Four State Housing Institutions Do the Same Thing

I have never understood our policy on supporting housing construction. I understand even less why we need so many institutions running state housing programs.

This situation has many drawbacks, and they prevent the sector from developing properly. Yet there are fairly simple and obvious steps that could create a normal mechanism for supporting it.

So, here is where we stand today:

KMC, the Kazakhstan Mortgage Company. It buys mortgages from second-tier banks, but for some reason it has also moved into construction and is the operator of the rental housing program. In essence, this is hidden financing of developers: KMC buys housing from them and then leases it out.

Its total administrative expenses in 2015 were about KZT 2.5 billion.

It is a substitute for banking activity.

Samruk-Kazyna Real Estate Fund (Samruk-Nedvizhimost), a subsidiary of Samruk-Kazyna. It operates the Affordable Housing and Nurly Zhol construction programs.

It gives developers money at a capped price, and the developer then either sells the apartments or hands them over to the fund.

It is a complete mess: in essence, again hidden financing of developers and a substitute for banking activity.

Its total administrative expenses in 2015 were KZT 1.8 billion.

Housing Construction Savings Bank (HCSB). This is a real bank: it holds household deposits and then issues loans for home purchases at low interest rates. It is no different from any other bank, except that everything takes much longer and is more complicated. Those who have taken out loans from HCSB probably know what it is like to get one there and how many nerves it costs. In essence, it is a competitor to second-tier banks in the mortgage market.

Its operating and administrative expenses were KZT 8.5 billion.

And that is not all. There is also Baiterek Development, which, it turns out, is likewise engaged in real estate under the Nurly Zhol program and implements the anti-crisis program.

Its operating and administrative expenses are KZT 900 million. In essence, it too substitutes for second-tier banks and finances developers.

My question is whether it is rational to maintain four development institutions when they perform the same function.

This leads to unjustified administrative costs: in 2015 alone, they amounted to KZT 13.7 billion.

But that is not the main point. The point is that the efficiency of distributing such money through the quasi-public sector will always suffer. Developers depend on the heads of these structures, on their mood, on how you greeted them.

On whether they liked you or not.

Meanwhile, all this money could simply have been given to second-tier banks to provide mortgages at a low rate. Even if all of these annual expenses of KZT 13.7 billion had been channeled into interest rate subsidies for the public, the effect of that money would have been many times greater.

Under such a setup, developers would have to please not the heads of these quasi-state companies but the buyers who are granted the mortgages. Then the developers that succeed would not be those who are close to the right people, on good terms with them, or well resourced, but those who build better and faster and offer the best price.

All that is needed is to set a price cap and a rate cap for second-tier banks, and that is it. There would be practically no cost of maintaining a host of unnecessary staff. The operating profitability of second-tier banks would rise, the market would revive, and the quality of construction would improve.

As it is, all we get is the needless upkeep of civil servants and the quasi-public sector, inefficient construction, and no choice for buyers (even if those buyers are doctors and teachers, they should have a choice). I think the case where a whole micro-district is being reinforced and its residents relocated is very telling in this regard.

When we start thinking on a larger scale rather than parochially, then perhaps transformation will have an effect. As it is, what we get is not transformation but simply bloat, and the efficiency of public money keeps falling lower and lower.