In 2023, Kazakhstanis faced limited opportunities in obtaining mortgage loans. The sought-after preferential program "7-20-25" remained limited, and the conditions for one of the most popular directions of Otbasy Bank were tightened. No new mortgage subsidy projects were launched in the country. Against the backdrop of a growing demand for square meters, the issuance of housing loans decreased in the outgoing year, as market mortgages are unaffordable for the majority of the population, notes a correspondent from the business information center Kapital.kz.
Volumes are being lost
The final results of the year in terms of mortgage lending volumes have not yet been released. According to statistical information from the National Bank, as of December 1, 2023, the mortgage portfolio amounted to 5.2 trillion tenge. Over eleven months, the figure increased by 600 billion tenge, which is half the amount of the same period in 2022.
From January to November 2023, Kazakhstanis were issued housing loans totaling 1.4 trillion tenge, compared to 1.7 trillion tenge in the same period of 2022.
A decrease is also noted in the number of issued mortgage loans. According to data provided by the First Credit Bureau, as of the end of ten months in 2023, all types of financial organizations issued approximately 92.8 thousand mortgage loans to individuals. This significantly lags behind the data from 2022, when 166 thousand loans were issued in the country.
The majority of the mortgage market belongs to Otbasy Bank. In 2023, the bank financed 63,588 borrowers for 1 trillion tenge. According to the National Bank, under the "7-20-25" program, 5,766 loans were issued for 94.3 billion tenge in 2023 over 11 months.
As of November 1, 2023, the total portfolio included 10,085 mortgage loans to individuals with overdue payments of more than 90 days. This accounts for 1.8% of the total number of such loans. The amount is approximately 209 billion tenge, which constitutes 3.7% of the overall portfolio. It should be noted that as of January 1, 2023, the volume of toxic "housing loans" was 221.8 billion tenge.
The "Interim" period has been defined
In May, Otbasy Bank changed the conditions for interim loans towards tightening. It became impossible to obtain a mortgage loan under this direction immediately, as a requirement was introduced to open a deposit account at least three months before obtaining the loan and to replenish it with 50% of the cost of the purchased housing. Under this condition, the borrower receives 2.5 points of the assessment indicator (AI) and can apply for a loan. The rates have also been revised downwards; previously, they ranged from 7% to 11.5% (APR from 7.4%), but now the rate operates within a corridor of 6% to 10% (APR from 6.2%).
As the bank commented, in 2022, 79,872 loans were issued, of which 68% were interim loans. The majority of such loans were issued with an AI equal to zero. This means that at the time of obtaining the loan, clients' funds were not accumulated in deposits and were not working in the system. Meanwhile, the balance of savings and loan issuance is the main principle in the housing savings system. While some participants save, others receive loans. This allows the system to remain stable, and the most frugal depositors to receive loans at a lower rate.
The housing savings system decided not to stop there; in October 2023, it became known that from February 15, 2024, Otbasy Bank will again update the conditions for issuing the popular product. The changes include an increase in the mandatory AI from 2.5 to 5, as well as a reduction in rates, which will range from 6% to 8.5% starting February 15. Its level will still be tied to the accumulation period in the deposit and the value of the AI: the higher they are, the lower the loan rate will be.
"9-20-25"
In November 2023, the chairperson of the board of JSC "Otbasy Bank" Lyazzat Ibragimova announced plans to launch a youth program "9-20-25."
Its development is already underway. The product is planned to be launched in 2024. As announced, the program will include age restrictions, as well as requirements for the borrower not to own housing for a certain period. It is also planned to stipulate a condition for only one-time participation in the program. Through it, it will be possible to purchase primary and under-construction housing. An annual budget of 150 billion tenge is planned for its implementation. It is expected that 8,000 people will be able to use the program each year.
A new housing institution
In November 2023, during a plenary session, the Mazhilis approved in the first reading the draft law "On amendments and additions to certain legislative acts of the Republic of Kazakhstan on the reform of housing policy." According to it, Otbasy Bank will be transformed into a National Development Institute while retaining the functions of a second-tier bank. "The functions of the bank will expand. But it will remain a second-tier bank implementing the housing construction savings system. Kazakhstanis, as before, can accumulate funds in deposits, receiving rewards from the bank and a state premium for the most affordable loans in Kazakhstan. At the insistence of the Mazhilis deputies, the bank, even as a development institute, remains under the regulators - the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan and the National Bank. They retain control and supervisory functions over Otbasy Bank. The bank also remains a participant in the Kazakhstan Deposit Guarantee Fund. This means that all client deposits are under the reliable protection of the state," - explained the chairperson of the board of Otbasy Bank Lyazzat Ibragimova.
In its new status, the bank will be provided with lists of applicants from local executive bodies, which amounts to 646,000 people. An electronic database "Housing Provision Center" will be created based on Otbasy Bank, where all citizens, regardless of their belonging to certain categories, can register.
A digital portrait of the family will be formed for each application. It will contain information on income, property, and assets, which will allow for a comprehensive consideration of all characteristics of the family situation of the needy citizen. The Housing Provision Center will be a unified information base integrated with state databases. The creation of the center will allow for the application of a one-stop-shop principle.
At the same time, to update information on queue participants, the draft law provides for the inventory of applicants at least once a quarter.
Housing savings and second-tier banks
The monopoly on the housing construction savings system in Kazakhstan may come to an end. As reported by the chairperson of the Agency for Regulation and Development of the Financial Market Madina Abylkasymova, the issue of granting second-tier banks access to it is currently under discussion. According to her, a corresponding proposal has already been submitted to the government.
It is worth noting that currently, commercial banks do not have the right to engage in housing construction savings without a license, which is issued only if the financial institution does not have other types of financial activities.
"Benefits should be selective"
The opinion on the pressing issues in the mortgage lending market was shared with the business information center Kapital.kz by the general director of AERC Beta LLP, author of the Telegram channel TENGENOMIKA Galymzhan Aitkazin, and the deputy director of the Applied Research Center "TALAP" Askar Kysykov.
Experts do not expect that the announced preferential lending program "9-20-25" will lead to a new surge in housing prices.
"9-20-25" is a continuation of "7-20-25," which is now significantly limited in terms of funding volumes. Judging by the comments from Otbasy Bank, which plans to launch a new preferential lending program, it is expected that it will be selective. It will only be available for one-time use, it will be targeted at a specific segment, and everything will be regulated. This is a positive aspect. The essence of preferential programs is to allow certain segments of the population, who cannot do without them, to obtain housing. Overall, the problem with preferential mortgage lending programs in our country lies in the mechanism that allows almost all segments of the population to participate. This leads to a rush - people have no restrictions on participating in mortgage programs. In the same "7-20-25," there were no restrictions, a rush occurred, and demand was artificially increased, which, accordingly, affected supply and raised prices. Housing became less affordable, as borrowers needed to save more for the down payment. This is a significant problem. We can only hope that this will be taken into account in "9-20-25." Overall, I support the launch of a social program for those truly in need of support," - noted Galymzhan Aitkazin.
Speakers also point out that the annual funding amount for the new program of 150 billion tenge is not capable of significantly stimulating the growth of housing prices. By the way, under the "7-20-25" program, 100 billion tenge flows into the market each year. It is worth recalling the period of early withdrawals of pension savings when 3 trillion tenge entered the market from the Unified Accumulative Pension Fund, which, accordingly, could not help but provoke its overheating. Currently, such figures are not being discussed.
"Mortgage lending is one of the ways to stimulate demand for housing. In previous years, the state actively participated in creating demand for housing through preferential mortgages. We had Otbasy Bank, which issued about 130-150 billion tenge per year, and the "7-20-25" program was in effect. About 1 trillion tenge was utilized under it, and now funding is limited to 100 billion tenge per year. The new "9-20-25" program, I believe, comes as a supplement to the limited "7-20-25" program. The approximate annual funding amount for the new program is already known - 150 billion tenge. With such a volume of funding, I think there will be no strong impact on prices. Overall, our housing market is large, and the role of mortgages in it is not that significant. According to our data, the housing market in the country is estimated at 10 trillion tenge. These additional 150 billion tenge will not create significant demand for housing. We see that the supply of housing is increasing, and the volume of construction is growing - approximately an average of 15 million square meters is put into operation annually, active construction is taking place in Astana, Almaty, and other cities. Accordingly, demand should keep pace with this supply, then equilibrium in the housing market will be achieved. The 8,000 apartments planned to be sold each year under "9-20-25" will not have a significant impact," - believes Askar Kysykov.
The economist questions how much "9-20-25" will be a social mortgage. He considers the rate of 9% per annum to be quite high. Whether the target category can afford it is in doubt.
"This program will be aimed at youth. Young people will find it difficult to access it because they will need to show income. I think there may be a problem of a lack of borrowers, participants to utilize these funds. Currently, we have inflation around 10%, and the base rate remains high at 16%. In the coming years, it will decrease, and market mortgage rates will move closer to 9%. Accordingly, this will simply become market mortgage lending. The essence of the preferential program "9-20-25" will fall away altogether," - believes the interlocutor.
"There won't be enough budget money for everyone"
In recent years, the state's participation in the mortgage market in Kazakhstan has significantly increased. Its share needs to be reduced by launching more market processes, notes Galymzhan Aitkazin.
"The commercial segment of mortgage lending is linked to monetary policy and the level of inflation. As you know, our National Bank continues a tight monetary policy to bring inflation back into the corridor. Our biggest problem is rising prices. When we manage to combat it, rates will decrease accordingly. With inflation at 5-7%, no one will keep high rates. Our government often tries to lower prices with one hand while encouraging their growth with the other," notes the expert.
According to Askar Kysykov, there won't be enough budget funds for all those in need of housing. It is difficult to do without developing the commercial segment of housing lending in the country. But in conditions of double-digit inflation, this is a challenging task.
"Many of us are waiting for a reduction in the base rate next year and in the following years, as it is already on the decline. Currently, its level is projected at 10%; as soon as the base rate is reduced to at least 9%, we can talk about the revival of market mortgage lending, when people will borrow not under preferential state programs. There are many tools in the country that support socially vulnerable segments of the population. They are on the waiting list for housing from the state fund and, accordingly, have the right to use various housing support directions - rental housing for working youth, rental housing without buyout, rental housing with the right to buy. Housing is provided to applicants at a low cost, significantly below the market price, a housing certificate is provided for the down payment, meaning the down payment is essentially 0%. There are also additional preferential programs - "Bakytty Otbasy," "Shanyrak," with interest rates of 2-5%. So, in principle, there are tools for obtaining housing for socially vulnerable categories of the population. But the other question is that there are many people in need of housing - about 600,000 people are on the waiting list. There isn't enough budget money for everyone. Accordingly, commercial mortgages with affordable rates are needed," believes Askar Kysykov.
"7-20-25" is in high demand, with many wishing to participate, but due to reduced funding volumes, they do not have access to it, he notes.
"I know that many people are on the waiting list. I think the programs "7-20-25" and "9-20-25" could be expanded, not made too narrow, and the volume could be slightly increased. Applicants could receive housing through them. At the same time, a restriction could be made so that the purchased housing is their first and only one. So that people do not buy a second or third property for rental purposes," says the speaker.
"State premiums are another form of subsidization"
For many years, the issue of the monopoly position of Otbasy Bank regarding the housing construction savings system, which implies state premiums for housing deposits, has been discussed in Kazakhstan. Other second-tier banks have expressed interest in it, but so far, they have not been given such an opportunity. This year, the chairperson of the Agency for Development and Regulation of the Financial Market Madina Abylkasymova stated that the issue of granting such rights to second-tier banks is currently under discussion. A corresponding proposal has even been submitted to the government.
Experts surveyed by the business information center Kapital.kz do not see much sense in this.
"Overall, I don't think this will increase the availability of mortgages because currently, housing savings instruments are generally available to all citizens at Otbasy Bank; they can easily go there and open a deposit. Currently, there are about 2.7 million depositors at Otbasy Bank. If commercial banks join the housing construction savings system, these depositors may simply redistribute to other banks. But I don't think commercial banks will be able to offer better conditions than Otbasy Bank because it receives budget financing and can offer attractive conditions to clients. Banks will retain some part of the client base for themselves, accumulating some funds. Banks will be interested in making housing savings deposits an additional source of funding for them," - comments economist Askar Kysykov.
Galymzhan Aitkazin notes that, on the one hand, this measure would level the playing field, taking away from the quasi-state bank a kind of blank check.
"Otbasy Bank holds the largest share of the mortgage market because this bank has the ability to provide cheaper financing compared to commercial banks. As for the expansion of the housing construction savings system to other second-tier banks, it would make the rules of the game fairer so that Otbasy Bank does not have privileges. But it should be understood that the housing construction savings system, which has state incentives, actually relates to one of the forms of subsidizing the mortgage market. How good this is should also be considered, as it is an element of financial regression, essentially providing a non-market rate, distorting the cost of money significantly. What effect this may have needs to be observed, as it could ultimately lead to a rush and an increase in housing prices, as more people will be able to participate in the system. This issue needs to be approached very carefully," - recommends the expert.
In summary, he emphasizes that it is more important in state programs to set a more targeted addressability. They should not work for mass replication but for a specific segment.