Tashkent, 16 March 2006 (RFE/RL) -- With a population of more than 25 million, Uzbekistan represents the single largest consumer market in Central Asia. It is also rich in resources such as petroleum and natural gas, cotton, and minerals -- industries that would ordinarily attract the interest of foreign investors.
But the government's restrictive -- and often unpredictable -- approach to foreign investment has kept people away.
That means major companies that once opened regional offices in the Uzbek capital might be inclined to move elsewhere. A number of Western companies have already packed up and left for Almaty, the commercial capital of neighboring Kazakhstan, or other cities outside Uzbekistan.
"Supply is very big, but there are very few people who want to rent apartments. The same is true for office space. It's easy to find an office location in the capital [Tashkent]. You'll get a lot of offers of renovated office space in the city center, and buildings for hotels or factories. Prices are acceptable. Supply is huge."
Asila Ergasheva, a real estate agent, focuses on the Tashkent market. She tells RFE/RL that the real estate and property business has been stagnant for too long.
"Supply is very big, but there are very few people who want to rent apartments," Ergasheva said. "The same is true for office space. It's easy to find an office location in the capital [Tashkent]. You'll get a lot of offers of renovated office space in the city center, and buildings for hotels or factories. Prices are acceptable. Supply is huge."
A key problem is that demand among foreigners to rent or purchase commercial and residential space has dried up considerably since the early days of post-Soviet independence.
Institutions like the International Monetary Fund and the European Bank for Reconstruction and Development say Uzbekistan now sees less foreign direct investment per head than any other country in the regional CIS bloc.
The local perception is that fewer foreign managers or tourists are seeking apartments as a result.
"Several years ago, there were many people who wanted [to rent apartments]," Ergasheva. "Nowadays, probably fewer people come to [Uzbekistan]."
Ergasheva says rents and prices have been stable for two or three years.
That has left property at much lower levels than in Almaty or the Kazakh capital Astana, or even in Bishkek, the capital of Kyrgyzstan, which is one of the poorest countries in the CIS.
Meanwhile, affordability presents a major obstacle for Uzbeks seeking to buy apartments. Even if they manage to save up for a down payment, the lack of mortgages means that all but the most affluent are locked out of the market for a home.
In late February, the Uzbek government adopted a decree aimed at laying some of the groundwork for functioning mortgage and property markets. And while some of the less market-friendly features might get a chilly reception from commercial banks, it is arguably a step in the right direction.
Ibrohim Hakimov is an associate professor at Tashkent State Economic University. He tells RFE/RL that the decision to develop the mortgage sector could positively affect the broader economy and the country's social situation:
"The government's decision on mortgages is very timely," Hakimov said, "because giving loans to certain spheres of the economy usually leads to reviving the overall economic situation. Mortgage lending will have the same impact on the economy of Uzbekistan. It will serve as a stimulus. Because the population's current demand for real estate is high, but purchasing power is not high enough to support that demand."
There are doubts about the preparedness for mortgages in a country where salaries often arrive late, payment discipline is lax, and broader measures of the economy like unemployment and inflation are flagging. Can homebuyers keep up on mortgage payments in such an environment?
Associate professor Hakimov suggests that Uzbekistan's lagging effort to create effective capital markets could hinder the mortgage sector. Uzbeks are unaccustomed to taking on debt or to investing in investment funds and securities the way so many Western families do. He suggests that more developed markets are boosting the popularity of mortgages in neighboring Kazakhstan.
"Let's take the example of Kazakhstan," Hakimov said. "It's impossible to compare the Kazakh real-estate market with the Uzbek one. [Kazakhstan's] advantage is that the stockmarket and secondary market are very well developed. Their real-estate market has therefore also developed. The Uzbek stockmarket is just emerging. The secondary market is still undeveloped. Mortgages should be a good tool to train people to use stocks and shares, to develop this market and invest in stocks."
Tuygun Abdullaev is deputy chairman of state-owned Zamin bank, which is among the would-be mortgage lenders. Abdullaev argues that experiences in nearby countries show that faster is not necessarily better in the mortgage world:
"In Kazakhstan or Russia, for example, mortgage loans aren't efficient," Abdullaev said. "They don't yield the predicted results. There, citizens who got loans can't repay them in the required time. In order to avoid this type of problem, we wrote into the decree that mortgages will be granted for 15 years with a five-percent annual interest rate. That's a very low rate."
Unrealistically low, perhaps. Banks could resist mortgage lending if it means their returns won't even keep pace with inflation, which outside observers suggest is at least three times the official figure of around four percent.
Abdullaev notes that the government's February decree does little to regulate or define the mortgage market. State institutions -- including state-owned banks -- are working jointly on a strategy for rolling out mortgage loans.
But attempts to develop the sector -- and usher in more home ownership -- won't be easy in Uzbekistan. Even if more people decide that owning a home is worth the accompanying debt, they still need convincing that local or state officials won't take it away with the stroke of a pen.