Regulation of payments for real estate agents is an example of how the state controls housing market

The promise of affordable housing has been one of the key electoral slogans for the Belarusian president. However, Lukashenka's rhetoric is changing, writes Ryhor Astapenia.

In 2015, prices for Belarusian apartments fell by about a quarter. Yet few Belarusians can afford to purchase an apartment even at this cheaper price. Interest rates are incredibly high, reaching 30-35% per annum. Banks also impose loan requirements that are hard to satisfy for an average citizen.

An average flat is just 26 m2 of space, according to the National Statistical Committee of Belarus. The square footage area is less than other countries in Northern Europe. According to the Eurostat, on average a German has 43 m2 and a Swede has 44 m2 for their living space. Not surprisingly, many in Belarus dream of owning a separate flat.

Why the housing issue remains so important

Buying an apartment remains out of reach for ordinary Belarusians due to the combination of sky-high prices and high interest rates on apartment loans, which reach about 30-35% per year. In order to receive a loan for at least a part of an apartment, one needs to earn around $1000, or twice the average salary in Belarus.

Many young families have no choice but to live with their parents. Take the example of Maxim Komich, 25, who lives in Vaukavysk, a small town in the western part of the country. Komich told Belarus Digest that he, his wife, their child, his wife’s brother and her parents live together in a two-room apartment. Komichs company forced him to take an unpaid leave because of the lack of work. As a result, he can no longer afford renting a flat.

Many prosperous Belarusians invest in real estate because Belarus offers few other investment opportunities and because they distrust Belarusian banks. They want to buy something real, something they can touch, a place of their own.

For the authorities, attuned to the people's mood, real estate construction remains one of the chief priorities. In his program ahead of the 2010 presidential election Lukashenka promised to build 10 million square metres of flats annually between 2011 and 2015. On average, the authorities build about half of the required flats.

Lukashenka had also promised that an ordinary young family would be able to buy an apartment in the next five years since his 2010 campaign. This promise remains unfulfilled to this day. While an average flat in Minsk, with two rooms, costs around $70,000, the average monthly salary in Minsk is just $530 today.

The crisis on the housing market

Belarusian statistics do not allow us to trace the fluctuation in the prices of real estate over time. Pavel Astapenia, the owner of “Expert” real estate agency in Minsk, told Belarus Digest that insiders estimate real estate prices to have fallen by a quarter. In Minsk, the drop in prices may have been slightly higher.

Accurate figures for the decrease remain unknown, as Belarusian flats have two prices: the offer price and the price of actual transaction. People usually sell apartments for less than they first wanted. The price settled upon in the end is not reflected in the statistics. According to Pavel Astapenia, today the difference between the two prices reaches up to 10%.

The fluctuation in real estate prices once more confirms the extent to which the economies of Belarus and Russia are connected. The changes in price in Moscow's real estate market reach the Minsk market 4-6 months later. These changes are then reflected in the real estate prices in the Belarusian province.

In spite of the fall in prices, the number of purchases remains stable this year compared to 2014. This may be the result of deferring demand. Many people have delayed buying an apartment for a long time, waiting for lower prices. But next year, as Pavel Astapenia told Belarus Digest, the demand for apartments may also drop.

For Belarusian real estate agents this crisis presents a far bigger problem than would be the case in other countries. The Belarusian government fixes the rates of payment for service, so agents in Belarus earn from 1 to 3% of the purchase price.

This remains a fairly low figure by European standards, and in Ukraine or Russia payment for real estate agents can even reach 10%. Many sellers became desperate because of the crisis. Because of that they are willing to pay huge sums to real estate agents who can find a client. Belarusian agents struggle with fronting these high costs, and some of them may be forced to leave the profession next year.

How state policy changes

The regulation of payments for real estate agents is just one example of how the Belarusian state dominates the housing market. Not only does the state regulate profits, but state enterprises also build 90% of Belarusian apartments. The state's dominance in construction may change if the economic crisis deepens, however.

The crisis has already changed state policy. In the past, the authorities would built housing to sell to people in need, such as large families, at lower prices. Now such state programmes have shrunk, and so did their share in the state budget. Instead, the authorities are increasingly building housing for rent, including to low-income families at lower prices.

The promise of affordable housing has been one of the key electoral slogans for the Belarusian president. Lukashenka's rhetoric is changing, however. Unlike his program from the Presidential elections in 2010, the president's 2015 manifesto lacks references to government housing programmes. With construction of flats slowing down and crisis deepening, fewer and fewer Belarusians will be able to afford their own flats.

Originally published at BelarusDigest