REAL ESTATE IS TRENDING

Apparently, Baku is on the verge of a new construction boom, which will be actively supported by both the private sector and public housing programs.

In June, the State Agency for Housing Construction (SAHC) announced a tender for the construction of a second multi-apartment residential complex of preferential apartments on the territory of 20 hectares in the village of Hovsan, Surakhani district. It is planned to build houses, a kindergarten, school and other social facilities in the new complex.

On December 24, 2016, the foundation of the first preferential housing complex was laid in Yasamal district of Baku with the construction of 29 houses with 1,854 apartments. It is also planned to build a kindergarten for 240 children and a school for 960 seats. It is expected that the first houses will be most likely commissioned in the second half of 2018.

The government also launched the construction of high-rise buildings on the site of low-rise and completed houses that were demolished previously. The construction of 45 buildings out of 254 has already begun and, in general, within five years, it is planned to demolish 893 thousand square meters of old buildings, which means about 16 thousand apartments housing 50 thousand people.

A "soap bubble" threat

However, as indicated by the R+ survey of real estate market participants, one cannot expect a decline in prices in the housing market of Baku. Moreover, according to experts, by the end of 2017, the price per square meter of housing will grow by 7% on average.

On one hand, supporting high prices, the participants of the construction market try to insure themselves against possible falls in the exchange rate of the national currency. On the other hand, amidst the crisis in the banking sector, interest in real estate is growing as an instrument of profitable investment of free capital. There is a situation when a part of investors who withdrew cash from problem banks and received compensation from the Azerbaijan Deposit Insurance Fund (AFSV) for deposits in bankrupt banks are actively investing in real estate.

The popularity of investments in real estate is also growing with the increase of tourist flow to Azerbaijan and the opportunities to rent housing for foreigners.

Currently, the interest rates on dollar deposits, as a rule, do not exceed 3% per annum. That is, with a 7% increase in house prices, investments in real estate can bring twice as much income as a deposit in a bank.

That is, even though the prices for social housing will be 20-25% lower than market prices, it is not worth expecting a decline in prices compared to factors listed above.

Demand and pricing

Can the expected growth in demand lead to the emergence of a "soap bubble" in the residential segment and an unjustified increase in apartment prices? Most realtors exclude such a forcast for the next few years.

Today, the average price of an unrepaired apartment is about ₼800 per sq.m. In this case, according to experts, without taking into account the cost of land and related costs, construction in the economy class costs ₼300-350 per sq.m. On average, depending on the height of the building, 12-17% of the cost is the price of the land plots purchased by the construction company.

No matter how the demand has increased, in the coming years the housing stock of the capital will be replenished by hundreds of thousands of square meters, which, if not to reduce, at least to prevent a further rise in prices in the real estate market.

Standards of comfortable Living

The housing problem is the most challenging issue for many citizens of Azerbaijan. Therefore, any initiative aimed at solving such an acute social problem always finds a lively public response.

According to official statistics, there are 19.9 square meters of housing per capita in Azerbaijan. This level is comparable with Kazakhstan and Russia. At the same time, we are seriously behind from European countries such as Germany (45 sq.m.), Great Britain (62 sq.m.), and the United States (75 sq.m.).

Accordingly, there is a very high physical demand for housing in Azerbaijan. In 2016, thanks to various funding sources, about 1.7 million square meter housing was built and commissioned in Azerbaijan. This is lower than in previous years: 1.9 million sq.m. in 2015, about 2 million sq.m. in 2014, and more than 2 million sq.m. in 2013.

At the same time, according to the State Statistics Committee, as of January 1, 2017, the population of the country reached 9.810 million, an increase of 105 thousand people per year. Accordingly, even given the current level of 19.9 sq.m. of housing per capita, we should have had at least 2 million sq.m. of housing by the end of 2017, so as not to reduce the level of provision of housing for the population.

In general, to solve the housing problem and increase the living space by at least 1 square meter, the national construction sector should grow six times reaching a level of 10 million square meters of housing per year.

Please note that the construction sector has quite a high multiplier effect and investment creates additional jobs and production in related industries.