By Albert Khachatryan

Like it is in the capitals of the former Soviet republics, in Armenia’s capital, Yerevan, the “center” is a quite explicitly defined concept. The most expensive housing in Armenia is known to be in Yerevan. In turn, what is known as the “smaller center” is “famous” for its prices for housing. Once a center of the city’s scientific and cultural life, the Yerevan center has always had “a high rating” as a residential district. That is the reason for much higher market prices for housing in the center as compared with the suburbs. Specifically, this September, the price for 1 sq meter of housing in the blocks of flats in the Kentron (Center) community was 1.8 times as high as the average price in Yerevan. No wonder, then, that the shady construction projects — erection of quasi-skyscrapers — were launched in the city center. The elite district, North Avenue, towering above the old large-panel buildings and miserable hovels, is now the symbol of the new rich’s craving for what were once the values of the Yerevan center.

In defiance of common sense, and of the historical architectural aspect of the Yerevan center, several building companies – some of them being unknown to the Armenian public — launched large-scale construction projects there. The newly erected buildings were not at all intended for those in need of housing. Evidence thereof is dozens, if not hundreds, of empty flats in the elite buildings. Well, dozens of millions of U.S. dollars were spent just to satisfy the rich folk’s desire to acquire elite housing with a high investment potential in the Yerevan center. With the housing prices rapidly rising year by year, purchasing flats in Northern Avenue appeared a rather successful investment to the owners.

The global crisis, which severely affected the Armenian economy, dispelled all the illusions. Unlike the previous years, a 2% fall in the prices for flats was registered in January-October 2009 as compared with the corresponding period last year. In USD terms, influenced by exchange rates, the prices fell by as much as 15.3%. The U.S. dollar is a “standard of wealth” in Armenia, and the aforementioned fact proved to be an unpleasant surprise for the owners of elite housing.

Since 2003, influenced by the world market situation, the U.S. dollar had been steadily depreciating in Armenia. In many countries the U.S. depreciation against national currencies was around 20%, while in Armenia it reached 40%. That essential revaluation of the Armenian national currency had opposite consequences: citizens with large capitals in terms of Armenian drams grained, whereas the recipients of money transfers from abroad, as well as foreign citizens wishing to purchase real estate, “came off losers.”

Many citizens, including experts, hold the opinion that the housing prices have shown a sharp rise over recent years. They are right – to an extent. There exists “a minor” exception. It should be noted that a few years ago the RA Real Estate Cadastre indicated the housing prices in terms of U.S. dollars its reports. That practice was, in a sense, justified. Although the Armenian dram was the only legal tender in the country, U.S. dollars were widely used in real estate businesses. Well, the highest price for 1 sq meter of housing in the Yerevan center was U.S. $970 or 561,000 AMD in 2003. On the other hand, last year, which saw the highest housing prices, the figure was about 483,000 AMD for 1 sq meter. True, we have to use the official information, which has not yet been verified. However, in terms of devaluated U.S. dollars, the prices exceeded the highest limits imaginable.

To illustrate the absurdly high prices for housing in Armenia, we would like to compare them with those in Germany, one of the most developed European economies. The cost of 1 sq meter of a mansion in Altenburg, a sleepy provincial town in Germany, is about €500 or 276,000 AMD. On the other hand, this September the cost of 1 sq meter of housing in the center of Yerevan exceeded 450,000 AMD – 1.6 times as high! What is more, it is the price of an ordinary flat in an apartment building.

Well, as far as housing prices are concerned, we have reached, and even exceeded, the much talked-about “European standards”, which remain unachievable for the other spheres of Armenia’s life. It should be noted that, in market economy, extremely high prices can only be formed if the solvent demand significantly exceeds the supply. Was the Armenian real estate market in a similar situation?

Since 2001, hundreds of thousands of square meters of housing have been put into service in Armenia. The highest figures were registered last year – 515,000 sq meters of housing were put into service, with 372,000 of them on the population’s funds. Most of the construction projects were launched in Yerevan, with 84% of housing put into service here last year. The data call in question the argument that the price rise was the result of supply exceeding the demand. Other factors must have been the cause of the surprisingly high housing prices.

True, Armenia is not unique due to exorbitant housing prices among other states. Similar developments were observed on the real estate markets in the post-Soviet area, particularly in Moscow, Russia, Kiev, Ukraine, etc… The recent price for one room in a prefab building in the Russian capital was equal to that of a “nice and cosy” flat in Paris No comments… What about the prices for new flats? Some conjectures have been made. Individual Russian experts believe that the cost of housing construction is “affected” by kickbacks up to 40% to high-ranking officials! As to the situation in Armenia, it remains unclear.