Property

Brief market overview. Property market in Uzbekistan has been largely stagnant during the last decade, influenced by the worsening economic situation and business climate in the country. Business climate in the country has largely deteriorated and initiatives directed at reviving foreign investor interest in the country lacked sincerity and genuine effort. It has to be noted that the situation is rapidly changing at present and with the liberalization of the whole economy, the property market is expected to start revival in the near-term future. Average price for residential property in the secondary market of Tashkent is estimated at $530 per sqm in July 2017 and remains to be at the crisis levels.

Exchange barrier. The tightly controlled exchange rate, has been liberalized starting from September this year. It was one of the main barriers to doing business in the country and a major deterrent for the property market growth. Following the financial crisis in 2008, businesses and investors had widespread problems with accessing hard currency. Foreign investors faced difficulties receiving authorization to convert Uzbek Soums to US Dollars in the amounts they request for repatriation. No legal alternative market existed in Uzbekistan for investors to remit funds overseas. This was particularly exacerbated by total lack of foreign investors in the market.

Period of stagnation. Lack of foreign investment meant that the market trends were driven by local and seasonal factors. Small local investors remain to be the only players left in the market who are looking to store value in property rather than in risky and inefficient banking system. As a result, office, retail and industrial properties struggle with low rental rates and without options for exit. Unfriendly business environment, lack of foreign capital inflows, accelerated capital outflows and struggling banking sector are also among the main factors for disappointing performance of the property market in recent years.

Liberalization and growth. We expect that ongoing economic reforms, improved business climate and currency exchange liberalization will ensure that the property market will be among the first asset classes to recover. The market is characterized with historical undersupply of adequate residential and commercial property. After substantial correction of prices, the property market has strong fundamentals for growth and attractively valuated. Foreigners and citizen from other regions of the country who purchase property in Tashkent (and the Tashkent region) can get a residence permit after purchasing property (primary market) worth not less than $100,000. This became possible after recent changes in the legislation. Recent surge in new residential developments by the local developers indicates that market has been slowly but recovering. Property market recovery will be boosted by the expected increase in FDI, economic growth and increased business activity going forward.

Real estate market is heavily under-priced, in our view, therefore particularly represents an early investment opportunity. We believe there are opportunities for investors in greenfield developments, buying state properties and building land banks while prices are currently being depressed (under $600/sq m for secondary properties).