Hale confirmed that a 90% decline is observed in the epicenter of the virus, that is in China’s real estate market, and it may even take years to recover. Furthermore, in January 2020, the prestigious Forbes magazine presented 5 forecasts [4] for the development of the real estate market, predicting that the prices will continue to rise in 2020, but the growth rate will slow down.

The real estate market of Armenia moves in line with international trends and with the growing interest in real estate as an investment tool leading to an increase in demand in loans has triggered a significant increase in real estate prices and land resource prices. It also brought about an unprecedented increase in transactions and credit growth.

Certainly, this trend will not last long and taking into account the impact of reforms on the state budget, there are already discussions about plans to replace the return of income tax with social housing. One thing is clear: from now on the relevant structures will take steps to limit the number of beneficiaries of income tax refunds, which seems to launch major changes in this market. The demand will decrease, the transaction volume will also decrease and finally the price will fall.

---

Sources

Cadastre Committee of the RA: Cadastre.am

Statistical Yearbook of the Central Bank of Armenia: Cba.am

National Mortgage Company: Nmc.am

Bank for International Settlements: Bis.org

Federal Reserve Bank of St. Louis` Research.stlouisfed.org, Fredblog.stlouisfed.org

---

[1] https://www.cadastre.am/news/analyze

[2] https://www.cadastre.am/news/analyze

[3] https://petekamutner.am/mdNews.aspx

[4] https://www.forbes.com/sites/forbesreal