Market Transformation for Sustainable Rural Housing in Uzbekistan

Market Transformation for Sustainable Rural Housing in Uzbekistan
Market Transformation for Sustainable Rural Housing in Uzbekistan
Country: Uzbekistan
Sector: Housing Finance
Prerequisites: none
Classification Financial Instrument
Potential Impact: High
Resource Impact: Moderate
Timing Implications: Short-term
Application to Armenia The key innovative feature of the Project, which is exactly about the essence of the climate finance, is subsidizing incremental costs for energy efficient houses to ensure that monthly payments are of the same level with those for standard mortgages. This approach can be used in Armenia as well, benefiting also from another best practice that has already been tested in Armenia.

Young families that are taking mortgages from banks to procure apartments from developers are entitled to receive cash backs (from interest rate) equivalent to the volume of income taxes paid. This innovative incentive significantly boosted the interest towards mortgage loans in Armenia, thus promoting also steady growth of the construction sector.  

Similar mechanisms could be used for promotion of energy efficient housing in Armenia contributing, inter alia, to green economic recovery following recession after COVID-19 pandemic in 44-days war in 2020. Along with boosting construction sector this will also has its impact on the ESCOs providing renewable energy and energy efficiency solutions.

Introduction of the energy efficiency standards (as in case with UNDP project in Uzbekistan) along with simplified approval process is another best practice to consider.


In 2019, UNDP Uzbekistan in partnership with GEF has launched Project with the purpose to provide Uzbekistan’s rural population with improved, affordable and environmentally friendly living conditions (around 1,600 beneficiary households targeted). The project seeks to transform the rapidly growing rural housing sector in Uzbekistan towards a more sustainable and low-carbon development pathway by designing, piloting and scaling-up a green mortgage market mechanism, which will boost the demand for low-carbon housing among the Uzbek rural population.

The following four inter-linked components of the project are structured in the manner to achieve the overall goal:

Component 1: Green mortgage market mechanism to scale-up demand for low-carbon housing

  • Development and enactment of Green mortgage scheme that will provide incentives to homebuyers to invest in houses that feature EE, low-carbon design and technologies;
  • Capacity building of financial institutions to design and operate dedicated financial products for low-carbon housing.

Under this component, the project is working in partnership with national financial institutions, to provide access to affordable financing for rural houses that produce fewer greenhouse gas emissions than current new rural housing stock. At present, commercial mortgages outside of the RHP have annual interest rates of 16-18%. Rural mortgages under the RHP, while more favorable than standard commercial loans, do not encourage the purchase of homes with energy-saving or renewable features that reduce greenhouse gas emissions, and consumer awareness about potential savings is too low to generate demand for these homes.

To address this situation, Project supports the capitalization of a green mortgage scheme for Uzbekistan. The term “green mortgage” is generally defined as financing that allows homebuyers to borrow extra money for items that save energy and/or reduce GHG emissions. In this case, the green mortgage mechanism will initially allow homeowners to purchase homes that reduce energy consumption and GHG emissions under the existing mortgage cap without having to increase their down payment. The project is using commercial banks participating in the Rural Housing Programme to offer favorable mortgage terms for houses that meet a higher standard of energy performance. Funds from the GEF are used to pilot approximately 1,600 mortgages that incentivize demand for energy efficient (EE) and low-carbon houses by subsidizing incremental costs to bring down payments or monthly payments to the same level as those for standard mortgages.

Activities under this component also provides with technical assistance to local commercial banks in the form of training and promotional materials to develop their products, appraise investments and process a pipeline of green mortgages.


Component 2: Efficient designs and domestic supply chains for low-carbon housing and settlements

  • Develop, finalize and demonstrate EE and low-carbon housing designs, and a low-cost Nearly-Zero Energy house;
  • Strengthen domestic supply chain and capacities for design and construction of low-carbon housing.

This component is designed to facilitate implementation of the financial market scheme in Component 1 by finalizing prototype designs for EE and low-carbon houses, pilot testing a low-cost, nearly-zero energy house, strengthening domestic supply chain and manufacturing capacities for design and construction of low carbon housing and settlements, and, more broadly, promoting the application of a wide range of low carbon technologies and approaches in the planning and construction of new rural settlements.

Component is focused on three types of new single-family residential houses for rural areas:  Energy-efficient (EE) houses will feature an array of cost-effective EE solutions that may include better insulation for external walls and foundation walls; more efficient window placement; and the use of thermostatic valves and heat reflectors for radiators. These EE houses are approximately 2.9% more expensive than standard RHP houses, but they will reduce annual energy use by an estimated 24.5%;

Low-carbon houses will include all of the EE home features, but they will also include a solar PV system to meet lighting needs. These low-carbon houses are approximately 6.2% more expensive than current standard RHP houses, but they will reduce energy consumption by 25.1% and offer a reliable supply of power that is independent from the electricity grid; 

Nearly-Zero Energy Houses will incorporate elements of passive design and will test both technologies, materials, and design principles. These houses will not initially be included in the mortgage, and their appearance may differ from the current standard RHP house. The design team will also aim to make the nearly-zero energy house a low-cost house compared to standard RHP houses.

In addition to promoting efficient and low-carbon housing, the project will support domestic manufacturers of technologies and materials identified to further promote their products and strengthen domestic manufacturing capacity and the existing marketing and distribution network.

Availability of supply will become very important as demand for EE materials and equipment increase due both to the EE and Low-Carbon homes entering the market, but also to the broader minimum energy performance standards for all other houses. Specifically, the project will identify a short-list of high-priority EE and RE technologies for which a market study will be conducted.  


Component 3: Policy and regulatory reform to enable the scale-up of low-carbon housing and settlements

  • Development of new and revision of existing building codes to enable scaled-up construction of EE / low-carbon housing and settlements;
  • Capacity building of Gosarchitectstroy and its territorial divisions to appraise standard EE/low-carbon home designs under the green mortgage scheme and ensure compliance with new building codes and the minimum energy performance standards in them;
  • Improve territorial planning to maximize efficient resource use and incorporate local climate considerations.

The focus of this component is on strengthening and enforcing minimum energy performance standards (MEPS) as more rigorous energy performance standards are introduced into construction codes for new rural housing. Gosarchitectstroy, the national implementing partner, has received a mandate from the Government to prepare periodic revisions of building codes every five years. The next stage of code revision to be undertaken by Gosarchitectstroy will take place in 2017-2019 and will cover residential buildings. The project will work closely with Gosarchitectstroy and provide required technical assistance and support in order to ensure that scheduled revision of the codes include more stringent energy use requirements in line with EU Building Performance Directive.

This component will also focus on strengthening monitoring and enforcement systems to ensure compliance with EE/Low-carbon standards and new building codes introduced in 2017-2019. In particular it will support its partner for this component, Gosarchitectstroy and its territorial divisions, to undertake appraisals under the Green Mortgage Scheme; i.e., to monitor and report on compliance of the EE and Low-Carbon houses with their designs and performance estimates.

 Component 4: Marketing and promotion of low-carbon rural housing and settlements

  • Provide awareness-raising and outreach to homebuyers and other residential energy consumers in pilot project regions;
  • Develop and deliver trainings to selected regional and district governments and other sub-national organizations in mainstreaming climate change in planning, decision-making, and budgeting;
  • Develop and disseminate the project results, findings at national, regional and international levels.

This component will help boost public demand for green mortgages and confidence in energy efficient and low-carbon housing via a series of outreach and awareness-raising activities at the national and local level. Research conducted during the compilation of the project concept and project document found that while rural families may spend nearly half of their monthly income on household utilities, they are not aware of the possibility of using EE measures to reduce their monthly bills.

In these regions, the project will engage a number of local NGOs, community-based organizations and vocational training centers to reach out and advocate for the benefits of energy efficiency and renewable measures for new and existing housing.

The main regulatory tool adopted by the Government of Uzbekistan to reduce GHG emissions in the buildings sector has been the introduction and gradual strengthening of thermal performance requirements in Building Codes. Beginning with a UNDP-GEF project in 2009, ten building codes covering public buildings regulating the thermal performance of various building elements (roofs, heating, ventilation) were revised, and energy efficiency requirements were strengthened, ensuring reductions in energy consumption levels of 25% to 50% depending on the type of building. Two of the revised codes were approved in 2010, and seven more were approved and entered into force in June 2011. Consequently, standard designs of rural houses were adjusted in 2011 to comply with new requirements. The tenth revised code, which included a section on energy efficiency and required the completion of an energy passport, was approved in 2012.