On Investing in Real Estate in Kazakhstan
Disclaimer: This article is not Financial Advice.
As an international real estate investor, I like to broaden my horizon, and invest in promising countries, to extract a better yield than in Western Europe.
I recently started investing in Kazakhstan, Central Asia. As much as I know about the Real Estate market in Western Europe, investing in a far-away country requires understanding its culture, so that you can understand what locals actually value there. In this article I will:
- Explore the similarities/differences of the Kazakh RE market vs Western Europe
- Give a brief overview of the investing landscape (returns, risks, …)
- Explain my current strategy
Understanding the similarities and differences
While investing in another country, do not assume that what you value or think that people value in your local market will hold. Different cultures value different things. This is especially true in Kazakhstan.
However, some things remain the same:
- Do not buy flats on the first two floors.
- Do not buy an apartment on the last floor (subject to roof issues).
- Choose a nice neighborhood with a lot of amenities close by (school, shops etc).
- …
Some things, on the other hand, are quite surprisingly different:
- The number of flats on a given floor is quite important, the fewer, the better. Kazakhs are afraid of hearing too much noise and having too many people on the same floor. Having stayed in different flats in different buildings, I never heard anyone, as walls and doors are quite sound proof but it might be some reminiscence from the USSR’s poor buildings.
- Being close to a hospital is also quite important to them in case of emergency.
- Having a balcony/loggia where they can store stuff is quite important. Usually, it has nice large windows but they will not spend time there. A balcony is not great because with winter temperatures going as cold as -40 you can’t really go there nor store anything there due to the snow.
- Kazakhs do not really care about having a bedroom, a lot of people will have a sofa-bed that they can use and their living room is effectively their bedroom. It is more important to them to have a big living room where they can host dinners with family and friends than to have a personal bedroom. This is because Kazakhs spend a lot of time with friends and family and hosting them well is very important culturally.
- As interest rates are quite high (16%+), it’s difficult and expensive to borrow and if in need of cash, kazakhs will seek to sell their property rapidly, even if it means selling it at a discount. This means there are some good opportunities to seize here.
An overview of the investing landscape
As usual, there are two sources of returns, capital appreciation, and rental yields. Let’s start with renting, looking at Almaty and Astana, the two main cities, rental yields for new builds, not far from the city center, are on average 8%, on which you need to pay a 10% flat tax. The good thing compared to many western European countries is that if your tenant is not paying, you are the actual owner of your flat and can get him out easily.
As for investing for capital appreciation, the demand is currently increasing very fast in Astana, and a bit slower in Almaty. This is manily due to a trend of exploding demographics and rural exodus, to which a recent short term effect increased demand: all the Russians fleeing Russia. You can buy flats on plans from Real Estate developers and sell them back once the flat is finished one or two years later (or even before it is actually finished, depending on the market). You can expect anywhere between 10% and 50% annual return depending on the residential compound (ЖК) you invested in and on the supply/demand at the time of selling. You also need to pay a 10% flat tax on the profit (note that if you hold the flat for at least one year, there is no capital gain tax!). There are 3 types of flats, “Standard”, “Comfort” and “Business” (similar to flight classes), I do only look at Business as I expect the demand for such flats to increase as the population gets wealthier.
Also, note that as a foreigner you cannot directly buy RE in Kazakhstan, you need to go through a company.
What are the risks of investing in the Kazakh RE market? In addition to the usual risks of the RE market as experienced in Western Europe, you need to be cautious with the following risks:
- RE developer: If buying on plans, do thoroughly research the Real Estate developer, are they reliable? Are they late? Did they already abandon projects?
- FX risk: Note that whether investing for capital appreciation or rental yield, you will receive your income in KZT, which is very volatile and could crash any day for a various number of reasons, from political to economic.
- EM risk: Kazakhstan being an EM country, the risk of economic crisis is higher, and in case of a recession the market is likely going to crash more than in Western Europe. This implies that if you are flipping flats, you might not sell them back for a higher price and may have to stick with them for a long time.
My strategy
My strategy is on flipping flats in Astana, my associate and I have researched the market and found what we think are the best residential compounds from trusted RE developers. Investing in “Business” flats with the goal to sell them back once they are finished or before some new and cheaper residential complex nearby starts selling.
While it may look easy by reading this article, note that we are a team of experienced investors with hands-on knowledge and network (from knowing which part of the city is going to develop next to knowing where in the city the internet signal is actually good or bad).
Useful resources:
The main website used by people for renting (and buying second-hand flats) is krisha.kz.
The most trusted and reliable RE developers:
I would proceed very cautiously with other RE developers and advise you to conduct a very thorough due diligence.
You can find more about our International Real Estate Investments on https://www.orthanc.capital.bagourd.com/.
