The risks accumulating within Armenia’s financial system are becoming increasingly visible. According to economist Aghasi Tavadjan, a “financial bomb” has already formed within the banking sector, with its core centered on the real estate market and mortgage lending.
The market slows down while capital leaves
According to Tavadjan, cadastral data reveal troubling trends. Over the past year and a half, prices for newly built apartments in central Yerevan and the Arabkir district have not increased. In some cases, they have even declined by 2–3%.
However, the most important signal lies elsewhere.
In 2025, legal entities sold six times more real estate than they purchased. In addition, Russian citizens have also begun selling their apartments in Yerevan more actively.
Such behavior indicates that capital is gradually leaving the market.
“This means that major players are losing confidence in the market’s continued growth and are attempting to lock in their profits before exiting,” Tavadjan explains.
The dangerous rise of mortgage lending
Risks are also accumulating within the banking system itself. In 2008, mortgage loans accounted for only 8% of the total loan portfolio. Today that share has reached 24%, tripling over time.
According to the economist, this indicates that the banking sector has become significantly more dependent on the real estate market.
Furthermore, loans directed toward construction and real estate have reached approximately 38% of the total lending structure, increasing systemic risks.
Developers’ crisis and the “evergreening” mechanism
Rapid cost increases in the construction sector have further aggravated the situation.
New government fees, particularly high infrastructure connection payments, have become a heavy burden for small and medium-sized developers.
According to Tavadjan, the market is effectively being sustained by only a few large companies, while smaller players face serious financial difficulties and growing debt burdens.
In response, banks have begun applying an “evergreening” mechanism — issuing small new loans in order to service older debts.
This approach helps maintain the appearance of healthy financial statements.
Artificial demand and its consequences
The economist also notes that changes made to the income tax refund program at the end of 2024 disrupted the natural development of the housing market.
Citizens who had planned to purchase apartments in 2025–2026 rushed to finalize transactions earlier in order to benefit from the existing tax incentives.
As a result, demand artificially surged in 2024, while in subsequent years the market began facing a shortage of buyers.
At the same time, servicing this program has become a serious burden for the state budget, amounting to roughly 2%.
External risks — from Russia to the Middle East
Tavadjan also highlights external factors.
The cancellation of similar programs in Russia and financial difficulties faced by major developers there already serve as warning signals for the broader region.
In addition, tensions in the Middle East, particularly developments surrounding Iran, may become an additional catalyst for negative trends.
“For Armenia, the direction of capital flows is extremely important. In recent years there has been a chain of movement: from Russia to Armenia and then to Dubai.
A similar pattern has been observed in gold exports, a significant share of which has been directed to the United Arab Emirates.
However, if regional risks begin to affect Dubai’s investment attractiveness, that chain reaction could eventually impact the Armenian market as well,” the expert explained.
According to Tavadjan, the combination of these internal and external factors could eventually lead to a systemic financial crisis.
“The issue is not limited to the real estate market. It concerns the stability of the entire financial system,” the economist concludes.