Fitch says there are signs of overheating in Armenia's residential property market

YEREVAN, January 29. /ARKA/. Armenia's banking sector is marked by relatively high dollarization, although deposit dollarisation had fallen by 4.6pp from end-2022 to 50.5% in 2023, Fitch ratings says in a report.

It says loan dollarization remains largely stable at 34.7%, despite Central Bank of Armenia phasing out new FX mortgages in 3Q23.

Demand for FX loans from private non-financial corporations remains high, reaching 19.3% yoy as of November 2023, mainly due to their lower interest rates. However, banks currently have adequate dram and FX liquidity, strong asset quality (non-performing ratio of 2.8% as of November 2023), and high capitalisation (November 2023: common equity Tier-1 capital adequacy ratio of 17.8%).

There are signs of overheating in the residential property market, with the IMF estimating prices to be overvalued by up to 25%, owing in part to the heightened demand from the population surge. However, Fitch sees risks of a disorderly correction as relatively low, and any spillover on the broader economy will likely be limited, given strong household and corporate balance sheets.

 According to the Cadastre Committee of Armenia, about 220 thousand real estate transactions were made in 2023, which is 7.2% more than in 2022. At the same time, the number of transactions in Yerevan decreased by 6% to 60 thousand in 2023 against 64 thousand a year earlier. --0--