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Real estate business: When will money 'come by itself'?

Interviews

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Real estate business: When will money 'come by itself'?

Real estate is the world's largest source of wealth, surpassing the combined value of global stock and bond markets and nearly quadrupling the size of the global GDP.

According to the Research and Markets platform, the real estate sector has experienced significant growth in recent years. The market is projected to reach $4,016.66 billion in 2023 and expand further to $5,667.94 billion by 2028. This anticipated growth is driven by population expansion, increased infrastructure investments, urbanization, and lower interest rates.

In Uzbekistan, real estate has become not only a fundamental necessity for housing but also a primary source of income for many. To explore this evolving trend, QALAMPIR.UZ engaged with an industry specialist in a discussion relevant to both homeowners and investors.

Ibol Ergashova, Correspondent: Many people now view real estate rental as a passive business. As a specialist, how do you assess this trend?

Bahrom Bahodirov, Investor: Real estate remains one of the most reliable instruments for generating passive income. When investing, there are two key factors to consider:

1. Monthly passive income
2. Appreciation in property value

Since real estate generally retains its value, it serves as a stable asset for capital preservation while providing consistent monthly income. In my view, real estate is a highly secure, long-term investment. The ultimate financial goal for many affluent individuals is to secure steady passive income, allowing them to focus on their passions for the rest of their lives. I know many entrepreneurs who engage in high-risk startups and business ventures yet maintain a conservative real estate portfolio. The passive income they earn covers essential expenses such as education and travel, providing financial stability regardless of their other business risks. For these reasons, I consider real estate one of the most effective ways to build sustainable wealth through passive income.

According to the Central Bank, in 2024, activity in most regions either declined or remained at previous levels. As a result, demand for real estate stabilized, and housing prices grew at a more moderate pace. However, the number of purchase and sale transactions concluded last year decreased by 2.2%, totaling 329,000 transactions.

I.E.: What is your opinion on real estate prices at the moment? How do you predict the market will develop over the next five years?

B.B.: Market forecasts are never 100% accurate. The economy moves in cycles—it goes down, it goes up, and this pattern continuously repeats. Economic crises occur naturally, roughly every 5-6 years, and are a normal part of the process. Any forecast can only be 50-60% accurate at best. That said, I believe real estate prices in Uzbekistan will continue to rise. Several factors contribute to this trend: Population growth and the increasing demand for housing. A strong cultural preference among Uzbeks to own property and provide homes for their children. Limited alternative investment opportunities compared to other countries, leading more people to invest in real estate. There may be a temporary slowdown in sales, but I see this as a short-term situation.

On January 16, 2023, President Shavkat Mirziyoyev dismissed the mayor of Tashkent, Jahongir Artikhujayev. Following this decision, QALAMPIR.UZ conducted a street survey in the capital to gauge public reaction. The responses were mixed—some supported Artikhujayev's dismissal, while others argued that uncontrolled construction had led to deteriorating utility services.

I.E.: Former mayor Jahongir Artikhujayev faced criticism for allegedly allowing urban planning in Tashkent to become unregulated and favoring certain business interests. How do you assess the current state of urban planning?

B.B.: I do not believe urban planning has gone completely off track. Every country faces challenges during periods of rapid development, but these issues are gradually being addressed. In Uzbekistan, many sectors, including construction, are undergoing regulatory improvements. Moving forward, unqualified developers will be pushed out of the industry. For example, the construction sector is now under greater state control. We see stricter regulations, higher standards, and better oversight of construction companies. Compared to last year, significant changes have already been implemented. A Master Plan for Tashkent has been developed, ensuring legal frameworks are in place. While we may currently lag behind some developed nations, I believe we are on the right path and will soon reach their level.

According to the relevant decision of the Tashkent city mayor dated October 16, 2024, the pricing for paid parking has been officially approved. The tariff ranges from 5,000 to 12,000 UZS per hour.  

I.E.: — Speaking of urban planning, what is your perspective on parking issues? There is a shortage of parking spaces in the city, and the existing ones are quite expensive. Could you elaborate on their significance for real estate properties?  

B.B.: — Parking plays a crucial role in urban planning and requires special attention. At present, many people do not purchase parking spaces because they leave their cars on the streets. Currently, street parking is free in our country, but in developed nations, even that comes with a fee. I believe that in the near future, the same system will be introduced here, and drivers will have to pay hourly fees for parking on the roadside. Moreover, parking spaces in residential buildings will gradually become paid as well, with fines imposed on those who fail to pay. When that happens, parking prices will rise even further. Looking at developed countries as examples, we can anticipate what will happen in the next 4–5 years, as they have already gone through similar stages. Based on my analysis, I believe that people should consider purchasing parking spaces, and developers should prioritize parking facilities in their projects.  Another important factor is affordability. While parking costs may seem disproportionate to people’s incomes, car ownership is still relatively inexpensive in our country. However, in the coming years, the cost of car maintenance and spare parts will rise, making vehicle ownership more expensive. As a result, driving will become a financial burden for many, leading to a greater reliance on public transportation. Even now, some individuals take out loans to buy expensive cars despite having insufficient income. If they did the math, they might realize that using taxi services would be more economical. Car ownership entails more than just fuel expenses—it includes maintenance, parking fees, car washes, and other costs. Additionally, vehicle depreciation and fines should be considered. Once people fully understand these costs, the demand for personal vehicles may decline. That being said, at this moment, I recommend that those who can afford it purchase a parking space. As I mentioned earlier, once street parking becomes paid, parking prices will increase significantly.  

I.E.: — In newly developed residential areas, the irregular placement of high-rise buildings has significantly affected air circulation. Not just for homes but also for hotels, shops, or restaurants—what advice would you give to those looking to invest in such properties?  

B.B.: — Compared to other countries, our building regulations are stricter, so I wouldn’t say that construction is chaotic. On the contrary, it is quite organized. However, I also wouldn’t claim that everything is 100% compliant with standards, as certain shortcomings are inevitable. For those looking to invest in commercial real estate, I would recommend choosing either relatively small properties or highly liquid spaces in newly developed areas. Take the examples of New Uzbekistan Park or the Seoul Mun shopping center—there, the locations and types of shops were determined in advance, and construction was planned accordingly. This is a smart approach. However, the Tashkent City project did not follow such a strategy. For instance, Boulevard (a residential complex) still has many vacant spaces because its initial layout was not well thought out. While the construction itself is of high quality, the lack of a clear commercial concept has made it difficult for property owners to lease out their spaces. Fortunately, developers are now taking such factors into account, and the practice of planning construction concepts in advance is evolving. This creates better investment opportunities. Knowing the purpose and target audience of a property before purchasing is crucial, and this is now being implemented in many new projects. As for already completed properties, I advise investors to opt for smaller spaces—ideally no larger than 200 square meters—while carefully planning their investments with expert consultation. If approached correctly, commercial real estate can be a stable and long-term source of income. Moreover, the concept of apportage investment (where a company contributes real estate or tangible/intangible assets as equity) is beginning to take shape. We are currently working on such a project in the center of Tashkent. After purchasing a property, once all taxes and expenses are covered, investors receive “net income” every month, while the property and its cadastral registration remain under their ownership. Management is handled by a hotel operator. This business model has been successfully implemented in other countries for a long time and has significant growth potential. As I mentioned earlier, I highly recommend consulting specialists and having a clear investment strategy before purchasing real estate. 

I.E.: — What factors determine real estate prices? Some construction companies even set prices as low as $5,000. What is causing such price fluctuations?  

B.B.: — Real estate prices depend on multiple factors, not just one. The cost is influenced by construction quality, expenses, and location. Naturally, supply and demand play a crucial role in determining prices. If a property is sold for a few thousand dollars, there is clearly a buyer for it. However, as competition grows and supply increases, prices may decrease. Conversely, if demand rises, prices will also go up. Another key factor is the increase in household incomes, which drives demand and, in turn, raises prices. Additionally, expenses such as electricity, gas, taxes, and wages are rising, all of which impact construction costs. As construction materials and land prices continue to climb, and public demand grows, real estate prices inevitably increase. Moreover, people now seek not just housing but also additional amenities like shops, playgrounds, and dining areas, all of which add to the overall cost.

The Center for the Development of Information and Communication Technologies in the Construction Sector compiled a 2023 reliability rating of construction companies. According to the report, among 17,647 construction companies, only a handful are ranked in Category "A," with just one reaching the third level of this category. The lowest category, "D," includes 14,668 companies.  

I.E.: — Many homebuyers make legal mistakes when signing contracts. As a specialist, could you list a few essential rules for those looking to purchase real estate?  

B.B.: — First and foremost, buyers should thoroughly review contracts with legal experts to understand the advantages and risks involved. Additionally, researching the developer is crucial—buyers should verify who the developer is, their track record, and their business associations. Reliable developers tend to complete their projects and collaborate with established entrepreneurs in other industries. However, some projects may experience delays, which is not uncommon. To minimize risks, buyers should conduct a thorough legal review from the outset, ensuring all necessary documents—such as permits and expert evaluations—are in order. Ultimately, choosing a reputable developer and securing legal assistance when finalizing a purchase is essential.  

The 2008 global financial crisis, which first emerged in the U.S. mortgage markets, was driven by the widespread issuance of mortgage loans to borrowers with insufficient creditworthiness and uncertain repayment abilities.

 I.E.: — Many people are familiar with the 2008 financial crisis, which started on Wall Street and spread worldwide due to banks issuing large-scale mortgage loans to low-income individuals. Do you see any similar risks in Uzbekistan today?  

B.B.: — Uzbekistan does not yet have a highly developed or dynamic mortgage market. One key distinction is that many developers sell real estate through short-term installment plans, rather than long-term mortgages. While banks typically offer mortgage loans for 10–15 years, most developers cannot extend payment plans beyond three years. As a result, real estate purchases in installments are often made by investors or individuals with stable incomes. There is a significant difference between financing a property purchase through a bank loan and using personal funds. Buyers who opt for short-term installment plans are generally in a stronger financial position and are less likely to default. Additionally, mortgage interest rates in Uzbekistan are relatively high, reducing the likelihood of a large-scale crisis. Furthermore, banks do not issue mortgages for unfinished properties or those without a cadastral certificate, further mitigating risk. 

As of September 2024, the number of non-state universities in Uzbekistan reached 76, with more than 1 million students enrolled in them.  

I.E.: — The rise in private universities has led to a sharp increase in rental prices in Tashkent. Given this trend, how profitable do you think the private hostel business is?  

B.B.: — It’s true that the number of universities is growing, especially in a country like ours, where the majority of the population consists of young people. This expansion is crucial for education and development. Naturally, people strive for a better future and seek opportunities for higher education, which drives the growth of educational institutions. I see the establishment of modern hostels as a highly promising business model. In fact, although construction has not yet begun, I personally intend to launch this business. Our goal is to offer well-located and affordable accommodations tailored to students. Additionally, these hostels should be equipped with modern technologies. For example, using a FaceID system would allow parents in the regions to monitor their children’s dormitory entries and exits remotely. I believe that setting up separate dormitories for male and female students would make this business model even more attractive and successful.  

I.E.: — How is money laundered in the construction industry?  

B.B.: — I don't have a precise answer to that question. I am not aware of how money laundering occurs in the construction sector.  

I.E.: — What are the most effective marketing strategies for selling real estate today? How can sales be increased through social media?  

B.B.: — First, I’d like to clarify the essence of marketing. To me, marketing is about understanding people's needs through market analysis and offering better solutions than competitors. If you create a high-quality product that meets market demand based on thorough research, you won’t need to spend excessive amounts on advertising. The most effective marketing is to provide a valuable and well-targeted offer. Otherwise, advertising a product that lacks demand is simply a waste of resources. Marketing strategies built on solid analysis are the most effective. Social media platforms like Instagram and Telegram, as well as other digital advertising channels, play a significant role in this process. Any advertising campaign must be timed and formatted correctly because people become more interested in things they repeatedly see. That’s why strategic and consistent advertising is necessary.  

When it comes to increasing sales, proper public relations (PR) is more effective than aggressive promotion. Retaining potential buyers by offering them compelling deals is key. Sales aren’t just about making a transaction—they’re about fulfilling and even exceeding customer expectations. When customers feel satisfied and inspired by their purchase, they naturally recommend the product or service to others, which drives organic growth in sales. 


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