FLUCTUATIONS IN PROPERTY PRICES

The global financial crisis that broke out in August last year continues to make its own corrections to the economic situation in a number of countries. The crisis affected not only the financial sector, the automobile industry, information and communication technology, tourism, the hotel business and others, but also the property market, which was once regarded as a more or less reliable investment. This is due to a number of factors. At time of a sharp decline in liquidity, when wholesale redundancies are taking place and salaries and, therefore, buying capacity are falling in a number of countries, ordinary citizens are afraid to buy new houses and flats, while businessmen are afraid to invest in housing construction.

Property is becoming cheaper…

The graph indicating the fall in prices on the world property market is really impressive. It is enough to address the situation in the USA in order to understand how the financial crisis has undermined the housing and mortgage market there. But the United States, the initiator of today's problems, is not at all the best example. The crisis has entangled the property and housing sectors in its "spider's web" in many other countries. For example, the price of flats in the capital of Belarus has fallen by 15,000-20,000 dollars. The price of one-bedroom flats in the cheapest districts of the city has fallen below the psychological barrier of 40,000 dollars. According to experts, this is far from being the limit.

The prices of housing and commercial property are also falling in the capital of Azerbaijan. The director-general of the MBA LTD consultancy company (Marketing Business Analysis), Nusrat Ibrahimov, said in an interview with R+ that property prices fell by 1.9 per cent in January. On the secondary market, prices dropped by 0.7 per cent and on the primary market - by 2.3 per cent. The price of land dropped by 2.8 per cent, rent - by 5 per cent and commercial premises - by 3.4 per cent. Commercial property prices also fell by 1.9 per cent.

Also in January, the average price of construction materials was 0.3 per cent lower. Metal products (fittings, channel bars and so on) and wood were also cheaper.

At the beginning of this month, the price of 100 square metres was 22,298 dollars in Baku, while the rent for one square metre in commercial premises was 3,450 dollars and the rent for one square metre in dwelling space - 784 dollars per year.

Last summer, the average price of a flat in Baku was 132,000 dollars, at the beginning of this year - 115,000 dollars and on 1 February - 114,000 dollars, i.e. the price fell by 17,000-18,000 dollars.

At the same time, activity in the property market increased by 8.4 per cent, compared to December. On the whole, activity in the market fell by 15 per cent from January 2008 to January 2009.

Ibrahimov links the growth in activity in the market to the fact that "people tired of waiting" and decided to return to the market in order to buy property. The fall in property prices, especially on the primary market, also played a significant role here. According to Ibrahimov, "it is the buyers' turn now", because it is now more realistic to buy a flat or an office.

The state service for the registry of real estate in Azerbaijan says that the volume of sales of flats is visibly falling from one quarter to the next. "Because of this, all property in the country is 10-15 per cent cheaper," said Arif Qarasov, head of the state service.

The chairman of the National Bank of Azerbaijan, Elman Rustamov, thinks that the fall in prices on the property market is one of the "main concerns", coupled with the fall in volume of car sales and in production in the steel industry.

…And will become even cheaper

Many people are wondering: how long will the world financial crisis, and the fall in property prices, continue? Potential buyers of property are wary of overpaying, sellers to sell too cheap and investors to put money into the construction of new facilities.

A well-known proverb says "there's no use crying over spilt milk". Not a single international financial institution has the courage to make predictions about the economic development of a number of countries. For example, commenting on the results of his visit to Baku, the vice-president of the World Bank for Europe and Central Asia, Shigeo Katsu, said in an interview with journalists that "predictions are changing every week". On our own behalf, we should add: depending on the "behaviour" of this very crisis. According to the venerable World Bank representative, "2009 will not be easy for many countries", but "Azerbaijan is in a more favourable situation because the world financial crisis is creating a number of positive factors". "The fall in oil prices helps the development of the non-oil sector of the economy," Katsu believes.

It turns out that as one segment of the non-oil sector, the property market may receive an impetus for development. However, there is one "but". Many experts believe, and many citizens of the country share their opinion, that property on the Azerbaijani market was sold at clearly inflated prices until the end of the last year. There was a so-called "overheating of the market", which had to end sooner or later.

Ibrahimov says that all the conditions were in place for the overheating of the market in the country. For example, high demand for housing here developed in quite a short period of time, and many investors, mainly construction companies, seized the opportunity to artificially inflate prices. But from the middle of 2008, the market stabilized slightly and, at the end of 2008 and at the beginning of this year, both prices and activity fell. This is not the limit, Ibrahimov said. The year 2009 will be a year of low activity on the market compared to 2005-2006. The fall in property prices will reach its low point in March. In the second half of the year, the market will begin to stabilise and activity will increase, but it will not return to the level of 2006-2007.

According to the company, prices are falling mainly for property which was offered to buyers at artificially inflated prices, while property in the average price range, which is on sale for real prices, still holds out. "A growth in the market will be observed, but no earlier than 2010," said the head of MBA, in conclusion.

Realtors, please help!

Meanwhile, the world financial crisis and the overheating of the market are not the only problems facing the Azerbaijani property and construction sectors. Local realtors have a big role in inflating property prices. There are 800 real estate offices and about 6,000 realtors in the country, but they are operating illegally - the activity of realtors is not legally regulated.

The Baku Realtors' Association (BRA) was set up in Azerbaijan in January. It was founded by MBA, the New Europe real estate agency and the Baki Emlak real estate agency.

According to Ibrahimov, who is one of the founders of the BRA, this organization "will have a special role in the stabilization of the Azerbaijani real estate market."

"We have developed a code for realtors - an internal document which is distributed among all real estate agencies. They have also been verbally warned that they must refrain from actions that undermine the whole business. We will control the realtors' activity if possible," Ibrahimov said.

The R+ interviewee pointed out that the real estate market in Azerbaijan is controlled by about 20 laws and codes, but there are some contradictions between them. Moreover, it is necessary to streamline realtors' activity. Thus the BRA plans to develop and submit to parliament a draft law "On realtors' activity". The International Finance Corporation has agreed to help develop the document. The document will specify not only rules, but also realtors' obligations, "so that they have a feeling of responsibility," Ibrahimov stressed.

The BRA will operate across the whole of the republic. Apart from supervising realtors' activity and creating an educational basis for the professional training of realtors, the association will help increase the role of realtors' organizations in the mortgage market.