Housing in Kazakhstan
© mukhtarablyazov.org 03.03.2014

A project by Mukhtar Ablyazov

In the late 80’s, in the Soviet Union, the state programme ‘Housing 91’ was adopted in the country in order to solve its housing problem in 1991. The programme covered all the 15 Union Republics, including the Kazakh SSR.

At that time, the USSR's financial reserves did not exceed $10 billion. For comparison: Kazakhstan’s financial reserves today stand at about $100 billion. Nevertheless, the Soviet authorities, under the pressure of public opinion, decided to adopt the programme. Long-term loans were granted in the amount of 20-25 thousand rubbles repayable over 30 years. The authorities also gave away free plots of land for the purpose of building new houses. Many residents of the former Soviet Union remember the MZhK acronym, standing for Molodezhniy Zhilishchniy Kollektiv (Youth Housing Association). Within MzhKs, young people took up employment at construction sites in order to receive the keys for their own apartments within 1-2 years. With the help of the programme, many people managed to solve their housing problem. Although the project was never implemented to the full extent, it was still a great success.

At that time, I worked at a university with a salary of 120 rubbles. I spent a lot of time calculating the interest and estimating my future earnings, and I could not understand how I would be able to pay off the loan in 20 years. Therefore, I decided not to take part in the programme. However, many of my friends took the risk. At that time, I was engaged in science, and I was not aware of my entrepreneurial potential. Besides, during Soviet times, entrepreneurship was treated as a grey zone, and business owners could end up in prison. The Soviet system persecuted and exterminated private entrepreneurs.
By the way, the experiences of those who nevertheless decided to take the risk and take part in the programme, turned out to be very interesting. Due to shortages of building materials, the process of building their own houses served as a great lesson of entrepreneurship. These people went on to be successful businessmen.

This begs the questions: why, in such difficult times, with total financial reserves of less than $10 billion, the Soviet Union decided to launch the housing programme across the entire country? And…Why are the Kazakh authorities, with financial reserves many times exceeding those of the Soviet Union in the 80's, not able to develop and implement a housing programme in our country?

Again, for comparison, what seems to be easier? Building homes for today's 17 million residents of Kazakhstan, or building them for 300 million residents of the Soviet Union at the turn of the 90's?

Our proposals and calculations

We assume that the average family consists of four people. Of course, not everyone needs a house – many people want to have their own apartments. Furthermore, the construction of a single-family home requires 10-20 ares of land. What are the opportunities?

I also assume that the houses are not built in a chaotic manner – their construction requires building approval. The houses should be also built by an appointed contractor, who participates in and wins a tender. In this way, we would have a special fund, allowing specialist staff to work for a fixed salary. This staff would include qualified engineers, builders, experts, economists and others. I suppose it would also be necessary to design entire housing estates with schools, shops, sport centres, medical centres and other facilities.

All these activities would be financed under the infrastructure development programme.
Below are the calculations for various options:

Option 1. People want to own an apartment, not a house

A family of four buys an apartment of 70 square metres. The price of such an apartment (finished, with fitted kitchen) would not exceed $700 per square metre in the case of a multi-family building with shared infrastructure. The market price of such an apartment, including the profit for construction companies, would be less than $700 per square metre. However, for the purposes of the calculation, we will use the maximum value. In this case, a flat of 70 square metres will cost no more than $50,000 ($700 multiplied by 70 metres equals $49,000). We assume that the developer builds a multi-family building for 400 people. The construction of such a building (with an underground parking garage and a children's playground) requires not more than 1 hectare of land. If each citizen receives 10 ares of land from the state, 400 people will have a total of 4 hectares.
So, if a family of four needs only 10 ares for an own apartment, they can sell the remaining 30 ares on the market.

A building plot with access to utilities is worth no less than $2,000 for one are, and thus the family will be able to sell 30 ares of land for the amount of $60,000. The family will be able to buy a 70-metre apartment for $50,000 and sell the remaining land for $60,000. As it turns out, having repaid the loan, the family will earn $10,000. In fact, if people buy apartments instead of houses, they acquire them for free or even earn on the sale of the plot. Then, developers buy the remaining land in order to build more commercial apartments.

Option 2. People want to have a house

We have a family of four with two housing plots: 100 and 150 square metres. We know that if the plot has access to facilities, the cost of building the house will not exceed $700 per square metre. Let's use the maximum possible values. A 100-metre house will then cost $70,000, and a 150-metre house – $105,000.

In Soviet times, one family could receive a total of six ares. In Kazakhstan, 10 ares are given to each person.

If people want to save money, they can build a house on 15-20 ares of land (which is more than enough). The remainder of the land can be sold. Buyers may use this land to build shops or other facilities (as commercially viable).

We assume that the houses are to be built on up to 20 ares. The remaining 20 ares can be sold by each family for $40,000.

A 100-metre house costs $70,000, and a house with the area of 150 metres – $105,000. In this way, a family can purchase a house for $30,000 and $65,000(respectively). The loan is repayable over 30 years. If we take into account the 5% annual interest rate on a loan for the amount of $30,000 or $65,000, the annual cost of such a loan will amount to (respectively) $1,500 and $3,250.

Given that each person receives an additional 120 thousand tenge from the fund annually (and thus the whole family will receive 480 thousand tenge), this will be enough to pay off both the loan and the attached interest.

Option 3. Building of terraced houses

In order to build a 100-metre terraced house, we require not more than 10 ares. Such a house would cost $70,000. 30 ares of land could be sold for $60,000, and, as a result, the house would be acquired for the equivalent of $10,000. Repayment of the loan over 30 years should not cause any problems.

Mukhtar Ablyazov


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