Saturday, June 30, 2007

Real Estate Boom in Tajikistan

During my last trip to Tajikistan this year, I have been approached many times by people who wanted to partner up with me to invest in real estate. Apparently the price of an average residential real estate in Tajikistan (especially in Dushanbe) has doubled in the past 8 months.

That plus the number of recent commercial and residential property built in the capital makes me wonder if we are in for a real estate boom and, if so, I wonder how long will it last (and at what rate)?

The difficulty with investing in Tajikistan is that there is no hard evidence available to show the recent price dynamics of real estate. Evey piece of price information I have been able to get was basically word of mouth.

The good thing is that, whatever the underlying factors, the demand for real estate is less likely to be speculative. For one thing institutionalized rel estate investing (represented in other countries by hedge funds, etc.) which could potentially fuel speculative purchasing is nonexistent in Tajikistan.

I have been doing some number crunching to see whether investing in real estate makes sense. With an investment horizon of say two years, the biggest risk will be not being able to sell the property.

The country has been stable politically for the past several years but the risk still exists. Unfortunately, there is not much one can do about political risks (except not take them?). I am not sure I could get political insurance for a speculative project like this from MIGA.

Anyway, there is however a structure that could makes sense. An average 5BR apartment in Dushanbe costs around $75-90K. In order to maximize ROI, the potential investor would have to buy residential real estate with internationals tenants. International organizations offer generous packages to their staff in the field.

So, I figure monthly rate for a nicely furnished apartment should easily fetch up to $800-1000? The IRR in this scenario from just rental payments would be 14% for the period of 48 month, which means the investor will not only be able to recoup his investments but also make an average of 14% return on his investments.

Financing such a project is no easy task. Debt could be an option though (since rental payments should be able to cover the monthly payments), but again I don't know how much banks would charge as interest for such cases. Will they do it?

I am more inclined to get equity money for this. This way risks and rewards would be evenly distributed. Plus no matter how you look at it this IS an equity risk. A very good one though!

Sunday, March 18, 2007

Who wants to be the President?

Here is a perfect thesis for aspiring PhDs in sociology: correlation between critical thinking and prosperity (economic and cultural).

If there isn’t an instrument which measures critical thinking on societal basis there should be. I have this daunting suspicion that nations, which foster critical thinking in their youth, will have a tendency to prosper and develop at a higher rate than the ones that don’t.

Tajikistan, I am afraid to admit, is in the latter group. Tajiks are a unique nation in this respect. They either have utterly clueless, but ambitious folks who want to run the country or they have a similarly clueless mass that sheepishly accepts anything it has been told over TV and other mass media. My take is that together these two phenomena work to the detriment of the country, denying it a possibility to become a stable and highly developing country.

Looking for answers as to why such phenomena exist in Tajik society I came accross our mentality. It is filled with conformism. We are taught from our childhood (in our family, then in schools and then in real professional life) not to question the authority; even when the authority is wrong, inaccurate or just plain stupid.

In this senseless whirlpool of traditions, education and the fear to become an outcast because of your thoughts, the natural curiosity of the young Tajiks (prerogative to critical thinking) becomes dull and skewed. As a result when an average Tajik graduates high school he is one fine element of the society that has little to offer to the world.

At the end generations of young people get raised with somewhat distorted model of the world in their minds. While as a product you have a very abiding mass of population (the dream of any dictator btw), you also end up mentally castrating any talent the country could have produced were it organized differently.

With the fact that the position of authority bears such a great weight in our up-bringing, it is no surprise that every kid in the country aspires to be the President of Tajikistan!!! For many the position of power seems as the only liberating aspiration worth struggling for. What happens when too many people compete for the position to rule? Yep, you guessed it right! It leads to political and economic instabillity.