OWN ROOF OVER ONE'S HEAD

The long-pending reform of the housing construction system has finally begun to take real shape: President Ilham Aliyev has issued a decree to establish a new state agency, which is to encourage the construction of multi-storey blocks of flats and provide people with preferential opportunities to buy apartments in those buildings. In the future, a mechanism for social construction will be coordinated with a new model of housing mortgage lending, which is being developed by the Azerbaijani Mortgage Fund (AMF).

The majority of developed countries have practised for years the construction of social housing and its subsequent lease at affordable prices. There are several ways of building and managing such housing: the most common practice is when houses are built with budget money and the government or municipal authorities keep ownership of those houses and lease them for a certain period of time. There are also other forms of property lease, when non-profit organizations or private funds are a managing company and buy (rent) housing from private developers and sublease it at lower prices. A number of countries also exercise a practice whereby a person who rents housing is given the right to buy an apartment at a fixed price and makes a loan or lease agreement with the building owner.

To all appearances, this is the model Azerbaijan will use. The main goal behind creating social dwelling stock is to resolve problems in this field that face low-income people and thereby improve the social welfare in the country as a whole. Low-cost housing will be sold at relatively low prices, and people will be able to purchase it in installments with long repayment periods and on low-interest loans. After obtaining the right to move into this kind of an apartment, tenants pay the monthly rent to the developer, and at the same time, this amount is used to repay the loan. After the debt is fully repaid, the apartment is privatized and becomes the property of the tenant.

These kinds of schemes will soon be available to citizens of our country, which is developing a legislative framework and administrative mechanisms for mass construction of high-rise residential buildings. "The formation of social dwelling stock is a relatively new initiative for our country, and there is a great need for it because a large part of the population of this country needs access to inexpensive apartments. We have studied best practices in this field, and the process of mass construction of low-cost blocks of flats will start soon," Azerbaijani President Ilham Aliyev said at a recent government meeting. He said that such projects would cover not only the capital. The construction of affordable housing will be gradually arranged in all cities and district centres of the country.

"The programme for large-scale social housing construction will also have a positive impact on the development of the domestic economy," Ilham Aliyev said. "In particular, construction work will involve entities operating in the construction sector, including manufacturers of building materials, furniture and accessories. On the whole, the multiplicative effect will contribute to the development of up to 20 sectors of the economy and, most importantly, create a significant number of additional jobs: in particular, construction workers who have been unemployed lately will be employed again."

We should say that pilot projects are being implemented already in Baku's Sabuncu districts and Qaradag districts. The projects aim to demolish houses unfit for habitation and to build modern multi-storey buildings in their place. Similar processes will soon begin in other parts of the capital as well, and new low-cost houses will be built primarily in order to replace low-rise buildings that are not very fit for habitation or unsafe five-storey buildings. Not surprisingly, the first projects for the construction of social housing were launched in the overpopulated capital. According to a new master plan for the development of the capital and its suburbs towards the year 2030, the number of people living in the capital will grow by 745,000 in the next 15 years, and this is despite the fact that already today the housing deficit in Baku alone is more than 15m sq. m.

So, what is the vision of mechanisms for large-scale social construction in this country? As noted above, the organization of this process has been entrusted to the Azerbaijani Presidential State Agency for Housing Construction. MIDA Ltd has been established under the agency. MIDA will be a commissioner, selecting private construction companies and other contractors to build multi-storey buildings in residential, public and business areas and social facilities and utilities infrastructure. In turn, the Cabinet of Ministers has been instructed to provide MIDA, in accordance with new legislation, with plots of land it needs for construction purposes. MIDA's initial registered capital is 10m manats.

In the coming months, representatives of the state agency are expected to approve regulations for the selection of categories of the population that may be eligible for social housing, and will set the order, periods and mechanisms for the repayment of loans. To all appearances, the cost of social apartments will be calculated based on the prime cost of construction works.

According to international practice, social housing are buildings with low prime cost that are built within a short period of time. However, despite the small size of apartments, such houses have all modern facilities for a comfortable habitation.

Is it possible to ensure significantly low prices for social housing being built in Azerbaijan? "This is fairly feasible, if the government takes over the process of land allocation and subsequent connection of buildings to utilities infrastructure," says the chairman of the Centre for Economic and Social Development (CESD), economic expert Vuqar Bayramov. According to estimates by construction experts, the cost per square metre of housing in low-cost multi-storey buildings can be reduced to 350 manats, but this amount would include not only the cost of the erection of the building as such but also basic works in apartments, such as wall painting, floor laying, installation of toilet and bathroom facilities, etc. "In the beginning, if the government can allocate an amount that is fairly affordable for the budget - 200m manats, and developers lease small apartments with an area of about 50 square metres each, then with this amount it will be possible to put into use about 12,000 new apartments a year. If such apartments are made available on 20-year loans, each family will have to pay 70 to 100 manats a month, which is a fairly acceptable amount. The construction of such cheap housing is a fairly feasible thing, as evidenced by the activities of similar funds in a number of countries. For example, in Turkey, this kind of a fund has been operating for about 40 years, and young people in that country can pay only 70 dollars a month to acquire housing," Vuqar Bayramov said.

According to the expert, the construction of social housing will reduce prices in the real estate market and stabilize supply of and demand for rented apartments, which is good for all the other market participants - buyers and renters of housing, even if they are not included in the category of citizens who have the right to use the services of the social dwelling stock.

In addition to everything else, it is already clear now that the social housing construction programme will help revive not only the real estate market, but the construction sector as well. "Large-scale construction of social housing will have a positive impact on the real estate market and indirectly provide financial support for the construction sector," says the director-general of the consulting company MBA Group, Nusrat Ibrahimov.

This is very important because the domestic construction sector has been in a protracted recession since last year. In 2015, the total area of housing put into use was 1.927m sq. m., which was 12.3 per cent less than in 2014. This negative trend strengthened in the first quarter of this year: according to the State Statistics Committee, 334,700 square metres of housing were put into use in January-March 2016, which is 19.3 per cent less than in the same period last year.

Large-scale social construction will not only provide work for construction companies that have been out of work but also give an impetus to the entire chain of financial intermediaries in the real estate market.

This is about the introduction of new mechanisms in the activities of the Azerbaijani Mortage Fund, improvement of the mechanism whereby requirements are set for real property that is under a mortgage, and trading procedures.

In particular, the Central Bank of Azerbaijan (CBA) had proposed switching to a primary registration system, which will enable borrowers to use as collateral their apartment in a new building being put into use, which they bought by mortgage. The main advantage of the acquisition of social housing is likely to be the lack of high requirements for the size of applicants' income, something that is currently required to apply for a mortgage loan.

It is also worth recalling here that a few years ago the Central Bank put forward the idea of the government's participation in the construction of low-cost housing and also giving support to private entities that are interested in providing long-term money to banks or in subsidizing interests on mortgages. Also then, the CBA considered the possibility introducing a new version of mortgages - the so-called German savings model. In this mortgage model, the necessary amount of money is formed from people's savings, and a special regulatory agency is established to oversee this process. In essense, people's sole role will be to participate in construction-savings banks according to the model that proved effective in post-war Germany. This means that in the event of the creation of such a mechanism, mortgage loans will be issued automatically if a person has an appropriate amount in their bank account.

As a result, all these measures will help Azerbaijan generate a powerful financial and construction sector that will be able to organize large-scale housing construction and thereby meet the needs of the various segments of the population.