How has the recent devaluation of the tenge affected the real estate sector?
Despite the inability to sign lease agreements in foreign currencies due to legislative limitations, rents are closely tied up to the US dollar through specific clauses that allow landlords to review rents in case of major currency fluctuations in addition to standard indexation clauses. This is done to protect the income levels that are neccesary for owners to pay back their dollar denominated debts and cover other expenses that are tied to the dollar. Rental rates have been growing in A and B grade business centers. Property owners in C class business centers have been less successful in raising rental rates, due to high vacancy rates and the relative ease with which tenants can move from one building to another. Shopping centers are a totally different asset class. Shopping center owners are more cautious about rent increases because the tenant mix in each shopping center is a result of hard work on concept development by the development team and their advisors. The success of the shopping mall is dependent on the concept and its ability to generate the footfall expected through the tenant mix. Hence the success of their tenants, i.e. retail operators, will contribute to the shopping center's overall success. Moreover, certain tenants' lease agreements are based on the higher end of fixed rent or percent of turnover, which gives certain mobility to shopping center management.
In your experience, what are the main challenges that international investors face when investing in the local real estate sector?
In general, the real estate market in Kazakhstan is small in comparison to other markets sharing a similar risk/return profile. This is causing liquidity issues, and liquidity is key for investors' exit strategies. This is why we do not see many foreign companies investing money in Kazakhstan real estate market. The government is expending significant efforts to showcase the country's potential. For example, tourist attractions and major international sporting events are becoming more and more commonplace in Kazakhstan. Hopefully these measures will prove successful and generate genuine interest from foreign investors.
More people in Kazakhstan are trying to buy without an agent. How are you working to educate the market regarding the advantages of using an agency?
From the commercial real estate perspective, we actually see a very different trend. More companies are seeking professional services in their lease and sales transactions. It has proven a more effective and efficient approach whereby professional agents provide a full range of advisory services. We help clients identify and prioritize their needs and requirements, develope comparative analysis matrices of properties, develop test-fits, and make recommendations for improving workplace productivity. These are the principal differentiating factors of a professional and experienced consultant from others. Unfortunately, Kazakhstani legislation neither licenses nor regulates the agency business; therefore there are almost no barriers to entry. We try to focus on advising the developers as they work on their projects in the early stages. When developers approach us, they have land, but they need ideas on how to provide high quality shopping, business, or residential environments, which will be in high demand in the years to come. This is the true role of consultants.