A MORTGAGE FOR EVERY HOME

Since the day it was introduced in Azerbaijan the system of mortgage loans has helped thousands of families to acquire the long cherished home of their own. But for all that the strict conditions and the mass of restrictions relating to this type of loan has greatly reduced the opportunity to access mortgages for a large number of the country's citizens who do not own their accommodation. The relevant structures have repeatedly spoken about different variants for improving the situation, even the setting up of a specialised bank. 

Last week it was learned that Azerbaijan's Mortgage Fund under the Central Bank will really be reorganised and serious changes are going to be introduced into the conditions for obtaining a mortgage. Thus, in order to speed up the provision of various groups of the population with housing and make the acquisition of a mortgage a more transparent process, President Ilham Aliyev has signed a decree on setting up the Open Joint-stock Company [OJSC] "Azerbaijan Mortgage Fund" (AIF), with 100 per cent of its shares under state ownership.

The new OJSC is essentially a successor to the former mortgage fund, not only in name and property, but also in most of its functions. It would moreover be wrong to say that the fund's work has so far been unsuccessful; it is sufficient to say that more than 17,000 families in Azerbaijan have obtained mortgages amounting to approximately 700m manats over the 10 years of its activity; among these families almost 5,000 families have received state-backed mortgages worth a total sum of 190m manats. But in this case demand obviously outstrips supply.

Thus will the OJSC be able to overcome the mistakes of the past and create a mechanism for issuing long-term mortgage loans?

One of the main, distinctive functions of the new structure will be the expansion of the possibilities for attracting a large amount of resources into the fund by assessing its market value. Thus, in the head of state's decree it is clearly specified that the Fund will be able to attract financial resources at home and abroad, while today the main source of financing for state-backed mortgages is the country's treasury. The drop in state revenues would naturally have an effect on the state in the future too, but the new mechanism will not only allow this to be reduced, but also to top up its financial resources and consequently seriously boost the number of state-backed mortgages issued which are sufficiently in demand.

The fact is that, in compliance with the above-mentioned decree, part of the money received from the investment of mortgage bonds which will be issued for a long-term period (minimum five years) and guaranteed by the state, will be channelled into discounted mortgage loans. The Central Bank, along with the Ministry of Finance and the State Securities' Committee, have been instructed to take measures to develop the long-term mortgage securities market and ensure their liquidity.

Another sufficiently attractive element in the presidential decree was the instruction to the Cabinet of Ministers to draw up proposals within one month to simplify the issuing of permits for the construction of multi-storey blocks of flats and for marketing these buildings. Finally, the dream has come true for would-be mortgage borrowers to receive a loan and buy a flat in the new-builds, for the marketing of which permission has now been granted.

Up until now, this could only be done if the owners of flats in new-builds had obtained deeds of purchase, sometimes as much as five years before they could actually move into the flats. It is no secret that this is precisely why the prices rise sharply after the deeds of purchase are issued for flats in new buildings, which makes them a rather unattractive prospect with hardly any likelihood that a mortgage can be issued for their purchase. Now this situation is changing radically. This new regulation allows housing in new-builds to be accepted as a guarantee.

True, there is a proviso that the loans will only be issued on refurbished housing in a block whose construction and completion deadlines have been publicly announced. This means it will once again be impossible to get a payment-by-instalments loan for an "off-plan" flat which only has a foundation; this is quite justified, taking into consideration the frequent cases when construction is suspended or is delayed for years and years. Besides this, today the very process of refurbishment requires considerable expenditure which is usually paid for on credit. This increases the overall share of the family's debt burden and creates fertile soil for the growth of debt problems in the banking sector.

The new regulation does not apply to luxury housing complexes. The Mortgage Fund is permitted to issue loans for the purchase of housing that does not cost more than the average market price per square metre, as specified at the moment that the mortgage is issued, in accordance with the zones on the territories of the districts and cities. These changes are facilitating the development of a cheap housing market which will be accessible to most of the population, as well as extending the geography of mortgage lending for the country's regions. "Mortgage" is a social project and will be a fair one if people on medium and low incomes will be able to take advantage of it," representatives of the banking circles believe.

Another matter is that unfortunately little high-quality housing in keeping with the specified parameters is built today, and mainly beyond the bounds of the city or in the suburbs. Experts do believe however that the new mortgage regulations are stimulating this process, and in the very near future it will be to the advantage of house-builders to put on the market homes that conform to the specification in the mortgage. And, just as the experts assert, the builders frequently inflate the actual flat prices, but the restrictions will force them to stop bumping up the cost price astronomically.

We would like to note that the average market price of a square metre of housing in Baku on the resale market in September 2015 was 1,696 manats, a rise of more than 4.47 per cent compared with August. According to the studies of the MBA Group consulting company, the same figure relating to new housing "ready for sale [unfinished flats with completely bare walls and floors]" was 1,053 manats, which is 3.1 per cent lower than that for August.

Incidentally, yet another subtle point covered by this decree, which was very much to the bankers' liking was the upgrading of the rules relating to the sale of mortgaged property by auction. The fact is that today this process may last months, at times being artificially delayed; when housing prices are fluctuating this is neither to advantage of the bank nor the borrower. Bankers believe that the procedure should be handed over directly to the bank itself (today the borrower has to apply to the judicial bodies). 

Finally, the best "titbit" in the decree is the specification that the new conditions for issuing mortgages have to be worked out and submitted within a month. We remind you that today the mortgage interest rate is usually 8 per cent over a period of 25 years, but in the case of state-backed mortgages, the annual interest rate is 4 per cent over 30 years. The initial deposit for a state-backed mortgage is 15 per cent, and for ordinary loans 20 per cent.

Experts and would-be borrowers naturally have high hopes that interest rates will drop. This is precisely what is understood from the proposals of the Central Bank and the Ministry of Finance, which have already been submitted to the country's government. According to them, the sum for which a mortgage can be obtained has been increased to 80,000-100,000 manats. Thus, even people on average incomes will be able to get a mortgage. 

In short, taking into consideration what has been mentioned above, it is impossible not to agree with the view of expert economist Vugar Bayramov that this decree will be the most positive and objective reform in the sphere of mortgage loans in Azerbaijan. It can be said that a new stage in the development of the country's entire construction sector has been kicked off.