How the real estate market is developing in Uzbekistan and what awaits it in the coming years - Yulia Tokareva

The quality of real estate in Tashkent is expected to improve significantly in the coming years, according to territorial development expert Yulia Tokareva. Why expensive housing is built first, how to diversify offerings, and whether the mortgage "bubble" can be avoided are discussed in an article by Gazeta.uz.

Interest from foreign players in Uzbekistan's real estate market, and particularly in Tashkent, continues to grow, says Yulia Tokareva, Head of the Strategic Consulting Department at Commonwealth Partnership. In the next five to seven years, experts anticipate significant changes in real estate quality. Local and international developers will begin competing with each other, enhancing the environment around their projects, using higher-quality materials, and offering more aesthetically pleasing architecture.

On the Development Stages of Uzbekistan's Real Estate Market

According to the market cycle graph, Tashkent is on an upward trend. Speaking of the real estate market, it should be divided into segments. Residential, office, retail, and other types of real estate are at different stages of development.

Office Real Estate

The office real estate market is currently at the stage of forming market trends. Uzbekistan is just beginning to see its first Class A office projects—premium spaces targeting large international and local companies. As quality offerings enter the market, companies looking for office spaces will start orienting themselves toward new standards: high-quality engineering systems, centralized management, and various services.

With tenants demanding higher-quality offices, the market will see more offerings, and less competitive projects will undergo redevelopment to upgrade their class and maintain interest in their buildings. In other words, a single Class A office project could trigger a ripple effect.

Residential Real Estate

The residential real estate segment in Tashkent is approaching a saturation point, intensifying competition for consumers. Structural changes where developers compete on quality rather than price are typical of this stage of development.

Warehouse Real Estate

The warehouse real estate market is in its early stages. Historically, many production companies built warehouses for their own use, as it was more convenient to construct a warehouse independently than to lease one.

However, logistics processes within companies are now accelerating, making it increasingly advantageous to rent external warehouses rather than build them. While the market currently offers few rental warehouses, a significant surge is expected within the next 5–7 years.

Retail Real Estate

The supply of retail real estate exceeds demand. Currently, the market is shaped by residential projects, whose ground floors are allocated for retail, and large retail spaces. Demand for larger spaces usually comes from major chain companies—international brands and strong local players, which are still relatively scarce in Uzbekistan. As a result, small businesses fill the gap in demand.

This is a natural stage of retail real estate market development that will evolve over time. However, it will take some time because the country needs to attract international companies. Experts anticipate that the opening of the Tashkent City Mall will bring several major international retail chains to Uzbekistan, raising visitors’ expectations for leisure and shopping quality.

Market cycles are endless, and it’s important to understand that in 10–15 years, Uzbekistan’s real estate market will reach saturation, followed by stabilization, then a decline, and finally a new growth cycle. This occurs in all markets, but Uzbekistan is just beginning its journey. Foreign players entering the region should plan their projects over a timeframe of more than 10 years, considering the market's cyclicality.

Can the Middle Class Afford Housing?

The situation in Tashkent’s market exemplifies a classic approach to evaluating economic projects from an investor’s perspective. For a long time, Tashkent had significant pent-up demand due to the registration system, which restricted financially capable residents of the regions from purchasing housing in the capital. Now that these legal restrictions are gone, this pent-up demand is being realized.

When market offerings were limited, investors could set high prices. However, as the demand for expensive housing plateaus, developers are beginning to construct properties in different price categories.

Housing prices in the capital may remain consistently high, as in Moscow and other major cities. This is because people view the capital not only as a place to live but also as an investment opportunity, such as renting out apartments to workers moving to the city. Housing costs in major cities steadily rise because there is always an expectation of high demand for residential real estate.

In other regions of Uzbekistan and Russia, residential real estate demand is largely driven by people willing to live or relocate to those areas. This includes populations moving from rural areas or other regions to cities, or individuals purchasing property for their children or to improve their living conditions. Investment demand in these regions is less prominent, resulting in slower price growth.

When both pent-up and investment demand for residential real estate are met, a new growth cycle will follow. Projects focusing on comprehensive development, including housing for the mass market, will emerge. However, for Tashkent to reach this growth stage, the market first needs to saturate the premium segment.

What Will Drive Residential Real Estate Growth?

Affordable mortgages will provide a new impetus for residential real estate development. They will significantly increase the number of buyers able to purchase housing. If more people can afford real estate through long-term payments, developers will expand their offerings.

The development of mortgages is a task for government regulation, as developers can only operate by investing their own funds, borrowed funds, or buyers’ money. If buyers cannot afford long-term mortgages, offerings will target those who can pay in a single transaction or with installments.

At the same time, regulators must take measures to prevent a mortgage "bubble" from forming by issuing loans to uncreditworthy borrowers and carefully designing criteria for mortgage issuance.

Mortgage bubbles have been a recurring issue in other countries. They can be avoided through government regulation. For example, in Russia, preferential mortgage lending was introduced several years ago, stimulating the market: housing demand increased, and developers started building more. However, when the Central Bank identified risks of excessive risky loans, it raised mortgage rates. Mortgage issuance slowed down because people could no longer afford the higher rates.

Discussions about introducing mortgages in Uzbekistan have been ongoing for years. It’s essential to recognize that the banking sector also goes through its development stages. Therefore, the question of mortgage lending pertains not just to the market but also to overall government policy and the economy, which ultimately affect end users. State policy, in turn, is shaped by a broader national vision formulated by the government.

Commonwealth Partnership is an international group of companies that advises businesses and government entities on territorial development. Operating in Uzbekistan since 2018, the company has implemented 16 projects, including the commercial concept for Tashkent City, recommendations for an industrial and warehouse zone in Samarkand, the Seoul Mun construction concept, and others.

Source: Gazeta.uz
Photo: Evgeny Sorochin / Gazeta.uz