What are the problems in the construction industry? Interview with Vardan Marutyan

The reasons for the growth in the real estate market before the financial crisis of 2008 are different from the reasons for the growth after 2014-2015. Vardan Marutyan, the first deputy general director of the company ML Mining, said in an interview with Suren Parsyan during his program called EconoMIX.

He added that the real estate market had grown before 2008, but not as much as it is now.

"The economy was more monopolized then. In addition, construction was mainly developing in the center of Yerevan.

At that time, this or that businessman who was increasing his capital invested in the real estate sector, because, unfortunately, there was nowhere else to invest, there was no possibility to import goods or engage in other business. Such were the realities. The only reliable area where one could invest funds was real estate.

In addition, our compatriots who emigrated from Armenia in the 1990s and built up their financial capital abroad also acquired real estate here. Another feature of that period was internal labor migration from the regions to Yerevan, which also created demand for apartments in the capital.

But after the global financial crisis of 2008, sales fell, and so did prices, which began to rise again in 2014-2015 after the introduction of the institution of tax refund on income from mortgage loans. For that period, such a decision was justified, since along with stimulating the economic component, social problems were also solved in this way," Marutyan noted.

He explained that the field began to develop, not only because of the introduction of the above-mentioned institute, but also because of cultural changes.

"People who are planning to get married are now more likely to consider buying a separate home than they used to. Another trend is also observed: young people are considering buying a separate home for themselves, regardless of their marital status.

All this led to the fact that the apartment buildings built in 2018-2019 were in high demand, which led to an overheating of the market, in which appeared players guided by emotions. They often built one house and, against the background of high demand, decided to continue this activity.

From 2018 to 2020, it was possible to implement a project by investing very small funds. The buyer was financed by the state in the form of a return on income tax on mortgage loans, and the buyer, in turn, financed the developer. The latter invested these large funds and implemented the project. But the picture will be different when the money runs out, and the sales rate does not remain the same as now. Therefore, there will be developers who will find themselves in an unexpected situation. The company ML Mining has the opportunity to implement many other projects, but avoids this taking into account a sober assessment of the market situation," the representative of the company ML Mining emphasized.

He also called it a problem that other related infrastructures (water, electricity and gas supply) were not prepared for the sharp increase in demand for housing.

"In addition, there is a labor shortage in construction, which is also associated with the rapid growth in the sector," Marutyan said.

He noted that when choosing, a buyer usually focuses on the square footage, location of the house, convenience, price. He also called for other factors to be taken into account.

"We have more than 10 active mines, we have the largest technical park in the industry. Having started with the mining industry, we transferred our capacities to the production of building materials, and then to the construction of houses, trying to close this circle.

We are not one of those developers who erect one or two buildings and then, when things go badly, the office doors will be closed. It is important for the buyer to consider what kind of development history a given company has, in what timeframes its previous projects were completed, and so on. At least in terms of mines, we have obligations to the state, we have established production, and projects are being implemented. Participation in state projects is also important. We have established healthy interaction with government agencies," Marutyan.

He noted that a significant portion of developers are extending project completion dates, however, in his opinion, for the most part this does not pose any serious problems.

"Of course, there are cases when such phenomena should be intolerant. These are those projects in which the subject has initiated the project and no longer wants to finance it, because, for example, it has transferred its resources to a more profitable direction.

But there are cases when deadlines are postponed for objective reasons. For example, subcontractors may not be ready for rapid growth rates, which leads to a chain problem.

Problems may arise in terms of connecting gas, electricity or water supply, as well as in terms of building materials. Such cases should be treated more calmly. It is another matter when construction is at a standstill and does not progress. In addition, government agencies are also overloaded against the backdrop of the growth of the construction sector," added the representative of the company "ML Mining".

He urged buyers to take into account that the developer is most interested in the completion of construction.