Banks will start buying real estate and leasing it out. What is the purpose and what will change
Spot decided to figure out how the new scheme will work, what benefits and risks it carries for business, developers, and the economy as a whole, and also learned the opinions of experts on what to expect in the near future.
As Spot previously wrote, Shavkat Mirziyoyev instructed to intensify the market for services and commercial real estate.
According to him, over the past 3 years, about 3 thousand apartment buildings and 38 million sq.m. of non-residential space have appeared in the country, but entrepreneurs still face a shortage of commercial space. One of the reasons was the lack of a convenient interaction mechanism between developers and businesses.
To solve this issue, banks will be allowed to directly purchase commercial real estate from developers and lease or finance it to entrepreneurs.
It is expected that this will help to put vacant premises into circulation faster, provide businesses with access to commercial real estate, and create new jobs.
As part of the program, NBU will allocate 500 billion soums for the purchase of such premises, and in the future, investments may reach 4 trillion soums. It is planned to bring 50 thousand sq.m. of commercial space to the market, which, according to the authorities' calculations, will create up to 150 thousand jobs. Leasing should become 15-20% cheaper than renting, making such premises more accessible to businesses.
In 2023, the Central Bank already approved the procedure prohibiting banks from buying and owning real estate not used in their activities.
According to the rules, such properties must be sold within three years, and the total amount of real estate owned by a bank cannot exceed its Tier 1 capital. In addition, the Law on Banking Activities prohibits banks from engaging in non-financial activities, including trade, insurance, and manufacturing.
Currently, the Central Bank has not yet adopted a new procedure that would officially allow banks to participate in commercial real estate transactions.
In this regard, a number of questions arise. How will this affect the market and prices? Will banks be able to effectively manage real estate if they have no experience in this area? Will the rental and leasing terms be truly beneficial for businesses? Will the participation of banks lead to an increase in commercial real estate prices?
Spot discussed the initiative with experts to understand its potential consequences for business, developers, and the economy as a whole.
Head of Project Consulting and Data Management Department at CMWP Uzbekistan.
The impact of the new initiative on the market will depend on the volumes of allocated funding.
It is important to note that we are talking about commercial real estate located on the ground floors of residential buildings. Standalone commercial properties, such as office towers as part of developer residential projects, are still rare in the market.
If we are talking about 500 billion soums allocated to the NBU investment group, the impact will remain moderate. According to estimates, the total volume of real estate available for purchase will be from 25 to 30 thousand sq.m., of which about half will be in Tashkent. If the investments reach 4 trillion soums, the effect will be significantly stronger.
However, even small amounts can trigger a multiplier effect, increasing interest in such investments from commercial banks.
It is this factor that will influence the increase in prices for commercial real estate on the ground floors of residential buildings. A resumption of growth in the cost of such spaces can be expected, but it is unlikely to reach the figures of previous years.
It is extremely difficult to assess the impact on the availability of space for small businesses – there are too many factors. For example, if banks buy illiquid real estate from developers, will it be in demand for rent by small businesses at all?
In addition, much depends on the terms offered by the banks. The cost of rent and leasing will also be affected by the banks' need to maintain a specialized commercial real estate team, and there are few such specialists in the market yet.
Without professional teams, banks may encounter difficulties in managing properties, especially in the early stages of the program.
Liquid retail spaces on the ground floors should be in high-traffic areas, have convenient access, storefronts, and sufficient engineering capacity. They should be versatile to suit different types of tenants, such as offices or retail. It is also important to consider the development prospects of the area.
There is a risk that banks will start acquiring illiquid or overvalued properties. This is mainly due to the fact that there are still few professional teams in the Uzbek market capable of properly valuing real estate. This can affect the assessment of the potential of the spaces.
Most likely, the program will focus on purchasing spaces in developer residential complexes where management companies handle operations. However, banks themselves are unlikely to invest in improvements such as additional ventilation or finishing.
As for commercial management – leasing and financing – banks will inevitably face difficulties here until strong specialized teams are formed.
Overall, such practices are widespread globally. Large funds like Norges Bank Investment Management, Investcorp, and Brookfield Property Partners actively invest in commercial real estate. Once local institutional investors begin to play a significant role in the market, it will become more attractive to international players. After the arrival of major international players, the market landscape – prices, development dynamics – will significantly change.
It is still difficult to say how banks will affect competition among professional landlords. This directly depends on the volume of acquired real estate. If 15,000 sq.m. are purchased in Tashkent, the impact will remain moderate. If transactions exceed 100,000 sq.m., it will be possible to talk about a serious change in the competitive environment.
Co-founder and Board Member of TAS Capital Partners.
Direct ownership of commercial real estate by banks carries significant risks. By acquiring physical assets, banks may encounter management problems, as real estate management requires specific expertise.
Furthermore, it reduces the liquidity of banks, limiting their ability to lend to other sectors of the economy, and also increases the concentration of risks in one asset class. In conditions of market fluctuations, this can negatively affect the financial position of banks.
Moreover, active participation of banks in real estate transactions can artificially increase market liquidity, leading to price increases. If demand for such assets increases, it will lead to market overheating.
However, if banks start investing in new properties and increase the supply of commercial real estate, it can cause the opposite effect – a decrease in rental rates, a fall in property values, and an increase in vacancy. In the long term, such a situation carries risks of reduced bank profitability and increases the threat of accumulating illiquid assets that are difficult to sell.
A particularly dangerous situation is when investment decisions are made without deep market analysis or under the influence of administrative factors. In such cases, banks may direct resources to large infrastructure development projects or buy illiquid or overvalued assets, which distorts market mechanisms and complicates risk management. In the future, this can negatively affect the stability of the entire banking system.
Thus, mass acquisition of real estate by banks without clear criteria can provoke an artificial price increase, market overheating, and subsequent correction.
An important aspect is the impact of such operations on the financial stability of banks. Due to the diversion of significant resources to finance real estate acquisitions, banks will most likely have to attract additional external debt capital. This will increase their debt burden and may increase financial risks.
In the event of an economic downturn or crisis, commercial real estate may become unclaimed. This will lead to an increase in vacancy, a decrease in rental rates, and a deterioration of property conditions. Banks, facing financial difficulties, may be forced to sell these assets at discounted prices, which will further devalue real estate on the market. In extreme cases, properties may be repurposed, mothballed, or abandoned if their maintenance becomes economically unfeasible.
Historically, banking activity is focused on lending and financial risk management, not on owning and operating real estate. Therefore, banks' participation in this sector should occur within clear regulatory limits and using mechanisms that minimize direct ownership risks.
Banks will have to either create specialized departments for real estate management and operation or outsource these functions to professional management companies. This will lead to an increase in demand for expertise in real estate management. However, this approach does not eliminate the fundamental risks associated with asset ownership.
A more effective solution is the development of financial instruments that allow banks to participate in the real estate market without significant risks. Among such instruments are:
- trust mechanisms (Trust Beneficiary Interests) and asset-backed securities, which will allow banks to indirectly participate in the real estate market, minimizing the impact on their balance sheet and liquidity;
- creation of separate structures for trust and non-banking operations, which will reduce risks and increase transaction transparency;
- development of independent appraisal and engineering expertise – this will ensure the objective market value of real estate and reduce the likelihood of asset overvaluation.
In the long term, the optimal solution may be to attract professional asset managers and use specialized financial instruments. This will allow banks to participate in the real estate market without compromising their core activities – lending and financial risk management.
Source: Spot.uz
Photo: Ilya Semendeev / Spot
