HOPING FOR HOMES

Today only five percent of the housing acquired in Azerbaijan is acquired through mortgages. The explanation is simple - getting a mortgage loan at a bank is a fairly complicated process that is not available to everyone. 

Nevertheless, experts are certain: the development of mortgage loans in Azerbaijan is unavoidable, given that housing prices are constantly rising and most citizens lack the financial means to buy housing. 

Meanwhile potential buyers are still waiting for both the softening of demands on borrowers and the loweredinterest rates promised by the Azerbaijani government. Even though banks are also ready to offer funds as part of their own mortgage programs, people prefer mortgages granted through the state. 

Judging by the latest figures, with Azerbaijani's mortgage credit market potential totalling 5 to 6m manat, the total volume of mortgage loans given out through the Azerbaijani Mortgage Fundthus far totals 613.9m manat. Since March 2006 - when mortgages were launched in Azerbaijan -15,425 borrowers have received loans through the state to buy housing. It is essential that reforms be made to widen the market, and in this regard great hopes are placed on the new strategy to develop mortgages. As Central Bank of Azerbaijan head Elman Rustamov noted, a document has already been submitted for approval to the administration. The document contains many interesting aspects anddevelopments, but also contains a number of controversial issues dealing with the selection of a model, which have generated heated multifaceted discussions. In this connection the nation's head banker had difficulty naming a specific time frame for the adoption of a strategy. 

The program provides for the introduction of a mortgage scheme on free market principles, the adoption of an accumulative mortgage plan in which people would be able to use their savings to receive mortgage loans, the liberalization of loan requirements, and the extension of the reachof state-supported mortgage programs. The packet of proposals pays attention both to young families and to unmarried young adults, the latter of which will also gain access to state-supported mortgages. The qualifying age for preferential mortgage loans for young people extends to the age of 29, and for young families extends to the age of 35, which allows for the extension of state-supported mortgage programs to these sectors of the population.In so doing the government not only raises the volume of mortgage loans offered through state-supported programs, but intentionally increases their reach. Here it needs to be said that according to data from the Mortgage Fund, 71.6 per cent of the overall number of loans extended go to young people and young families under the age of 35.

However, the funds allocated to state-supported mortgage programs today are insufficient to cover the housing problems of all young adults due to the low level of favoured financing of this category of the population. This is especially so in view of a proposal to increase the maximum sum of credit to 70,000 manat from the current level of 50,000 manat. At the same time, in spite of popular expectations, the plan has no stipulations to seriously lower annual interest rates for state mortgage programs, which are currently set at four per cent. For the time being, next year's expenditures on state mortgages are planned to increase by 10m manat, to a total of 50m manat. 

As part of the strategy it is also proposed to re-examine the sum of commercial loans offered through the Mortgage Fund. A proposal to double the maximum sum for regular mortgages - to 100,000 manat - remains in force. As for the introduction of an accumulative mortgage system, it was earlier stipulated as part of Central Bank-developed legislation "On Housing Savings Banks."Essentially, with the creation of these housing savings banks, citizens will receive mortgage loans by putting money towards a deposit at a bank.The volume of the loan, however, will greatly exceed the sum of the deposit. As general director of the Central Bank of Azerbaijan Rasad Orucev asserts, the introduction of a German model for the creation ofhousing savings banks is being considered in Azerbaijan. 

One innovation is the introduction of electronic mortgages, which should make life much easier - for banks, for borrowers, and for the Azerbaijani Mortgage Fund itself. According to the general director of the Central Bank, a trial version of the electronic mortgages has already been launched. All member banks of the Azerbaijani Mortgage Fund that will work within this system are preparing to introduce the e-mortgages. 

The Central Bank is hoping to expand the geographic coverage of mortgage loans to provincial areas. Aside from Baku, mortgages are only being given out in the city of Naxcivan. Rustamov explains the current situation by citing "the problem of tax provisioning and underdevelopment of the real estate market in provincial areas. We have, however, begun to give out loans in Naxcivan and hope to expand loan-giving to other provincial regions of the country." 

On top of all this, the Central Bank of Azerbaijan, together with the Azerbaijani government and the banking sector, is developing a project to build affordable housing. The experience of neighbouring countries, particularly Turkey, is being studied. In the opinion of Central Bank of Azerbaijan chairman Elman Rustamov, increased funding as part of commercial and state-supported mortgaging is essential. But it is a never-ending process. A more important issue is increasing the market's supply of inexpensive housing so that it is possible to buy quality housing using a mortgage. Rustamov holds that "business, the government, and the banking community must think about how this can be done." The presence of affordable housing, he says, is very important, especially for young people - although, at the same time, it is a difficult issue. 

In the opinion of experts, if those funds allocated to finance state-supported mortgages were used to build residential housing, which would then be rented out at, say, 500 to 100 manat a month, then that would make housing much more affordable for young families, professionals, and others in need of housing. 

Rising prices are making buying housing increasingly difficult. On the Baku market, for example, prices rose by 2.19 per cent in September, and have risen by 13.09 per cent since the beginning of the year. The increased prices have also lately reduced the number of cheap apartments, which leads to increases in their price, thus affecting other areas of the market. Meanwhile falling prices on the world oil market also have an effect on the Baku real estate market. "Real estate remains the main vector for investment of oil proceeds. When oil prices fall, the income from the industry is reduced. The realization of many projects financed through funds or the budget begins to slow down over time. Accordingly the amount of money reaching the real estate market is reduced, which only has an effect on it much later," explained general director of the consulting firm MBA Group Nusrat Ibrahimov.

So mortgages will remain in demand for a long time to come as the most feasible instrument at the disposal of potential housing buyers. And the government's task in this case is to make the current financial product not only attractive to those receiving loans, but also profitable and remunerative for the Azerbaijani Mortgage Fund and banks, so that everyone involved has an interest in expanding the market.

FYI 

Those in the government sector have the greatest access to the resources of the Mortgage Fund: they receive 39.5 per cent of the total volume of credit issued. In second place are employees of private companies and firms (23.3 per cent), with a slightly smaller amount of the mortgage credit (21.5 per cent) given to workers in the financial sector. Another 15 per cent of the housing acquired through mortgages belongs to those working in the petroleum sector.