HARD CHOICE

The fast growth observed in Azerbaijan's economy over the last decade has also had a significant effect on the population's incomes. The incomes of a large proportion of this country's residents have exceeded their expenditures which enabled them to save money. This explains the sharp growth in bank accounts. But the devaluation of the manat in February coupled with global economic shake-ups and falling oil prices have again brought to the foreground matters related to opportunities for free cash investing and getting a stable income. 

As a rule, funds earned by middle class people were not so significant as to start their own business. In addition, full workload in their main job left no time to develop such business. I this context, they were looking frantically for areas where to invest their funds in order to increase available financial capital. As is known, financial means can be invested in securities, used to buy a car, real estate or gold, a plot of land and the like, or deposited in banks. 

In the first place, I would like to emphasize that we are not speaking about starting a new business in view of the above-said reasons but about the wish to increase one's means by successfully investing free cash. 

In this context, let us put aside at once the issue of buying a car. Let it be recalled that as soon as you buy a car and run the first few kilometres, the car will lose 10-15 per cent of its acquisition cost. Moreover, if a transport vehicle is bought on credit, its owner will find themselves in a hard situation. It should also be kept in mind that a car becomes a rather significant source of extra expenditures. By the way, the car prices on the local market have noticeably declined and sometimes a vehicle bought a couple of years ago has to be sold almost twice or even thrice cheaper. 

But according to a classic saying, the car is not a luxury but a means of transportation. From this angle, the purchase of a car can be categorized as an important attribute of status for a representative of the prosperous class but in no way as a profitable placing of funds. 

For thousands of years, the purchase of gold and jewellery has been deemed a way to safeguard funds. Gold coins dating back to the Tsarist Russia period, the "gold chervonets" minted under Nicholas II are selling very well. They are easy to sell unlike jewellery which is sometimes taken at jeweller's as scrap gold and, correspondingly, their sale price, much like in the case of cars, is at least twice cheaper than their purchase price, if these two processes are viewed in a short-term context. Let it be recalled that the price of gold has shown an upward trend for centuries. One ounce of gold was priced at 19.3 dollars in 1792, 35 dollars in 1934 and 42.22 dollars in 1973. In March 2008, the gold price exceeded 1,000 dollars per troy ounce. It reached its peak of 1,920 dollars per troy ounce on 6 September 2011. 

Today gold is traded at 1,150 dollars per troy ounce in world markets, which is rather far from peak indicators. 

On the whole, gold remains to a great extent a speculative commodity in the market. Given the current gold price situation, even in the medium term, the yellow metal will be more suitable as a means to save available free money rather than a tool to increase it. 

It is no wonder that, for a long time, the question where to place savings for the rainy day has been decided for most prosperous people in Azerbaijan in favour of investing in the banking sector. There are a number of reasons behind this choice. One could deposit funds even in small amounts, such as 500-1,000 manats. The dividends offered by banks at above 10 per cent looked quite attractive, given the low level of inflation in the country in recent years. 

Over the past five years, the population's deposits in the banking sector increased more than three times compared to late 2009 totalling 7,188m manats. The average annual growth of deposits reached 25 per cent. 

But the situation changed significantly after the devaluation of the manat on 21 February 2015. The rate of the national currency to the dollar dropped by more than one-third just in one day and those who had not converted their manat savings to dollar deposits on time found themselves at a loss. Now the banks have one more time to go a difficult way to regain trust from the population, so that people come to deposit their savings in credit institutions again. 

In many advanced countries, dividends on securities account for one-third of additional income to their fixed wages and salaries. Unfortunately, our population is very far from the securities market. Even despite the voucher privatization where enterprises were privatized through auctions with the use of vouchers handed out to the population. Unlike populations in many countries, the population of Azerbaijan does not care about share quotations at stock exchanges and the securities market is still far from its best.

The realty market can certainly be viewed as quite attractive for many people. But one needs to have quite a lot of capital for it. Until recently, as a rule, many would sell realty in order to deposit their free cash in banks. The current situation is quite favourable, at first glance, to buy real estate, given the price drop of 30 per cent on the market.  

However, if you buy property for yourself, it would be good to be proactive because, in all likelihood, we are going to witness a price rise for realty in the future. 

According to data from various realty agencies, the average price of housing on the secondary market has declined during the year from 2,100 to 1,600 dollars per sq.m. over the year. The current situation in the market is calm and it is quite a problem to find buyers whereas the number of offers to sell property is pretty high. 

If you want to buy property to let, you will need additional calculations. Remember that you will have to negotiate the rent to pay for the property, get it paid on time and have your property kept in due order. Naturally enough, the fall in realty prices led to a decline in rents from 12 to nine dollars on average over the year. 

By the way, a less risky option in view of the falling prices is to buy plots of land. Demand for land will be rather high given that the country's population grows by an average of 1.3 per cent annually. We are speaking here not only about plots of land for building houses and out-of-town cottages but also about creating proper transport infrastructure and vital facilities. 

As regards the question whether to invest free cash in financial instruments or in real estate, it is up to each person to decide on their own. The above overview is just food for thought.