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P 100901Z JUN 08
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RUEHVEN/USMISSION USOSCE 2592

UNCLAS SECTION 01 OF 02 ASHGABAT 000739 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV ECON SOCI KCOR TX
SUBJECT:  TURKMENISTAN:  ELITE APARTMENTS - II 
 
REF: ASHGABAT 0514 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (U) SUMMARY:  The Government of Turkmenistan is acknowledging 
the emerging problem of skyrocketing real estate prices.  New elite 
apartments that have yet to be built are now selling for 2.4 - 3.2 
billion manats (the equivalent of $164,000 - $225,000) in a country 
where the average monthly salary is 2.8 million manats or $200. 
Despite the government's efforts to renegotiate the price of 
residential construction projects with Turkish construction 
companies, the cost of elite apartments continues to escalate, and 
the surge in prices is affecting modest Soviet-era housing as well. 
Although the government is committed to economic reform and a market 
economy, the housing sector illustrates the toxic brew of command 
economy and corruption that will need to be overcome.  END SUMMARY. 
 
 
OLYA'S STORY 
 
¶3.  (SBU) In June 2007, a local embassy employee signed a contract 
with TurkmenGallaOnumleri, Turkmenistan's Wheat Products 
Association, to purchase a two-bedroom elite apartment, the 
construction of which had only just begun.  The total cost, 
including all the fees, came to 1.2 billion manats.  (NOTE: The 
price was equivalent to $51,000 at the 23,000-manats-to-the-dollar 
exchange rate in effect at that tim.  END NOTE.)  The embassy 
employee was required to pay 55% of the price up front, with the 
remaining 45% payable upon completion of the building.  In May 2008, 
the employee spoke to the department head at the Wheat Products 
Association who was responsible for overseeing the apartment 
building's construction.  The department head told the employee 
that, due to the drop of the dollar-to-manat exchange rate from 
23,000 to 14,250 manats, the association was re-negotiating the 
price of the apartments with the contractor, the Turkish 
construction company "Bozdemir."  The department added that the 
remaining 45% of the apartment price might cost the employee less 
than she expected.  "Even if the price does not change, I still know 
that it was a good investment," said the employee.  "People have 
approached me asking to buy my $51,000 apartment for $120,000." 
 
ESCALATING REAL ESTATE PRICES 
 
¶4.  (SBU) Apart from government efforts to bring down the price of 
elite apartments by re-negotiating prices with contractors, Post is 
aware of other stories that contradict the notion that prices would 
drop.  Numerous Embassy contacts reported that the price of the new 
1,764 elite apartments the government said would be built by 
February 2010 (reftel) will be at least twice the price.  For 
example, one embassy contact, who has been trying to buy an elite 
apartment for the last three years, said the official price of a 
Ministry of Water Management elite apartment, the construction of 
which has not even begun, will be 2.4 billion manats ($168,000 at 
the current exchange rate) for a four-bedroom unit.  Another contact 
reported that a four-bedroom elite apartment being offered by one of 
Turkmenistan's state banks was being offered for 3.2 billion manats, 
or $225,000. 
 
¶5.  (SBU) An employee of a particular government agency is allowed 
to purchase one of the agency's elite apartments at a 50% discount 
and can obtain a 30-year, one-percent interest rate mortgage 
(reftel).  However, this kind of subsidized program with favorable 
conditions is available only to employees who have worked for the 
government for five or more years.  Even so, not all employees are 
easily able to acquire such an apartment.  Extensive corruption 
pervades the program.  One has to pay large sums to the agency head 
to have his/her name included on the list of those awaiting new 
apartments.  The agency head does not take bribes directly from the 
buyer, but rather employs several middlemen in the process.  As a 
result, the cost of "shapka," the ad-hoc bribe needed to get an 
elite apartment, has now risen from $15,000 to $25,000. 
 
SPECULATION DRIVES THE PRICE INCREASE 
 
 
ASHGABAT 00000739  002 OF 002 
 
 
¶6.  (SBU) One factor driving the escalating prices is the influx of 
foreign businessmen to Ashgabat.  Although each ministry sets aside 
a certain number of apartments in each building for its own 
employees, the remaining apartments are put onto the open market to 
finance the subsidies on the ministry apartments.  Real estate 
companies with plenty of money are speculating by buying up 
apartments all over the city, fixing them up, then reselling them to 
foreigners, who are now allowed to own real estate in Turkmenistan. 
 
TURKISH COMPANIES HAVE SOMETHING TO SAY 
 
¶7.  (SBU) The general manager of one of the prominent Turkish 
construction companies operating in Turkmenistan said that the fact 
that Turkmenistan is trying to renegotiate apartment prices and is 
not reliable in terms of payment overall is driving Turkish 
companies out of the apartment-building business.  Although Chinese 
companies are slowly entering the market, he expressed concern that 
the Chinese companies would not build with the same quality as the 
Turkish firms. 
 
OLD SOVIET APARTMENT PRICES ALSO ON THE RISE 
 
¶8.  (SBU) Skyrocketing prices for elite apartments are also directly 
impacting prices for existing Soviet-era apartments.  For the last 
two months, a local employee has called several real estate agents 
and searched advertisements for a small two-bedroom apartment in one 
of the old buildings.  She learned that apartments valued at $20,000 
to $25,000 two months ago are now priced at $30,000-$35,000.  One 
real estate agent that she spoke with suggested she wait until next 
year to buy an apartment, when national currency re-denomination 
occurs, hoping real estate prices will fall. 
 
¶9.  (SBU) COMMENT:  The price tag on an elite apartment is in no way 
commensurate with the earnings of an average citizen, suggesting 
that a very significant percentage of Turkmenistan's economy is 
gray.  The housing sector illustrates the toxic brew of command 
economy and corruption.  All new apartment buildings are financed 
and built by government ministries and agencies.  There is no 
housing project we are aware of that is private-sector investment. 
Turkish contractors and diplomats have told us the over-invoicing, 
corner-cutting, and off-takes for each individual building can be as 
much as 30%.  And that's only the first step in a long and corrosive 
chain of corruption.  The government of Turkmenistan is engaged in 
economic reform and moving toward a market economy, but in reality 
these goals will be met neither quickly nor easily.  END COMMENT. 
 
HOAGLAND