The reduction of the base rate by the National Bank of Kazakhstan points to slowing inflation and cheaper loans, but it will hardly affect the housing market, reports infohub.kz.
The National Bank of Kazakhstan has cut its base rate for the third time in a row, from 16.75% to 16.25%. The decision was made amid improving inflation expectations (which fell from 13.4% to 12.1% in July) and a revision of macroeconomic forecasts. Lower rates make loans cheaper, but as Dilyara Seitnurova, an expert in construction and renovation, notes on the Telegram channel BuildExpert, this change will not yet affect the housing market.
According to the expert, mortgages in Kazakhstan are mostly issued under state programs such as "7-20-25", "Nauryz", "Baqytty Otbasy", and since August 31, "Umai" has been added. The rates on these programs are fixed and not tied to the base rate, so demand for apartments does not change due to its reduction.
However, the cost of borrowing can influence the housing market through the construction sector: the cheaper loans are for construction companies, the lower the cost of building housing. But in the current situation, the effect of the base rate cut may be insufficient.
Seitnurova highlights two aspects linking the base rate and housing costs. First, construction loans: with the National Bank rate around 16%, developers are forced to take loans at 20% or more per annum, which increases the cost of each square meter. Second, high-yield deposits: with a rate of 16.25%, Kazakhstanis prefer to keep money in deposits rather than invest in apartments, reducing funding for new buildings through equity participation.
Therefore, the current base rate cut does not significantly affect the economics of construction projects. However, if market expectations of a reduction to 14.75% within a year materialize, we can expect a decrease in construction costs.
"Inflation in August fell to 9.8%. While it remains at that level, there will be no cheap money for construction, no matter what the rate is. What does this mean in practice? Construction costs will not start to decline. Developers will continue to factor expensive financing into prices. I would put aside talk of falling prices for new builds for now. I look at the rate not as a buyer waiting for cheap mortgages, but as a market participant who calculates the cost of money for construction. The turnaround has begun, but cheap money is still far away," the expert believes.