In the last year’s financial stability report, which was published recently, the Central Bank made a worrying record regarding real estate and the credit market. He considered that in the conditions of widespread construction, as a result of demand saturation, it is possible to have an excess supply of apartments, creating problems for construction loans.

“In the real estate market, there are possible risks of excess supply.

2025 the area of ​​commissioned residential buildings continued to grow at a high rate of 80 percent. The latter is the result of the implementation of large-scale projects that started previously and are currently entering the primary market, which in the conditions of the gradual saturation of real estate demand can create risks of forming an excess supply and increasing credit losses on construction loans,” the Central Bank noted.

The Central Bank’s concerns were conditioned by the fact that the real estate market showed trends of relative stabilization of demand, as well as slowing down of price growth. The growth of real estate prices has slowed down sharply in Yerevan. an annual increase of 0.3 percent in average apartment prices was recorded, which in 2021 is the lowest annual growth rate recorded in the capital since.

During the year, the general activity in the real estate market also decreased, the number of transactions decreased.

Along with the decrease in overall market activity, the number of apartment rental transactions decreased. This was accompanied by a decrease in rent. The number of rental transactions decreased by 43.7 percent, and rents decreased by 3.9 percent.

This situation has caused concerns for the Central Bank, especially regarding the maintenance of mortgage loans taken by citizens, especially citizens who have purchased an apartment with the intention of renting it out later.

“In the last three years, the price/rent ratio of residential real estate has increased in the republic, which may lead to the weakening of investment attractiveness and demand for real estate and further adjustment of prices. In addition, it can increase the risks related to the increase in the credit burden of households that have purchased real estate as an investment and the servicing of loans,” the Central Bank believes.

Last year there was a certain deterioration in the quality of mortgage loans, classified loans increased. Although the Central Bank considers that the quality of such loans remains quite high. Another question is how long will this situation last?

The pressure dictated by the credit market, both on citizens and developers, has significantly increased in previous years as a result of widespread lending. The credit burden has increased. And if it turns out that the existing risks continue to materialize, which is increasingly likely, their consequences can be severe, both for the real estate market, citizens, and the financial system.

We see how much the risks of Armenia’s economy have worsened recently. They are related both to regional uncertainties and conflict, and especially to the tension observed in the Armenian-Russian economic relations. The export of Armenian agricultural products was completely closed on the Russian market. Despite the assurances and announcements, the possibilities of supplying them to other markets are limited. There may be some exports, but there are no big expectations from those markets. Such problems cannot be solved in a short period of time.

This affects both the economy, business, and the citizen. People’s incomes decrease, which will gradually lead to loss of both solvency and creditworthiness.

Taking advantage of the income tax refund privilege, many citizens have taken mortgage loans in the past few years, and now, if the income of these people decreases due to the economic situation, many will face problems in servicing their credit obligations.

The scope of such borrowers will increase much more if other risks imposed on the economy from the external sector deepen. Such a significant risk is the possible price increase of the Russian gas supplied to Armenia, which will lead to an increase in the price of the entire economy, a slowdown in economic activity, a decline in economic growth, a reduction in society’s income, as well as a significant increase in prices in the consumer market.

It is already noticeable that even before this aggravation of Armenian-Russian relations, there is a weakening of activity in the Armenian economy. In the first quarter, a significant slowdown in the rate of economic growth was recorded. If last year closed at 7.2 percent, the growth in the first quarter of this year was only 4 percent, which is significantly lower not only from the first quarter of last year, but also for that period, it is the lowest indicator since 2021.

There is no doubt that if the emerging problems deepen, the pace of economic growth will slow down even more in the near future. And this will lead to a decline in the solvency of the economy and citizens.

Under such conditions, the risk factor imposed on the real estate market and the financial system from that sector will increase. As much as the Central Bank considers that the stability and the ability to absorb risks of the banking system is quite high, it will hardly be able to withstand the possible systemic crisis associated with the real estate market, if the existing risks continue to deepen and materialize.

HAKOB KOCHARYAN

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