Managing director and member of the board of directors of JSC “SAMRUK-KAZYNA National Wealth Fund” K. Aitekenov interview for Panorama newspaper

Kairat AITEKENOV, "Samruk-Kazyna": "We shall fulfill our commitments for construction sector stabilization in full scale"
«Panorama», 11/13/2009

Our government is giving a support to the construction sector for the third year already. Construction sector is one of backbones of domestic economy. Kairat AITEKENOV, JSC “Samruk-Kazyna National Wealth Fund” managing director and member of the board of directors reported particular results of this support in the interview to the Panorama newspaper.

- JSC “Samruk-Kazyna”, being the operator of National Fund assets, acted as finance agent, main real estate developer and investor within the framework of the antirecession measures of the Government.
I meant that fund received public funds for support of real estate sector to the total amount of 335 billion tenge from November, 2009 when said about being a finance agent. The construction of 27 projects was completed to the amount of 66 billion tenge and problems of 4,355 construction participators were solved during 2007 to 2008 and first half of 2009.
Furthermore, there are separate positive results gained during application of allocated funds. Problems of construction participators were solved and we also purchased apartments for further sell to government employees. “Samruk-Kazyna” still deals with a problem of apartments for other category of citizens, i.e. not for government employees.
We distributed odd funds to the amount of 335 billion tenge between projects in Almaty city, Astana city, Akmola and Almaty regions. We will complete 66 projects in these areas during the period from 2010 to 2011. Total number of construction participators will be 13,745.

- Do you mean housing estates and apartment buildings saying “projects”?
- I mean housing estates that, in turn, are consist of housing clusters. 13 projects out of 66 are funded by second-tier banks for persons wishing to buy real estate against a mortgage. 53 projects will be funded by “Samruk-Kazyna Real Estate Fund” (subsidiary of our Fund). This Fund purchases apartments for further usage in the lease system.
The number of apartments purchased from 53 projects is assumed to be 17,144 with overall area of 1,356,555 square meters. For comparison, 1,000,000 square meters of lodging was annually constructed during each year from 2003 to 2005 in the height of housing construction in our country.

- What progress do you have in realization of first option (funding by banks)?
- We are funding banks for mortgage loans allotment to the persons wishing to by apartments in half-constructed houses. These houses are at the high degree of completion of about 70-80%. It raises sales. Sales raise is based on good location of house, good infrastructure around and also for the reason that people need lodging. That is, recession is not an obstacle for buying of lodging.
This option is profitable for banks because it is attainable to complete construction of remaining 20-30%. In return, they will get access to the liquid capital granted by the Government. Problems of construction participators were also solved but risk for 100% belongs to the second-tier banks.
We can say with sufficient level of confidence that we shall not have any troubles with the use of this option by banks because it involves not housing estates but individual houses. Loan funds in use are of 2007 to first half of 2008. They were provided by the Government through Sustainable Development Fund “Kazyna”.

- How many banks are involved in this program?
- There are four banks involved: Kazkommerts Bank, Eurasian Bank, Tsesna Bank and ATF Bank. We have also obtained requests from Temirbank that are already satisfied. It means that 5 banks will participate the program.
The second program is implemented by Real Estate Fund that forms alternative to the mortgage, on the one hand, and, in the meantime, on the other hand it deals with the problems of participatory construction and completion of construction.
There are many countries all around the world that activated mechanism wherein State is the letter of already involved into the mortgage system lodging. It was activated because of reduced world level of mortgage loan activity, i.e. banks and people do deals reluctantly.
The option we used in Kazakhstan is that all lease lodging that was bought by the State is business lodging. That is, “Samruk-Kazyna Fund” acted as operator with market principles.
I stressed that point because there is one more lease lodging mechanism that is mainly socially oriented. It is implemented by Akimats. Local authorities got public funds to purchase lodging at the set price. Public sector employees and government employees will be main recipients of this lease lodging.
“Samruk-Kazyna” grants funds for completion of construction of housing estates via its’ subsidiary “Real Estate Fund”. It is carried out by buying of vacant apartments wholesale on the basis that the value of vacant area will allow to complete construction and to solve problems of construction participators.

- How much does the Real Estate Fund pay for apartments?
- The price, surely, must be confirmed by special technical audit and state expert review, i.e. the estimate of scope of work for construction completion must be prepared.
We have set average purchase price at the level 800 USD to 1000 USD per square meter. Lodging, surely, will be bought at cost if technical audit and state expert review will confirm lower price. We have a maximum price limit in the case of higher prices. The price higher than 150 thousand per square meter is not allowed.
We have a principal condition upon that. It is a final finishing. It means that apartment can be immediately sold or leased out after state commission report was signed.
There are three classes of lodging by standards for the lodging pricing technique with further lease out. There are social lodging, economy class and business class in this standard. Price varies according to the class level and location: city centre, micro district or suburb.
Thereby, suppose that the price per one square meter of social lodging is set in the amount lower than 85 thousand tenge but price can also be reduced depending on the part of city, its’ infrastructure density and demand. The price for economy class lodging is set at the level 96 thousand to 105 thousand tenge and business class at the level 105 thousand to 120 thousand tenge.
An important point is that after confirmation of area and price data by technical audit and state expert review the Real Estate Fund before take a decision upon a conclusion of purchase contract proposes this question to shareholders (The Board of Directors and Management of “Samruk-Kazyna” NWF”). After that, Government decrees for the set of purchase price of each specific project. The following chain: “technical audit, state expertise review, investment commission, Real Estate Fund Management and Board of Directors, “Samruk-Kazyna” NWF” Management and Board of Directors, decree” is composed of range of administrative and investment obstacles, i.e. purchase estimation and, correspondingly, further sale of lease lodging are done basing on accurate finance model. It is all done for refunding of funds allocated for the Real Estate Fund.
- Does it mean that Government will decree for each specific project?
- Yes, it does. Currently, it is a Government decree confirmatory 32 projects. 26 out of 32 are funded by the Real Estate Fund and remaining by second-tier banks. We still keep adding new projects in the decree draft. These projects have passed technical audit and state expertise review.

- What amount of finances will the Real Estate Fund fund for purchase of lodging?
- 205 billion tenge is required for 53 complexes discussed above. Some deviations can be found out during state expertise review but the Real Estate Fund undertook obligations to abovementioned amount. Credit resources are allocated to the Fund for a period of 15 years. As noted above, Fund has settled contracts on 26 projects and 16 out of them is planned to complete in 2010. Contracts for remaining projects will be settled before the end of current year. 25 projects will be completed in 2011 and 13 projects in 2012. Total of 53 projects will be fully completed for a three years.

- Are these all complexes located in Astana city and Almaty sity?
- Yes, they are. 43 projects are located in the Astana city and 10 in the Almaty city. There are more projects in the Astana city because it was a high building volume in new city districts, blocks and at the left bank of river in 2006 to 2007. It was a great demand for lodging and it still exists. In addition, there is more lodging of economy class in the Astana city. As for Almaty city, real estate developers placed special emphasis on projects of elite class and business class from the very beginning. The Real Estate Fund does not purchase lodging of elite class because of commercial risks. There are few projects of economy class among 10 in the Almaty city that are out of city center and there are also included projects situated between Almaty and Almaty region (“Ahselkent” and “ Khan Tengri” projects).

- What are results of technical audits conducted already? How correctly did real estate developers calculate their cost initially?
- The state set the price at the level from 96 thousand to 120 thousand tenge and we could see who is still expecting for a price growth (such companies saved projects and were finishing building all by itself) and who understands that they will not get other investment that is why it is better to agree with conditions of the State.
By the way, price was set according to the following formula “production cost + small cost effectiveness”.
Initially, the real estate developer when started to break the ground and advertising was selling apartments for the price lower than production cost for to have an initial current assets for the beginning of construction. Afterwards, the developer was selling it for the price above cost for the compensation of expenses. So, if developer was caught by this “fork” during recession when the most of apartments were sold for the low price and they did not get enough money for construction then it is just a bad calculation.
In the case when collected money of construction participators was enough for completion of construction but developer preferred nonintegral usage and stealing then this is the question to law machinery. We cannot answer to construction participators for such cases.
We are funding the completion of construction purchasing vacant apartments in the projects under completion. Construction projects of other kind are the issue of Akimats. They got adapted mechanisms for it.

- What will you do with projects if during technical audit it was found that construction is of poor quality? It was completed for 80% and you suddenly discover that there are technologic defects.
- Here is an example. We will think of gaps closing, if any, when construction quality is generally confirmed by technical audit. We will find out extra expenditures of developer. Let’s speak about block F “Grand of Astana”. The total price for vacant apartments is less than required funding for closing of gaps and completion of construction. The required funding was calculated according to the finance model. So, this block does not meet requirements for support according to the technical program under implementation of “Samruk-Kazyna”. That is why F block was put in the hands of Astana city Akimat.
We cannot fund project if poor quality of construction was confirmed by technical audit. We should note that there are not so much projects with poor construction quality.

- The Real Estate Fund will buy 17 thousand apartments and will lease it out for the period of 15 years. What are the following functions of this company? Will it buy any kind of lodging again and lease it out in future?
- The Real Estate Fund was established to decide issues of lease lodging using 3 mechanisms: lease out only, lease out followed by purchase, sell only (if person wants to by lodging immediately and price is acceptable. Money, then, will go to cancel a credit in National Fund).
The Real Estate Fund has worked out and issued deregulations to the housing maintenance and utilities board agency for further present it to the Parliament. These deregulations are mainly related to the “business lease lodging” conception.
The letter should have and opportunity to give the key of the street if not-payment occurred because it is a business lodging and not a social. When can this law be enforced, then? The Real Estate Fund will not be able to maintain a loan of National Fund if not-payment occurs, i.e. the loan of the Future Generations Fund will not be maintained. This situation is unacceptable. That is why it must be a mechanism for the control of Fund and renter actions in such situation.
Fund will obviously need some lodging in reserve if it will be a big pool of leased out lodging. It is required for the case when person renting a three-room apartment will not be able to maintain. It to be possible, then, to exchange it for a two-room apartment. Previous lease payments will also be taken into account. This point is also important and considered in worked out Rules for the leased out lodging. This rules will be passed by the JSC “Samruk-Kazyna” NWF” Management and the Board of Directors. The document is already worked out. It will be confirmed after settling of fundamental rules in legislation.
As I said before, there are 3 mechanisms in possession of the Real Estate Fund: lease out only, lease out followed by purchase, sell only. The Fund establishes a managing company that will have direct relations with renters, community services and housing cooperatives.
As I think, a new model of interaction will be formed between apartment owners and community services in the houses where the most of lodging is leased out. That is why managing company will establish clearly defined relationships with community services and will be more exacting to the houses maintenance quality. Construction participators (apartment owners) of these houses will, accordingly, also conclude a contract with this managing company that provides for maintenance services.
The “Samruk-Kazyna” Fund” will confirm rules for leasing out and will start to lease out apartments in the coming spring if deregulations will be accepted before the year is out.

- It is said that the Fund already started to admit requests. Why there is no large-scale information expository campaign regarding to that fact?
- The Fund obtains requests for the lodging lease out from government organizations. It is mainly initiative of these organizations but not the Fund campaign. Surely, it will be publicly announced when the Fund will start to take up documents officially.
It is a big interest regarding to the leased out lodging. It needs to be understood at once that according to calculations the price of leased out lodging will be set at the level from 950 tenge to 1150 tenge per square meter. Calculations are done from social class to business class of lodging. It is an approximate calculation of rent but each apartment is different from other. The payment for three-room apartment 60 square meters in area in average will be about 60 thousand tenge per month.

- Mortgage loans refunding program was also carried out and completed this year by “Samruk-Kazyna” Fund”. The Fund informed that this program will work on without additional public funds. What mechanism will be used here?
- Two blocks for construction sector stabilization problem solving are the support of construction participators and mortgage borrowers. As we informed before, conditions of mortgage loans refunding program implemented from March to October are: one apartment in the city with less than 120 square meters area, mortgage loan against this apartment and absence of indebtedness. 31,340 mortgage borrowers took advantage of this program and got a 30% reduction of their payments. The National Fund went to the expense of 120 billion tenge.
However, we obtained requests to the amount of 169 billion tenge and all of them met requirements of program. Loan committees of banks approved these requests as appropriate for refunding. That is why we agreed with banks that they will undertake obligation to refund all remaining requests. We will have 32,933 refunded borrowers.
The whole mortgage portfolio in the loan portfolio of banks was about 600 billion tenge. It also included some consumer loans not related to the lodging purchase. We solved problems of certain group of borrowers when made a condition that only one apartment 120 square meters area is subject to refunding. There are about 5 to 8 thousand borrowers like this and also borrowers with apartments’ area exceeding 120 square meters and also owners of 2 or 3 apartments in the same city. This kind of borrowers does not come with the vulnerable group of citizens.
That is why we reached agreement with banks that funds they received for fifteen years funding of refunding procedure of mortgage loans will be available for refunding for 3 years longer. What is the meaning of this? One part of borrowers with refunded loans will maintain their loans in proper time and in full force and effect (with new amounts of payment). Other borrowers will finish loan repayments and some borrowers will decide to make an early loan repayment. It will let to banks to refund remaining borrowers of mortgage loans using repaid funds.
We are documenting these agreements on the legal framework so that banks do not have problems regarding legality.

- Does it mean that fate of at least 5 to 8 thousand mortgage loan borrowers depend on honesty of those who refunded this year?
- Yes, exactly. There is liquidity in partner banks involved in this program. Furthermore, the finance inspection agency addressed letters of recommendation to the banks for not to allow the non-judical sale of lodging for loans past due. So, the State supports citizens because individuals are the most disciplined borrowers. Meanwhile, you should clearly understand: the principal debt will not be sponged but payment of penalties and interest for default will, possible, be written off or will be deferred to a later date.
“BTA-ipoteka” set a good example when seeing that the State is making efforts to support citizens developing lease lodging offered to the borrowers their own decision. The decision by itself is rational enough and serves to save clients that will be need after recession.

Yerke TULEGENOVA, Astana city