Real estate prices in Uzbekistan stagnated in September and October, yet they remain at an all-time high. Market analysts say the lull is likely to be temporary, however, and predict another spike towards the end of the year.

In the past two years, the CIS has witnessed a real estate boom, particularly in Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. In Tashkent and the surrounding viloyat, prices for housing and office space have increased nearly 300% on average since 2005. The hot market was first caused by domestic factors including a dearth of new construction, a slowing of citizens emigrating abroad and an influx of citizens from the provinces. In the first six months of 2006, prices increased 10-15% per month.

One contributing force may have been a temporary opening of Tashkent viloyat’s propiska regime. Due to deteriorating environmental conditions in Khorezm and Karakalpakistan, it is rumored that residents of those areas were allowed to move to Tashkent in a temporary lifting of the registration regime that prevents other provincial residents from relocating to the capital. If this was the case, the window of opportunity has already closed. As of September 2007, the complete propiska regime is back in force.

Perhaps the greatest single factor which pushed prices up is Uzbekistan’s high level of worker remittances. Many Uzbek citizens work abroad, particularly in Russia, and send their earnings home. As a result, Uzbekistan’s current account balance is 19 percent of GDP, the highest among CIS countries. Many Uzbeks are wary of putting their cash into savings, as the older generation reports having mysteriously lost zeros in their bank accounts on more than one occasion. As a result, Uzbeks put much of their excess money into homes for their children.

By late 2006, many Uzbeks had exhausted their financial resources and Kazakh citizens had begun expressing interest in the city’s real estate. Kazakhstan’s growing wealth from natural resources and a growing services industry drove prices up in Almaty and other Kazakh cities in the late 1990s and early 2000s, and a number of Kazakh entrepreneurs predicted a similar scenario in Tashkent. Many of Tashkent’s northern neighbors have since bought up land, apartments and houses.

Uzbekistan’s mortgage industry suffers from public distrust and bankers’ unwillingness to lend at official rates they deem unsustainable in light of high levels of inflation. On average, the country’s financial services sector for both local and international clients remains underdeveloped when compared to that of Kazakhstan, and as a result real estate transactions in Uzbekistan are typically carried out in cash using US dollars. The greenback’s decline on the international market may be an additional factor in the pricing equation.

Although investors remain optimistic about the future of the real estate market, some analysts have expressed doubts about the boom’s sustainability. Although its economy has grown by an average of 7 percent over the past five years, Uzbekistan remains a largely unfriendly place for investors who seek openness and basic guarantees. The country sees less foreign direct investment per capita than any other state in Central Asia and there is no clamor for office space and no influx of foreign visitors or workers to rent apartments. Many foreign companies which once had offices in Tashkent have moved their headquarters to Kazakhstan. One fresh breath of air, however, may be General Motors’ recent deal to begin production of Chevrolets near Andijon. Perhaps it is a sign of a re-opening to Western investors.

The question at hand is how Uzbek citizens themselves deal with the skyrocketing real estate costs. Those who did not manage to secure housing or sufficient profit in the recent boom will have a hard time buying into the market in the future, particularly as foreign investors continue to push up prices.