In recent years, the construction industry in Kazakhstan has boomed with new construction projects, while the number of projects involving extensive modernization and rehabilitation has decreased.
The share of new construction in total construction output increased from 82.3% in 2012 to 85.1% in 2014, and is expected to increase to 86% in 2015. Before 2015, new construction projects launched by Kazakh private companies continued to increase, while those launched by foreign and state-owned companies showed a decrease. According to relevant research, the market share of foreign contractors will increase from 2015. In the first half of this year, the output value of foreign contractors increased by 82% compared with the same period last year.
Figure 1: Growth rate of new construction in Kazakhstan (by type of company)%
Source: PMR 2015
Last year, Kazakhstan's private companies accounted for 84.4% of the gross domestic construction output, followed by foreign companies with 14.9% and state-owned companies with only 0.7%. In the first half of this year, there were obvious changes. Private companies accounted for 77.3% and foreign companies accounted for 22.1%.
Figure 2: Gross mortgage loans and nominal growth rate in Kazakhstan,%
Source: State Bank of Kazakhstan
In recent years, the most active construction activity has been in the residential sector. In 2014, the total floor area of residential property reached 7.5 million square meters, an increase of 9.8% over the previous year, setting a record for the completion of housing in Kazakhstan in the past two decades. In 2015, the completed housing area will continue to maintain an upward trend, with the completed housing area in the first half of 2015 exceeding 24% of the same period last year.
In Kazakhstan, housing demand will accelerate in recent quarters, mainly because local banks have substantially increased mortgage lending. In the first half of 2015, the number of homes sold rose 8% year on year to 93,000. With the exception of six administrative regions, almost all regions showed positive growth, with the largest volume of transactions in Astana (69.1%), Mangistau (45.1%) and Akmola (28.1%). Alma-Ata City and Alma-Ata State increased by 6.2% and 5.1% respectively.
The Bank of Kazakhstan is accelerating its transformation in improving its loan portfolio and will become more open. Overdue loans accounted for 19.1% of total loans in June 2013, 19.1% in June 2014, and 9% in June 2015. The situation in the construction industry is only slightly worse, with the proportion of overdue loans of construction companies in total loans being 11.3% in June 2015, 37.2% in June 2013 and 33% in June 2014, respectively.
In the first half of 2015, bank loans to construction companies totaled 268.4 billion tenge, down 12.5% from the same period last year. Nevertheless, the total amount of mortgage loans approved by banks in the first half of 2015 reached 111.5 billion tenge, an increase of 20.3% over the same period last year. In addition, the output value of the construction industry increased by 5.1% in the first half of 2015. The significant decline in loans to construction companies is mainly due to changes in exchange rates. In the first half of 2015, bank loans to construction companies amounted to about 1.29 billion euros, compared with 1.26 billion euros in 2014.
In 2014, the average lending rate for loans issued was 10.9% in Kazakh tenge (compared to 11.5% in 2013) and 10.9% in foreign currencies and prices (12.7% in 2013). However, mortgage loans approved in foreign currency are negligible. In Kazakhstan, loans in this category accounted for only 1.7% in 2014, 2.2% in 2013 and 5.9% in 2011.
The Kazakh mortgage market did not reach the record of 2007, when the total amount of mortgage loans to homeowners reached 417.5 billion tenge. If local banks are silent on accelerating mortgage lending, there is little possibility of exceeding 2007 levels in the future. By the first half of 2014, the proportion of non-performing mortgage loans had risen, prompting banks to tighten lending standards. Although Kazakhstan's economy grew by 6% in 2013 and showed strong growth in the first half of 2014, CPI also fell to 6.1% in the first half of 2014, compared with 6.5% in the same period in 2013, which will significantly promote mortgage loans, but compared with the first half of 2013, such loans increased by only 1.5% in the first half of 2014.
Nevertheless, since mid-2014, the proportion of overdue payments has steadily decreased. In June 2015, the share of overdue loans in total mortgage loans in Kazakhstan dropped to 7.9%.
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