ArmeniaHousingStudyPrepared by: Hayastan Stepanyan, legal expert, UFSDand Armen Varosyan, housing expert, UFSD
ContentsForeword ________________________________________________________________________________ 4                       ...
AcronymsAB ........................Apartment building             GoAm ..................Government of Armenia            ...
ForewordOver the past two decades, Habitat for Humanity, a Christian nonprofit organization dedicated to fightingthe scour...
AcknowledgementsResearch was carried out by staff from the Urban Foundation for Sustainable Development in Armenia.   ■ Au...
Executive summaryThe housing situation in Armenia was influenced        a comprehensive national housing strategy to      ...
Many apartment buildings built in Armenia during the Soviet era are now crumbling.                                        ...
and housing provisions; etc. According to the                  ■ To shared property of multiunit building.            ■ Im...
Introduction and methodologyData as of December 31 2009, since some changes has been taken place in 2010.Habitat for Human...
Context analysisBackground information                                  of a centrally planned economy and the breakdownon...
had set out housing management and maintenance        sanatoriums, hotels, motels, campsites, sports andmechanisms, some e...
EzRA mIllSTEInfor inflation. Loans were not secured by collateral. A     Housing situation before the collapse ofmechanism...
The reformation in the housing sector continued        by owners and a trustee manager’s institute through      Refugee is...
Housing finance: Beginning in 1992, the                     renovation lending programs. Nearly 1,200 families      owners...
The price of housing in Armenia differs from regionto region. While on average 1 square meter of gross           Condition...
population), are unsheltered (Annex 11) and live in       ■ 1988 and 1997 earthquake-displaced               Apartments fo...
Housing analysisThe property rights regime                                efficiency of property markets are the prioritie...
EzRA mIllSTEInand housing are also problematic. The rules usuallypreclude individuals from selling their shares ofthese ri...
retain the right to acquire any property deemed         it virtually impossible for families to own homes or     unions an...
The key regulatory instrument is an effective          ■ Foster growth and diversification.and enforceable foreclosure law...
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
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Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
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Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
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Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
Armenia Housing Study
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Armenia Housing Study

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Armenia, housing, dwellings, homes, shelters.
Habitat for humanity

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Armenia Housing Study

  1. 1. ArmeniaHousingStudyPrepared by: Hayastan Stepanyan, legal expert, UFSDand Armen Varosyan, housing expert, UFSD
  2. 2. ContentsForeword ________________________________________________________________________________ 4 EzRA mIllSTEInAcknowledgements _______________________________________________________________________ 5Executive summary _______________________________________________________________________ 6Introduction and methodology _____________________________________________________________ 9Context analysisBackground information on the Republic of Armenia _______________________________________ 10Housing stock of Armenia before independence ____________________________________________ 11Housing situation after independence _____________________________________________________ 13Condition of current housing stock in Armenia _____________________________________________ 15Vulnerable groups in Armenia lacking access to decent housing _____________________________ 16Housing analysisThe property rights regime _______________________________________________________________ 17The housing finance regime ______________________________________________________________ 19The housing subsidies regime ____________________________________________________________21Residential infrastructure _________________________________________________________________23The regulatory regime ___________________________________________________________________26Position statement and recommendationsProperty rights recommendations _________________________________________________________30Housing finance recommendations _______________________________________________________31Housing subsidies recommendations _____________________________________________________31Residential infrastructure recommendations _______________________________________________34Regulatory recommendations ____________________________________________________________34Housing solutionsGovernment of Armenia housing solutions ________________________________________________35Best practices ___________________________________________________________________________38 The Monument of Sardarapat celebrates the Republic of Armenia’s battle for independence, which took place from MayReferences ______________________________________________________________________________41 24 to May 26, 1918. Sardarapat is 40 kilometers west of Yerevan, and the battle is considered to have stopped the Turkish advanceAnnexes ________________________________________________________________________________45 in Armenia and prevented the nation’s destruction.Photographers: Kim MacDonald and Ezra Millstein. Cover photography by Zaruhi Tonapetyan. 2 Armenia Housing Study
  3. 3. AcronymsAB ........................Apartment building GoAm ..................Government of Armenia nRC ......................norwegian Refugee CouncilACRA.................... Armenian Credit Reporting HFHA....................Habitat for Humanity Armenia PD .........................Passport Department Agency HFHI ..................... Habitat for Humanity PmU .....................Project management UnitADB ......................Asian Development Bank International PPP .......................Public Private PartnershipAmD .....................Armenian Dram HIG .......................Housing improvement grants PRSP .................... Poverty Reduction StrategyARC ......................American Red Cross HOB......................Heat-only-boiler plant PaperArmenian SSR .... Armenian Soviet Socialist HPC ......................Housing purchase certificates RoA ......................Republic of Armenia Republic HPP ......................Hydropower plant RoA nA ................ national Assembly of theASWC ................. Armenian Water and Sewerage IDA ....................... International Development Republic of Armenia Company Agency RD ........................Road DirectorateCBA ......................Central Bank of Armenia IFC ........................ International Financial SCREC.................. State Committee of Real EstateCHP ......................Combined heat and power Corporation CadastreCIS ........................ Commonwealth of ImF .......................International monetary Fund SDC ...................... Swiss Agency of Development Independent States IRD ....................... International Relief and and CooperationCJSC ....................Closed joint stock company Development SDP ...................... Sustainable DevelopmentCPS ......................Country Partnership Strategy IUE .......................Institute for Urban Economics ProgramDCA ......................Development Credit Authority KfW ......................Kreditanstalt für Wiederaufbau SmE .....................Small and medium enterprisesDGF ......................Deposit Guarantee Fund lG .........................local government SWm ....................Solid waste managementDIGH .................... Dutch International Guarantee lTV .......................loan-to-value ratio TPP .......................Thermal power plant for Housing mlSA ................... ministry of labor and Social UCO .....................Universal Credit OrganizationEBRD .................... European Bank for Affairs UFSD.................... Urban Foundation for Reconstruction and mmPAA................ mortgage market Participants’ Sustainable Development Development Association of Armenia UI ..........................Urban InstituteEQz ......................Earthquake zone moD .....................ministry of Defense UnHCR ................ United nations HighEQzRP.................. Earthquake zone Recovery mOTC ................... ministry of Transport and Commissioner for Refugees Program Communication USAID .................. United States Agency forFC .........................Financial cooperation moUD .................. ministry of Urban International DevelopmentFmC......................First mortgage Company Development USSR ................... Union of Soviet SocialistFSAP .................... Financial System Assessment mTA...................... ministry of Territorial Republics Program Administration VAT .......................Value Added TaxFSDP .................... Financial Sector Deepening nBF .....................non-bank financial sector WB .......................World Bank Project nmC .....................national mortgage Company WTO .....................World Trade OrganizationGAF ......................German Armenian Fund nPl ......................non-performing loans Ym ........................Yerevan municipalityGDP ......................Gross Domestic Product nPP ......................nuclear power plant Armenia Housing Study 3
  4. 4. ForewordOver the past two decades, Habitat for Humanity, a Christian nonprofit organization dedicated to fightingthe scourge of poverty and inadequate housing, has built or improved more than 350,000 affordable homesworldwide. While this is clearly an impressive achievement for a nonprofit, we know that it is impossible tomeet the goal of “decent housing for all” through Habitat’s building efforts alone. At Habitat, we believe weTo eliminate poverty housing from the face of the earth, our mission calls us to go beyond building andrefurbishing homes. At Habitat we believe we need genuine partnerships and participation with individuals, need genuinecommunities, corporations, nonprofits, local and national governments, and other institutions. Increasingly partnerships andthrough our programs in 90 countries where we work, we are aiming to influence the overall housing policyand practice to enable a functioning housing sector that works for everyone. participation with individuals,To start, we all need reliable information on the housing environment and a good understanding of theprimary housing needs. This Armenian Housing Study, conducted around a methodology developed for communities,Habitat for Humanity’s emerging global housing policy index, is one of the first steps in this direction in corporations,Armenia. It is an attempt to analyze the context and environment that affects housing issues in Armenia,and to identify the most vulnerable groups affected by current housing policies and practices. The housing nonprofits, localpolicy index looks at five key policy areas and is based on extensive research and studies from many of the and nationalworld’s leading housing policy experts and institutions. governments,Through the data and analysis in this report, we aim to improve our understanding of the housing and otherenvironment and need in Armenia. We believe the analysis and recommendations are useful to policymakers, development professionals, nonprofit organizations and donors who are willing to work together institutions.to find lasting and sustainable solutions to the large demand for decent housing that is portrayed in thisdocument. This study is obviously not a panacea for the housing issues in Armenia, but we hope you willfind it a helpful guide to developing working solutions to bring about positive change.Don HaszczynArea Vice PresidentHabitat for Humanity InternationalEurope and Central Asia 4 Armenia Housing Study
  5. 5. AcknowledgementsResearch was carried out by staff from the Urban Foundation for Sustainable Development in Armenia. ■ Authors: Hayastan Stepanyan, legal expert, ■ Acknowledgments from the authors: Atayan, Housing and Communal Policy departmentand Armen Varosyan, housing expert. In preparing this study, the Armenian Housing head of the Ministry of Urban Development, and Study team received support from different agencies Astghik Minasyan, department head of the Ministry ■ Editorial team: Habitat for Humanity and individuals. Firstly, we would like to recognize of Labor and Social Affairs. The names of otherInternational Europe and Central Asia area vice the assistance offered by Irina Vanyan, director of officials, practitioners and experts with whompresident Don Haszczyn; Habitat for Humanity the Habitat Armenia office, and Siranush Vardanyan, we met are listed in Annex 15. These individualsInternational Europe and Central Asia program program development manager. They provided were cooperative, open and informative, anddepartment, Lucija Popovska, Mike Meaney and very useful comments and supportive suggestions we are grateful to them for their time and goodFeike Dik; Habitat for Humanity International throughout our work. ideas. Sociologist Arsen Aslanyan did a fine job inEurope and Central Asia resource development The study team met and conducted interviews interviewing experts and practitioners.and communications department, Willo Brock with the officials and practitioners of the While the aforementioned individuals providedand Katerina Bezgachina; Habitat for Humanity Armenian ministries of Urban Development, invaluable assistance to the team, the authors areInternational Government Relations and Advocacy Labor and Social Affairs, and Transport and solely responsible for the report. The statementsoffice, Jane Katz; Habitat for Humanity Armenia, Communication; the Central Bank of Armenia; herein are the authors’ alone and not necessarily theIrina Vanyan. the State Committee of Real Estate Cadastre of the views of HFHI, governmental agencies or the Urban Armenian government; the Republic of Armenia Foundation for Sustainable Development. ■ Technical support: Staff of Habitat for Passport Department; Yerevan Municipality;Humanity Armenia; Habitat for Humanity Creative USAID/Armenia Tax Improvement Program;Support Services in Americus; Habitat for Humanity Kreditanstalt für Wiederaufbau/Development ofEurope and Central Asia, resource development and a Sustainable Housing Finance Market (Phase I)communications department, Barbora Fricova; Arlene in Armenia; International Financial Corp. office,Corbin Lewis at Habitat for Humanity International’s Victims of Public Need North Avenue NGO; andGovernment Relations and Advocacy office; Siranush independent experts to obtain information andVardanyan, program development manager at Habitat insight about the housing sector and policies relatedArmenia. to affordable housing in Armenia. Particularly, we are fortunate to have strong support of Yevgenya Armenia Housing Study 5
  6. 6. Executive summaryThe housing situation in Armenia was influenced a comprehensive national housing strategy to areas can be offered as collateral only if they arelargely by the conflict with Azerbaijan over Nagorno address all housing problems effectively. registered in the real estate cadastre and have anKarabagh in the late 1980s and early 1990s, forcing Housing stock is deteriorating because of issued ownership title.the influx of an estimated 350,000 refugees. And poor maintenance. Nineteen years after the Maintenance of single-family housing stock is notin 1988, a devastating earthquake in the northern collapse of the Soviet Union, transformation to given enough attention by the government or donorregions of Armenia rendered about 17 percent a new housing management system still is not organizations. It is the sole responsibility of theof the nation’s housing stock uninhabitable. In going smoothly. Although projects supporting owners, who maintain their house over time at theiraddition, Armenia experienced a production decline the management and maintenance of apartment own expense. Single-family housing improvementin its housing sector. Other major problems were buildings, including upgrading communal and new construction are needed, especially in thedeteriorating housing stock (apart from those caused infrastructure and monitoring communal rural areas of the earthquake zone and villages alongby the earthquake) and the households designated as services, are some of the most important the state border of Armenia.underhoused. priorities of the government, reportedly only 20 Evictions are often illegal and performed without The aforementioned challenges forced the percent of registered condominiums are effective. proper compensation and resettlement.government to undertake reforms in the housing This is due, in large part, to irresponsible owners There are many unfinished residential structuressector. Since 1989, a number of laws, regulations not caring for common areas of buildings; in Armenia. Construction on these structuresand strategies have been adopted to handle the poor service provision; a lack of competition; started prior to 1991 and halted because fundsshelter problems of earthquake-displaced and nonpayment of service fees by local governments; dried up. Most of them are in the earthquake zonerefugee households; to regulate property and land lack of knowledge of building residents; and weak and Yerevan; the remaining units are scatteredrelationships; to boost privatization of state-owned managerial skills by the management body. throughout the country. Most units within theapartments to the registered tenants (by 2000, 96 A startup revolving fund (“seed funding”) unfinished buildings had already been allocatedpercent of Armenia’s housing stock was privatized); by donor organizations, commercial banks, or to households. Therefore, any policy that aims toto introduce market-based housing management and credit organizations is needed to initiate any complete these buildings must take into accountmaintenance systems; to expedite the legalization major activity connected with maintenance. the claims that those households might have on aand registration of “unauthorized buildings and Additionally, homeowners’ knowledge and particular unit.unauthorized land occupation”; to promote the capacity in building maintenance should be Currently there are damaged buildings indevelopment of a housing finance market in increased. Efforts to attract external funds to Armenia that are too dangerous to live in, but whichArmenia; and to solve housing problems of the support apartment building maintenance are could be made habitable again after reinforcement,middle-income population. hindered because receiving long-term loans reconstruction or capital renovation. Such buildings from banks or credit organizations—an ongoing are designated damage category III by the ArmenianProblems in Armenia’s housing sector: source of external funding—requires collateral in government, and it is illegal to live in them. TheThe government of Armenia has not yet developed the form of real estate. For apartments, common number of buildings in this category is increasing. 6 Armenia Housing Study
  7. 7. Many apartment buildings built in Armenia during the Soviet era are now crumbling. interest rates. Because of the and implementation of targeted state projects on the global financial crisis, private- provision of affordable housing for young families, sector crediting slowed down and vulnerable refugees, the elderly, etc. Based on the portfolios of banks decreased separate laws and government decisions, 15 ad hoc further. projects have been implemented by the Armenian The private rental market Ministry of Urban Development to support residents is relatively small. The largest in apartment buildings subject to demolition; those category of rental units is those deprived of housing because of the taking of land transferred to local governments for state and community needs; internally displaced (4 percent of housing stock). There persons; residents in wooden houses in the zones is no rent control. Landlords set prone to landslides and falling rock; children without the rents themselves, and most parental care; families of dead soldiers; and victims private leases are concluded of Stalinist repressions. Earthquake-displaced informally. Lease contracts are households and households along the state border, subject to notarization and state mainly in rural areas, remain special concerns for EzRA mIllSTEIn registration, which is expensive the government. In addition, thousands of families and not expedient for the many are underhoused. landlords who have to set low Since independence, Armenia has adopted many The registration process of these illegal structures rents for housing. laws and regulations (see detailed legal analysisis not yet finalized. The passage of the 2003 law “On Because of a lack of funds, there are no investment in Annex 1) that govern the housing relationships.Unauthorized Buildings and Unauthorized Land plans for urban expansion to accommodate “Housing Code of the RoA” was in force untilOccupation” provided the basis for bringing the population growth in the capital, Yerevan. November 2005, after which a new legislativesignificant number of informal structures into the There is no unified government housing package was adopted by the National Assembly offormal housing market, but there are still tens of strategy for vulnerable groups. Commitments in Armenia, which doesn’t close the gap in the housingthousands of illegal structures to be legalized. various regulations and documents often overlap: legislation. There are a lot of relationships that are Despite the improvements in the legal framework The Armenian government’s action plan for not regulated by the Civil Code or the laws “Onin housing finance and the testing of mortgage 2008–12 pays special attention to housing projects Management of Multiapartment Building” or “Onmechanisms in Armenia by international donors, the for earthquake-displaced, refugee households; Condominiums,” such as the establishment of socialmortgage portfolio of banks is very small, with strict children remaining without parental care; the housing systems in Armenia, including the socialeligibility criteria, low maturity period and very socially vulnerable; newly formed young families; rental housing sector; a provision for the definitionhigh interest rates (13-16 percent). Loans mostly and people with disabilities or partial mobility. of “socially vulnerable,” “social” and “affordable”were allocated for housing purchase and renovation. The list of measures in the Republic of Armenia housing; assessment criteria definition; needs-There are no mortgages that are given at subsidized Demographic Policy Strategy includes development assessment methodology; criteria of registration Armenia Housing Study 7
  8. 8. and housing provisions; etc. According to the ■ To shared property of multiunit building. ■ Improve housing conditions by supportinginformation provided by the Republic of Armenia’s ■ To the apartments in the buildings under rehabilitation or new construction.Ministry of Labor and Social Affairs, n about 140 construction (so-called “elite” buildings) that ■ Establish legal mechanisms for constructionlegal documents of the Republic of Armenia, the have not yet passed final inspection. of affordable, economical and safe housingterm “socially vulnerable” is specifically used to for vulnerable groups. It is important legallyreflect the meaning of a given legal document. Housing finance to approve a “road map” of construction for There is no national housing allowance scheme ■ Regulate the housing finance sector to ensure such houses starting from design-drawing,in Armenia, although the ministries of Urban its viability without impeding its ability to construction permission documents, useDevelopment and Labor and Social Affairs are meet a broad spectrum of housing needs. of special construction materials (low-cost,considering this option. ■ Support the creation and development of nonstandard) and volunteer labor, providing Key legal problems in the field are the lack of housing finance institutions. technical inspection for these houses free ofhousing strategy development and clear policy ■ Channel housing subsidies through, or in charge (this service to the “socially vulnerable”on state responsibilities to vulnerable groups; conjunction with, housing finance. should be provided by the local authorities).separation of responsibilities among state and local ■ Determine effective housing demand byauthorities; private-sector involvement in housing income and location (urban, rural) to identify Residential infrastructureindustry and finance; improvements of eviction, and define market segments and the volume ■ Develop a strategic approach to solidforeclosure and bankruptcy mechanisms to conduct of finance required by each segment. waste management (acceptance of conceptlegally transparent and sustainable transactions in ■ Find out sources of lenders’ funds and the papers, laws, other legislative acts, and localreal estate, including sales and other transfers of elasticity of these sources. government ordinances).nonperforming loans; and the implementation and ■ Determine the gap between potential demand ■ Establish clear mechanisms for municipalenforcement of acting laws and regulations. and current supply for each market segment. borrowing or the issuance of municipal bonds. ■ Develop adequate mortgage and housing ■ Develop a policy document and upgrade The authors of this study tried to cover all saving products. infrastructure in informal settlements.housing problems in the country and provide ■ Provide mortgages for vulnerable households ■ Develop capital investment plans for urbanrecommendations to solve them. Recommendations with subsidized interest rates. expansion to accommodate population growth.are summarized and made by subfields to furtherfacilitate activities of responsible authorities or Housing subsidies Regulatory regimeinterested parties (investors or donors, including ■ Create the necessary legal and regulatory ■ Strengthen zoning legislation to protectinternational organizations). frameworks to support supply-side subsidies. wetlands and endangered species near urban ■ Increase housing production, which means areas.Main recommendations: directing more resources to residential ■ Improve spatial development and planningProperty rights construction. activities in all communities.Ensure and finalize registration of property rights: ■ Increase affordability by building low-cost ■ Deploy the national urban cadastre. ■ By the state, municipalities, legal and physical housing or by supplementing housing ■ Improve the legal and regulatory framework for entities putting real estate into civil circulation expenditures. urban development. and making it subject to property taxation. 8 Armenia Housing Study
  9. 9. Introduction and methodologyData as of December 31 2009, since some changes has been taken place in 2010.Habitat for Humanity seeks to generate reliable and To prepare the study, the study team used thecomparable information on the global housing policy following methods:environment. The organization seeks to do so by ■ Interviews with the relevant central andcollecting housing policy data in a large number of local government officials, nongovernmentalcountries on a regular basis to determine a Housing organizations and independent experts werePolicy Index for each country. conducted based on a questionnaire initially developed by HFHI. The data are collected in Armenia in five ■ Ad hoc meetings with the specialists from Armeniansections—the Property Rights Regime, the Housing ministries of Urban Development and Labor andFinance Regime, the Housing Subsidies Regime, Social Affairs and, and Department of Statisticsthe Residential Infrastructure and the Regulatory within Government of Armenia.Regime—and an index score was generated from the ■ Review of existing legislation, papers andanalyses. Although the index is yet to be published publications.alongside those of other countries, the process ■ Review of existing legislation on real estate,already undertaken to generate data lends itself to the particularly in housing.development of a narrative report. ■ Review of publications about housing in Armenia. The proposed study is a narrative report on ■ Review of other papers available on the Internetthe housing sector of Armenia framed around the about housing in Armenia.methodology of Habitat for Humanity International’s Data collection: Ministry of Urban Development,global Housing Policy Index, which analyzes the Department of Statistics, Central Bank of Armenia,current context and the policies and environment International Financial Corp., Armenian Creditthat affect access to adequate housing in Armenia; Reporting Agency and the Internet.identifies the vulnerable groups in the country thatlack access to adequate housing and determines how The study team drafted each section and sent ittheir access is affected by the five policy areas; and to an editorial committee for review and comments.reviews the activities of government, international Meetings were held with some members of the editorialagencies and the private sector to identify good committee to discuss comments of the committee.practices and opportunities for scaling up or Based on the comments and meetings, a final draft wasreplicating programs. prepared. Armenia Housing Study 9
  10. 10. Context analysisBackground information of a centrally planned economy and the breakdownon the Republic of Armenia of former Soviet trading patterns. Nevertheless,The Republic of Armenia is a landlocked country the government was able to make wide-rangingin the South Caucasus. The territory of the republic economic reforms that paid off in dramatically loweris 29,740 square kilometers. The population is 3.23 inflation and steady growth. Armenia had strongmillion.1 The official language is Armenian; the economic growth beginning in 1995, building oncapital city is Yerevan. On Sept. 21, 1991, based the turnaround that began the previous year, andon the results of a referendum, the parliament inflation has been negligible for the past severalannounced the independence of the republic from years. This economic progress has earned Armeniathe Soviet Union. increasing support from international institutions such as the International Monetary Fund, the WorldPolitical structure: Based on the constitution, Bank and the European Bank for Reconstructionthe Republic of Armenia is a sovereign, democratic, and Development, targeted at reducing the budgetsocial, rule of law state. The constitution was deficit; stabilizing the currency; developing privateadopted July 5, 1995, through a popular referendum businesses; helping the energy, agriculture, food Like other states of the formerand was amended Nov. 27, 2005. The president is the processing, transportation and health and educationhead of state and is the guarantor of the country’s sectors; and assisting ongoing rehabilitation in the Soviet Union, Armenia’ssovereignty, territorial integrity and security. The earthquake zone. One of the main sources of foreign economy suffers from thepresident is elected for a five-year term of office. direct investments remains the Armenian diaspora,Executive power is exercised by the government, which finances major parts of the reconstruction of legacy of a centrally plannedwhich is composed of prime minister and ministers. infrastructure and other public projects. economy and the breakdown ofThe single-chambered National Assembly isthe supreme legislative authority. The National The global financial crisis also affected Armenia. former Soviet trading patterns.Assembly is elected through general elections for a Economic decline for 2009 was 14.4 percent.term of five years. Justice is administered solely bythe courts in accordance with the constitution andthe laws.2 Housing stock of Armenia before independenceEconomy: Like other states of the former Soviet Before independence, Armenia had well-organizedUnion, Armenia’s economy suffers from the legacy housing stock and regular housing production, and 1. Statistical Yearbook 2008, www.armstat.am. 2. Official website of the Government of Armenia, www.gov.am. 10 Armenia Housing Study
  11. 11. had set out housing management and maintenance sanatoriums, hotels, motels, campsites, sports andmechanisms, some elements of housing finance. The tourist centers, and buildings of similar institutionshousing sector was tightly controlled and supported were not included in the housing stock, as they wereby the state. The housing rights of citizens were planned for short-term residence or rest of citizens.10stipulated by the Constitution of 1977 and by the A special legal status was established for homes for theHousing Code adopted on Dec. 3, 1982, and enacted elderly. Such institutions were under the control ofon July 1, 1983.3 the social security authorities. Houses were included in the housing stock after being put into operation In the late 1980s, the country’s housing stock according to the established procedure. 3. Tigran Janoyan, et al. “Transformation of the Housingincluded 750,000 units, out of which about 500,000 Rights in Armenia: 1988–2002 - A Survey of legislationwere state apartments, mostly in multiapartment Housing management and maintenance: The and Practice. ”buildings. More than 250,000 (about 40 percent) state housing stock was managed, maintained and 4. Steven Anlian and Irina Vanyan. “An Overview of Arme-were in private hands; most were single-family repaired by the official state housing maintenance nia’s Reform: Housing and Urban Development Policy,houses.4 organizations, known by an acronym pronounced 1989–1995” Zhek (Public Housing Management Units). Local 5. Such as belonging to the state departmental, ministerial, ■ Housing stock of Armenia before Zheks were self-sustaining organizations. Zheks’ enterprises and other organizations. By the government independence included (Annex 2): activities historically were financed 10 percent by executive action of 1987, this housing was supposed to be ■ Local city councils’ housing stock. tenant rents, 30 percent by nonresidential users transferred to the city or village council’s jurisdiction by 1993. ■ Village councils’ housing stock.5 and garages, and about 60 percent by the state 6. In some cases received funding from state budget for ■ State (central) budget-funded organizations’ budget. Cooperatives could contract local Zheks employee housing. housing stock.6 for maintenance. Single-family house dwellers 7. Trade and professional unions, parties. The main sources ■ State self-sustaining organizations’ housing maintained their units at their expense. of funding for such housing were membership fees and stock.7 operational subsidies from the central budget. ■ Public organizations’ housing stock.8 Housing finance: Long-term housing loans in 8. This stock was established in the early 1960s. Its share in ■ Housing construction cooperatives and Armenia were historically available by two banks— total housing stock was 5 percent. main eligibility criteria housing cooperative stocks.9 Armeconombank (formerly Housing-Social Bank) for this category of housing stock were housing need, ■ Housing stock owned by private individuals. and Sberbank (Saving Banks)—which were both membership in cooperative, 30 percent down payment to controlled by the state. The existing system of long- State Savings bank and 70 percent paid over 20-25 years In addition, there were unauthorized or illegal term crediting was first oriented to crediting of new loaned by state economic banks with 0.5–12.5 percentresidential houses and additions built by citizens housing construction (individual or cooperative) and interest rate. 9. In Yerevan, 20 percent of housing stock—but more thanbefore they were recognized as residential, which not purchasing of existing housing (resales). Citizens half in square meters—mostly rural and some urban.were included in the housing stock. Barracks, with low incomes or employed by state organizations 10. It is reported that about one in four Yerevan families havetemporary residences that have a shared kitchen and were eligible to receive loans. Loans were in the a second home/dacha: small building lots for the citizens,sanitary arrangements and are, as a rule, made from amount of 20,000 rubles with a 25- to 50-year usually distributed through their workplace. There werewood and designed to last for 10 to 20 years, were maturity period. Interest rates were fixed and very 75,000 such housing units among Yerevan householdsnot included in the housing stock. Holiday homes, low (from 5 to 12.5 percent) and were not adjusted only. Armenia Housing Study 11
  12. 12. EzRA mIllSTEInfor inflation. Loans were not secured by collateral. A Housing situation before the collapse ofmechanism existed to annul the transaction in case of the Soviet Union: By the late 1980s, Armeniadefault, but in reality it was seldom executed. had been experiencing a production decline in the housing sector. Two events largely influencedHousing rights of citizens: Citizens had, among the worsening of Armenia’s housing situation: aother constitutional rights, the right to receive conflict over Nagorno Karabagh, which forced thehousing in multiunit buildings of the state or public influx of an estimated 350,000 refugees from 1988housing stock or to become shareholders in building to 1992, and, in 1988, a devastating earthquake incooperative houses. Citizens also could own a house the northern regions of Armenia, which renderedor parts of a house with personal ownership rights. about 17 percent of Armenia’s housing stockThe government could establish privileged conditions uninhabitable.11 Among other major problems wasfor disabled veterans of World War II, the families deterioration of the housing stock.of lost or missing soldiers and people given thesame status, and people identified by the Ministry In the mid-1980s there was 2 percent growth inof Health needing improved housing conditions housing production annually, but by the end of thebecause of illness. Citizens working in the enterprises, 1980s it had decreased. It increased again from 1989institutions or organizations of another residential to 1991(because of the massive housing construction A family stands in the hallway in front of their small apart-site had the right to be registered and to be allocated by the former Soviet republics in the earthquake ment in a dilapidated Soviet-era building in Karakert.housing based on employment. The waiting lists of zone). Right after independence, housing productioncitizens in need of improved housing were made decreased drastically (Annex 3).public and were subject to regular adjustments. challenges forced the central governments to The 60 percent of housing units belonged to the undertake reforms in the housing sector. The first The established housing space quota for each tenants renting apartments from the state housing reform was Resolution 272, “On Selling Apartmentsperson was 9 square meters. Allocation of housing in stock. Citizens paid housing rents based on artificially of the State and Public Housing Stock to Citizensdilapidated houses, those in emergency conditions, reduced prices for communal services and assumed as Personal Property,” adopted by the governmentin barracks, in basements and in other uninhabitable no responsibility for the maintenance of common on June 13, 1989, to offer state-owned apartmentsstructures, as well as in houses that were subject to areas of apartment buildings. Payments by residents for sale to tenants based on officially establisheddemolition or major repairs, were prohibited. One for communal services partially covered maintenance cadastre value12 beginning July 1, 1989. In the courseof the most significant rights granted to a tenant by costs. Providing funding from other sources such as of four years (1989-93) 40,000 out of 500,000 statethe housing legislation was the right to exchange the the state budget was becoming increasingly difficult apartments, 8 percent, were transferred by title to thehousing he or she occupied with the housing occupied because main budget funds were directed to address private sector.by others. In general, exchange of housing was the consequences of the earthquake and the Nagornoexecuted on the basis of a civil agreement. A voluntary Karabagh conflict. 11. Steven Anlian and Irina Vanyan. “An Overview of Arme-consent of every family member of legal age presented nia’s Reform: Housing and Urban Development Policy, 1989-1995. ”in writing was an important condition. Housing situation after independence 12. “Transformation of the Housing Rights in Armenia: Housing privatization: The aforementioned 1988–2002 - A Survey of legislation and Practice. ” 12 Armenia Housing Study
  13. 13. The reformation in the housing sector continued by owners and a trustee manager’s institute through Refugee issues: The Nagorno Karabagh conflictmore intensively after the independence of Armenia delegation of owner’s management and maintenance resulted in the influx of an estimated 350,000in September 1991. In September 1993, a new “Law responsibilities. refugees in Armenia. Since 1994, because of fundingof the RoA about Privatization of State and Public from the United Nations High Commissioner forHousing” began to operate. Upon enactment of But the transformation to the new management Refugees, the Swiss Agency of Development andthe law, the aforementioned 1989 resolution was system still is not going smoothly. Reportedly, Cooperation, and the Norwegian Refugee Council,recognized as invalid. The free privatization option only 20 percent of registered condominium more than 4,300 refugee households have receivedwas chosen. According to statistics from the Ministry associations are effective. Most owners do not accept shelter (Annex 5) in apartment buildings or single-of Urban Development, 381,000 households have responsibility for the common property of their family housing. In further meeting the housingapplied to privatize their apartments.13 buildings. There is lack of resources, poor service needs of refugees in Armenia, international donors provision and lack of competition, nonpayment of and the Armenian government currently consider The privatization of the housing stock lasted up apartment service fees by local governments, lack of certain refugee groups a priority, namely thoseto Dec. 31, 1998. In 2000, based on the amendment knowledge and information by building residents, who are living in collective centers and metallicto the aforementioned law, the privatization was and a low level of managerial skills by management containers called domics. Based on recent estimates,allowed to continue without any time restrictions. bodies. about 3,400 refugee households fall under thisAs a result of this reform, 96 percent of the republic’s category.housing stock was privatized by 2000 (Annex 4). Single-family housing stock: Given significant difficulties in the provision and maintenance of Earthquake zone recovery efforts: A numberApartment building management and multiapartment housing stock after independence, of laws and regulations were adopted to coordinatemaintenance: The next housing privatization single-family housing stock was not paid due and make activities in the earthquake zonereform concerned the establishment of attention. Until November 1996, with the comprehensive. Conditioned by an extremely tightcondominiums, which had not previously existed in establishment of local governing authorities, the budget, the government also involved internationalthe republic. As a first step, in 1995 the government management of the use and maintenance of the donors in the recovery. In early 1994, the Worlddecided to support the formation of condominiums individual housing stock partially was carried out by Bank approved the first credit (US$28 million)as a means for providing for the management of the Armenian government, the executive committees requiring the residents to incur 25 percent of theapartment buildings where at least 50 percent of of the local Soviets of People’s Deputies, ministries, average per-unit incremental cost of completingthe units were privately owned. Some communities and relevant departments. Land then was considered unfinished structures started after the earthquake.responded to the government’s initiative, but in the exceptional ownership of the state and provided New housing projects for the earthquake-displacedmost of the regions of Armenia, condominiums only by the gratitude use right. After independence, have been introduced since 1999 by the Lincywere not established. Further reform was boosted the maintenance of single-family houses was the Foundation, USAID, the All Armenian Fund and theby the adoption of laws on condominiums in 1996, responsibility of the owners. Part of single-family Huntsman family. As a result, the housing needs ofthen on apartment building management and a new housing stock, especially in the center of Yerevan, earthquake-displaced households were significantlylaw on condominiums in 2000. Reforms broadened was demolished because of the availability of state- reduced.the options for apartment building management by dominant interest from the urban developmentintroducing, apart from condominiums, the options perspective. 13. Peter A. Tatian. “Framework for the Housing Policy in theof authorized managers (proxy managers) designated Armenia Earthquake zone, The Urban Institute, 2002. ” Armenia Housing Study 13
  14. 14. Housing finance: Beginning in 1992, the renovation lending programs. Nearly 1,200 families ownership over time. In 1995, the central, state-runmagnitude of investment in housing construction are expected to be served by the program in its first construction industry folded. Beginning in 1994,was significantly reduced, causing a sharp decrease two years.17 the share of international donor organizations—in new construction. Since 1992, there have been the World Bank, Lincy Foundation, etc.—becameno state credits to individual citizens. The only Further developments in the field of housing dominant in housing production, including theexceptions were credits to the victims of the finance in Armenia included a drastic increase reinforcement of apartments. Those activities wereearthquake: up to 30,000 rubles financed from in housing production by the private sector. carried out predominantly in the earthquake zone.the USSR central budget.14 However, in practice, Commercial banks started providing loans for The government of Armenia was able to produce onlyfew individual credit programs were actually used housing production, and international donors a handful of buildings. In the early 2000s, becausebecause of the collapse of the Soviet Union. started playing a larger role in the development of the private-sector activity (mainly in Yerevan), of the housing finance sector. In 2004–05, under involvement in housing production increased In 1995, the Parliament adopted the Law on the funding of the German Kreditanstalt für considerably. Currently, the volume of housingMortgage (annulled after the RoA Civil Code was Wiederaufbau bank, the Urban Institute, Bank construction is decreasing because of the globalestablished) aimed at creating a credible system of Academie International (Germany) and the financial crisis.housing finance using tested financing models of the Urban Foundation for Sustainable Development,Commonwealth of Independent States. The housing Armenia, a feasibility study was carried out on Housing markets: There were few marketfinance market became active by October 1999 and the development of the housing finance market in transactions annually. Most transactions were donethen real estate prices went down. Until the early Armenia, and in 2006 a project began to refinance informally, and professional real estate agencies2000s, the housing finance system was dysfunctional the mortgage loan portfolios of commercial banks. were involved in fewer than 30 percent of marketboth in terms of public and private system However, because of the global financial crisis, transactions.18 The number of market transactions ininvolvement. In early 200115, commercial banks private-sector crediting was actually stopped, and the earthquake zone was relatively high, stimulatedgradually started allocating mortgage loans, although the portfolio of banks decreased. To prevent the by the USAID and government housing voucherthe mortgage portfolio of banks was very small and drastic fall of the development pace in the field of program.conditions, especially for physical entities, were rigid: housing finance, the government encouraged privatestrict eligibility criteria, low maturity period and developers to take loans from the commercial banksvery high interest rates. Loans mostly were allocated under state guarantee. The measure was undertakenfor housing purchase and renovation. Mortgage to support the huge volume of unfinishedmechanisms were further tested by the USAID/Urban construction, mostly in Yerevan, and started the 14. Steven Anlian and Irina Vanyan. “An Overview of Armenia’sInstitute Housing Purchase Certificates Program construction of residential buildings for earthquake- reform: Housing and Urban Development Policy, 1989-(in 2003–04)16 and applied by Habitat for Humanity displaced households. 1995. ” 15. RoA State Committee of Real Estate Cadastre.International. Since 2000, HFHI’s Armenia office has 16. The program grants eligible households a voucher to en-been providing affordable loans with a long-term Housing production: During the initial years able them to buy an apartment in the housing market andmaturity period (up to 20 years) for construction of transition, 1989–92, all residential construction has boosted market transactions also outside the earth-and renovation of poverty housing. In 2008, the activity was under central state funding. Starting quake zone.organization launched the first phase of a US$3.7 in 1994, many state construction firms were 17. Habitat.org.million new housing loan fund, which will allow privatized. In state enterprises, employees received 18. United nations. “Country Profile on the Housing Sector:for significant scaling of Habitat’s construction and an ownership share with a plan to take over whole Armenia, new York and Geneva, 2004. ” 14 Armenia Housing Study
  15. 15. The price of housing in Armenia differs from regionto region. While on average 1 square meter of gross Condition of current It is interesting to note that the housingresidential area had a market value of US$80 to US$90, housing stock in Armenia supply in Armenia measured in housing unitsit costs approximately US$600 in Yerevan. Because “During the past decade, Armenia has become has increased significantly during the past fiveof the aforementioned housing voucher program and a ‘nation of homeowners,’ with 96 percent of years (Annex 10). The main reasons are increasingconstruction by donors (mainly the Lincy Foundation), the housing stock being privately owned today. housing production by the private sector (mainlyprices for houses increased in the earthquake zone. Privatization was accompanied by changes in the in Yerevan) and international donors (mainly inAccording to the State Committee of Real Estate institutional and legal framework. New institutions, the earthquake zone) and the gradual “legalization”Cadastre, after the decline of prices between 1999 and governmental, private and international have of illegal or semilegal housing, in particular2001, housing prices and transactions have consistently become an integral part of the housing sector, and through legislation that regularizes existingincreased from 2001 to 2007 (Annex 6). In Yerevan the legal basis for private ownership has been created housing and through the low rates of removalin particular, the prices drastically increased after by the introduction of a number of laws aimed at of inadequate or damaged housing from thethe construction boom starting in the early 2000s. providing a framework for the management of the existing stock. In 2001, only 18,000 square metersHowever, SCREC reports that as of the first quarter newly privatized housing stock.”20 or 0.3 percent of housing was taken out of theof 2009, the real estate transactions decreased by 14 stock because it was inadequate. Internationalpercent and 20 percent compared with the first and Total housing stock and housing supply: As averages, however, suggest that a country needssecond quarters of 2008. The analysis of price indexes of Jan. 1, 2009, the total surface of Armenia’s housing to replace between 1 and 2 percent of its housingshows that the prices for housing per square meter fell stock amounts to 84,985,200 square meters, of which stock annually to maintain existing standards.by about 16 percent by taking into account the more 52.6 percent is in urban areas and 47.4 percent is in Given the predominance of poorly maintainedthan 20 percent of depreciation of Armenian Dram rural areas. Table in Annex 7 provides an overview high-rise prefabricated structures in Armenia, this(AMD) against foreign currencies, particularly the U.S. of the distribution of the housing stock among proportion should be considerably higher.21dollar in March 2009. Armenia’s 10 regions (marzes) and Yerevan as well as between urban and rural areas. To date, according to the Ministry of UrbanRental market: The rental market is relatively small, Development, the number of unshelteredgiven the large number of apartment units that were Housing types: The housing stock of Armenia households and households in need of improvedprivatized. The largest category of rental units is that is divided into apartment and single-family housing conditions in Armenia is about 66,023which is currently being transferred to local governments housing stock located in urban and rural areas. (8.4 percent of Armenia’s permanent population),(approximately 4 percent of the apartment stock). The This breakdown is provided in Annex 8, which also out of which 30,000 (3.8 percent of the permanentprivate rental market is very small and concentrated in indicates the comparison between total numbers ofYerevan. Rents in the private market in the early 2000s housing units in 1989 and 2009.varied from US$50 per month at the low end to US$250to US$400 per month at the top end. The latter were Single-family homes represent about 48 percent 19. United nations. “Country Profile on the Housingmainly flats rented out to companies or expatriates. There of the total housing stock—most are in rural areas— Sector: Armenia, new York and Geneva, 2004. ”is no rent control. Landlords set the rents themselves, and and apartments represent about 52 percent. The 20. Ibid.most private leases are concluded informally, without typical apartment building is 30 to 50 years old, an 21. Ibid.notarization and state registration.19 age when serious repairs are necessary (Annex 9). Armenia Housing Study 15
  16. 16. population), are unsheltered (Annex 11) and live in ■ 1988 and 1997 earthquake-displaced Apartments for Young Families,” which states maindomics—temporary metallic containers or wooden households. rules and criteria for young families in acquiring aor stone structures—in public assets or in other ■ Refugees displaced from Azerbaijan from dwelling. According to preliminary data, the numbertemporary shelter. 1988 to 1992. of potential participants in the program equaled 300 ■ Residents living in the wooden houses in the young families for 2010.Vulnerable groups in Armenia village of Lernadzor, Syunik Region.lacking access to decent housing ■ Residents of houses in zones susceptible toHousing projects supported by the state: landslides and falling stone.There is no government strategy to deal with the ■ Children remaining without parental care.housing issues of vulnerable groups. Armenia’s ■ Families of killed soldiers.Ministry of Urban Development had been ■ Repressed families.implementing ad hoc projects for vulnerable groupsbased on different laws and government decisions. In the government action plan for 2009-12There are 15 such projects, part of which have (which can be viewed as Armenia’s sustainablealready been completed by the ministry. Most of development strategy), special attention is paidthe projects are ongoing. As of Jan. 1, 2009, the to housing projects for socially vulnerable groupstotal number of vulnerable families involved in (Annex 13), which, according to the government,the aforementioned 15 projects was 33,730, out of are:which 19,863 received housing. The remaining need, ■ Earthquake-displaced households in theaccording to official data provided by the Ministry earthquake zone.of Urban Development as of Jan. 1, 2009, is 14,723 ■ Refugee households.(Annex 12). The government is updating the list of ■ Children without parental care.beneficiaries annually. ■ Socially vulnerable, young families. ■ People with disabilities or partial mobility. Based on the government projects, the vulnerablegroups in Armenia lacking access to decent housing The list of measures of the RoA Demographicare: Policy Strategy (July 9, 2009, GoAM Decision # 27 ■ Residents of multiunit buildings subject to N) includes development and implementation of demolition. targeted state projects on provision of affordable ■ Residents deprived of housing because of the housing for young families, provision of permanent taking of a land plot for state and community housing for the most vulnerable refugees, for the needs. elderly, etc. ■ Residents of houses near the state border. ■ Internally displaced persons from Artsvashen Ad hoc housing projects for young families village. include the government of Armenia’s Jan. 29, 2010, approval of Decision No98-N “Affordable 16 Armenia Housing Study
  17. 17. Housing analysisThe property rights regime efficiency of property markets are the priorities for subdivisions.Property registration, placing property into civil the Armenian government. Nevertheless, privatecirculation, the provision of high transferability of property rights are not absolute. The state can define The objects of state registration are the rightsreal estate, and the establishment of mechanisms for and limit these rights through, inter alia, zoning of ownership and use, mortgage, hypothec,the protection of property rights guaranteed by the restrictions, taxation or compulsory acquisition for construction, claim of assignment, servitude to theconstitution are the main responsibilities of relevant public use. property subject to state registration as set in thegovernment agencies. law, in addition to other rights, their origination, The overall aim of the Armenian government to conveyance, modification and termination in cases There are three aspects of the property rights develop property rights registration is: stipulated by law. The subjects of state registrationregime: the freedom to exchange land and housing ■ To promote private-sector development by are the Republic of Armenia, its communities,property without restriction, the development of implementing a transparent, easily accessible citizens, physical and legal persons, foreign statesland registration systems, and the orientation of and reliable registration system for land and and international organizations, foreign legals andthe government vis-a-vis regularization of squatter other immovable property. people with no citizenship.settlements as opposed to the eviction of settlers. ■ To provide a chronological record of property owners and their rights and obligations. All citizens of Armenia have equal land and The legislation of the Republic of Armenia on ■ To reduce the transaction costs of title other property rights. They can jointly own the landstate registration of rights to property (hereinafter transfers and mortgage financing. or other real estate. Property acquired by spousesreferred to as “state registration”) consists of ■ To reduce the number of procedures and during marriage is in their joint ownership, unless itArmenian laws and regulations. The two main laws amount of time to register property. is provided as a gift or inheritance or belonged to thein this sphere were put into force in 1999 (the RoA spouse before entry into marriage.Civil Code, January 1999, and the RoA law “On State The general principles of state registration in All physical and legal individuals shall beRegistration of Rights to the Property,” April 1999). Armenia are: informed about the registered rights to the realThe RoA law “On State Registration of Rights to the ■ State protection of registered rights to property regardless of their awareness of theProperty” regulates the state registration of rights to property. respective rights.property and the activity of the system implementing ■ Accessibility and objectiveness in updatingthe state registration, and includes rights and and centralizing cadastral data. State ownership of land and housing has beenencumbrances to the property, subject to state problematic. Housing investment incentives byregistration, irrespective of the form of ownership, in The state registration of rights to the property is public authorities have usually been unrelated toaddition to rights to personal property. implemented by the system of state unified cadastre demand, consumer preferences or willingness to pay. of real estate, which consists of the national body Securing property rights and increasing the within the government of Armenia and its territorial Common (or group) ownership rights to land Armenia Housing Study 17
  18. 18. EzRA mIllSTEInand housing are also problematic. The rules usuallypreclude individuals from selling their shares ofthese rights freely to others. Individuals lose someor all of these rights upon leaving the group, andthey are thus constrained in their mobility. Urbanhousing cooperatives in Armenia, for example, haveoften failed to institute effective policing measures toforce recalcitrant members to pay their dues. A new type of right was added to the rights ofnonowners: the right of construction, which wasvaguely defined in Article 204.1 of the RoA CivilCode, giving way to different interpretations. Theright of construction can be provided for 99 yearsbased on the contract, which does not derive from Carpets are on display for sale at the Vernisage, a bustling market in downtown Yerevan.the interest of the owner of the land plot. Moreover,Article 209 of the RoA Civil Code requires that when right of ownership, right of use, mortgage, hypothec, growth and development of the community at large,transferring the ownership right to the building or servitude, other encumbrances, rights to personal all of which lead to increased demand for properties.structure on the plot belonging to the owner, the property, and other rights stipulated by law shall be Property owners cannot, therefore, claim the right topart of the plot occupied by the building or structure subject to state registration within 30 days of the appropriate all the surplus value of their property, andshould also be alienated, and the rights necessary transaction. part of this surplus can and should be taxed to coverfor using and maintaining the building should be the cost of public improvements. Issues of propertytransferred. It turns out that the right of construction, Registered rights, including mortgage and taxation will be analyzed in more detail and shallwithin a very short period, can be transformed to hypothec, have priority over rights submitted within be applicable for all kinds of property in relevancethe ownership rights of the real estate (it also means the determined period but not registered. with the market value of property (In Armenia, therethe land, which may belong either to the state or to are two laws regulating property taxation: the lawthe community). In general, there are contradictions Immediately after the state registration of rights “On Property Tax” and the law “On Land Tax.” Nowwithin all legislation connected with the right of to the real estate, a certificate stating the registration government is going to combine these two laws andconstruction and the consequences of its application. of ownership (use) and the right to the real estate is establish one unified Tax on Real Estate Property). issued. Armenia has a unified cadastral system. All rights In 2006, the law “On Alienation of Property forand transactions related to real estate property are The increased value of properties is in large the State or Community Needs” was adopted, whicha subject of state registration in the same cadastral measure attributable to public actions in service regulates all relationships related to the compulsorydepartments. Rights to the property shall be considered provisions, to actions by other citizens to enhance taking of a land parcel or the other property forregistered from the moment of registration. Rights the property values of the neighborhood, and to the the state or community needs. The public mustoriginating from real estate transactions, such as the 18 Armenia Housing Study
  19. 19. retain the right to acquire any property deemed it virtually impossible for families to own homes or unions and pawnshops. It accounts for only 3 percentnecessary for public use through its power of invest in needed home improvements. of the total financial sector, so it does not yet play aeminent domain. When such a public need arises, meaningful role in financial intermediation.property owners must sometimes part with their As of Jan. 1, 2010, Armenia had 22 commercialland involuntarily and receive a fair market price in banks with 410 branches and 8,402 employees, with: The Armenian government has announced itsreturn. ■ Total capital of 286,807.5 million AMD. goal and objectives in the development of housing ■ Total assets of 1,346,105.1 million AMD. finance, taking into account the development of a In the absence of an effective practice of ■ Total loans of 778,182.8 million AMD. vibrant and healthy housing finance sector as aneminent domain, public agencies cannot provide ■ Total liabilities of 1,059,297.6 million AMD. integral component of the financial sector. Thethe infrastructure necessary for expanding cities ■ Total deposits of physical persons of 339,493.6 key of reforms in this field is to improve housingor for revitalizing and upgrading established million AMD. conditions by promoting the development of theneighborhoods. Often, the success of slum and ■ As of Jan. 1, 2010, there are 28 credit housing sector as a key economic sector in termssquatter upgrading projects, for example, has organizations in Armenia. of savings, investment, production, employmenthinged on the ability of the community to negotiate and creation of wealth; to make homeownershipagreements to clear sufficient right-of-way for roads Lack of competition also contributes to high more affordable by increasing popular access toand public facilities. lending rates. Despite the existence of 22 commercial mortgages; and to direct credit and find affordable banks, certain sectors are served by only a few banks. loans to solve housing problems of low-income orThe housing finance regime Bank loans are mostly short-term, and therefore not vulnerable groups.Supported by favorable macroeconomic conditions, conducive to productive investment. While the sectorthe mortgage market in Armenia has started as a whole is liquid, well capitalized and profitable, Central Bank of Armenia was closely involved,developing during recent years. However, it remains there is considerable heterogeneity across banks. directly and indirectly, in the reforms addressed tovery small and mainly serves the more affluent The nonbank financial sector in Armenia comprises the financial sector, in particular the banking sector,population in the capital city of Yerevan. This makes insurance companies, leasing companies, credit and lately the housing finance market. The most basic policy instrument for theThe Macroeconomic Figures of the Armenian Banking System (comparing 2006-09) development of a vibrant housing finance regime is Jan. 1, 2006 Jan. 1, 2007 Jan. 1, 2008 Jan. 1, 2009 Jan. 1, 2010 the creation of a property rights regime that makes it possible to own, buy, sell and mortgage houses and % of total assets 20.2 20.4 25.0 28.4 42.5 apartments, as well as to legally transfer other rights in GDP to the real estate property. The main question is how % of total loans 9.4 9.5 13.6 17.7 24.6 to make the property registration process and title in GDP transferring faster, cheaper and easier to allow lenders % of total capital 4.2 4.5 5.3 6.5 9.1 to sell loans and collaterals in a short time and in a in GDP legal way. % of total deposits of physical persons 5.4 5.4 6.3 6.4 10.7 in GDP Armenia Housing Study 19
  20. 20. The key regulatory instrument is an effective ■ Foster growth and diversification.and enforceable foreclosure law that makes it ■ Ensure the financial integrity of housingpossible to evict a homeowner who fails to meet finance institutions. The key of reformscontractual obligations toward the mortgage lender. ■ Establish conditions for the safety ofThe Civil Code has recently been amended to depositors. in this field is toprovide for a speedy foreclosure procedure, allowing ■ Restrict conflict of interest and ensure proper improve housinga secured creditor to foreclose on a property without management of risks. (Central Bank ofhaving to resort to a court if he has a notarized Armenia adopted a few regulations related conditions byagreement to this effect. to the asset/loan classification and the promoting the bankruptcy procedures of banks.) Another issue is ensuring a transparent, quick, ■ Develop norms for portfolio structure, development of theefficient and certain enforcement system. Currently, the supervision of financial management, housing sector as athe process of enforcement is not clearly stated; accounting, auditing and reporting: Centralstandard and workable practices are missing; sale Bank of Armenia approved new resolutions key economic sector.by private treaty is prohibited; court processes are on the creation of the credit registry, andelayed; and costs are high. information system on creditworthiness of customers of banks, credit institutions and Other international organizations also are foreign banks’ branches operating in Armenia.interested in foreclosure, enforcement and The creation of a credit registry is aimed atbankruptcy issues in Armenia and are closely reducing the credit risk for banks and creditinvolved in technical assistance projects to support institutions, while making sure that such and considering requesting technical assistance tothe government. an information system would help identify further strengthen contingency planning and crisis nondiligent borrowers. preparedness. A second necessary instrument is a systemof prudential regulations to ensure the viability Existing legislation confers on the Central Such practices assess and account for all theof housing finance institutions. Armenia creates Bank of Armenia comprehensive powers for risks associated with mortgage lending, includingclear objectives of such a system, highlights main intervening and resolving banks’ problems. inflation risk, default risk or risks that houses arepriorities of the subject field and involves all CBA has strengthened its capacity to address the damaged or destroyed, and cover such risks byauthorized governmental and financial institutions banking crisis by expanding the range of eligible settling appropriate interest rates or by the design ofto create necessary regulations to improve the collateral for emergency liquidity assistance. CBA specific mortgage instruments.housing finance regime and strengthen the housing has also formalized a mechanism to support thefinance market in the country. recapitalization of banks through a subordinated A third group of regulatory instruments often debt facility matching bank shareholders’ capital found in housing finance regimes are restrictionsThese objectives are: injections. It also introduced a temporary loan that aim at rationing credit by: ■ Protect the public interest from the facility to expedite mergers and acquisitions. The ■ Limiting mortgage lending to specific types of consequences of fraudulent bankruptcies. CBA is securing public resources for this purpose housing. 20 Armenia Housing Study
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