Shocks in 2008 and the real estate market

The country was subjected to 3 shocks in 2008. One of its own creation in March, and two external and beyond its control. I have written about the first, the post election violence of March, and the second, the war between Georgia and Russia in early August. The third, the financial meltdown in the US and the evolving global crisis and their ramifications for the country have yet to be fully explored.

This post addresses the impact of these shocks through the prism of the real estate market in Armenia. Obviously any observation made has to be subject to several caveats as a complete model is necessary to evaluate the various factors that drive the real estate market.

Prices have been increasing at a rate of 30 percent per year since 2001. Prices reported by the Cadastre committee for November suggest a growth close to 10 percent (actually 299400 vs 279900 Drams per sqm for same month). This could be good news or bad news depending on one's perspective on the counterfactual. But the trend gleaned from the number of transactions is much clearer.

Compared to 2007, sales dipped by 5 percent in March following the disturbances in Yerevan on the first of the month. In early August, war broke out between Georgia and Russia which in effect cut off Armenia's links to most of its trading partners. Real estate transactions dropped by 22 percent in that month compared to sales in August of 2007. And it has been on the decline ever since, with sales lower than the comparable figures for 2007 by 35 percent in November. Obviously instability in Georgia does not bode well for Armenia. It is not clear whether the global financial crisis has hit Armenia as of yet, and very difficult to glean its impact through the real estate market with the information at hand.

There is an obvious need for greater research on real estate and the housing market in Armenia. It would be good to hear who else is working in this area.


Percent change in volume of real estate sales: 2008 vs. 2007.
Source: computed from Cadastre data

Note: I have posted prices through 2006 on the data pages of aea.am. I have yet to update the information through 2008.