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In the last two years, Azerbaijan has made a tangible success in the construction sector, particularly in housing construction, which determines the overall pace of industrial development. Prices for Azerbaijani construction materials, which are more competitive now, allow local producers to explore foreign markets more actively.

Growth of housing construction

In 2016, the volume of housing decreased by almost 30% compared with the previous year. For the next two years, however, the growth in production again dominated the housing construction segment. According to the State Statistics Committee, ₼891 million was invested in the construction of housing and 1.7 million square meters were commissioned in 2017. In January-August 2018, this positive trend further increased reaching ₼670.6 million of investments, or 26.6% more than the same period in 2017.

There are, however, some unresolved problems in the construction sector. According to the Committee, in January-September 2018, the volume of works in the construction industry decreased by 15.9%, and today the share of this sector in the GDP of Azerbaijan is 6.3% (₼3.6 billion). This is partly due to the conservative government policy on financing capital and infrastructure construction, as well as optimizing spending on many road, communal, social and other projects implemented today.

However, the decline in the role of the state did not affect the pace of development of housing construction. As a result, the share of investments in total investments in fixed assets over the past year has increased from 5.3 to 7.5%. Accordingly, this resulted with a 11.6 percent growth (130 thousand square meters of additional space) in the current year, and 1,247 million square meters of housing in eight months.

"The construction sector of Azerbaijan is gradually recovering after the stagnation of the last few years. Until the end of 2018, prices in the Baku real estate market can grow by 6%, and to a large extent this is due to the rise in prices in the market of commercial housing, land, individual and country houses," expert Nusret Ibrahimov said. According to him, the current trend also reflects changes in the housing construction sector.

In general, a number of factors have catalysed the growth of construction sector. For example, the process of issuing concessional loans resumed from last year through the Azerbaijan Mortgage and Credit Guarantee Fund. Thus, during the three quarters of 2018, the fund issued ₼183.2 million worth mortgage loans, which is 40% higher than in last year. This year, it is planned to allocate additional ₼250 million from the state budget to secure social mortgage lending, which is 100 million more than in 2017.

Stronger state control

By and large, the improvement in the housing construction sector is also associated with the support provided by the state to construction companies involved in large-scale reconstruction and redevelopment of the capital's neighbourhoods, the demolition of the old and the construction of new housing. Apparently, this cooperation will continue also in the future, but already under stronger state control in order to overcome a number of negative aspects related to the violation of the rules of urban planning and the design of new residential complexes.

“In Baku and other cities, it is necessary to stop illegal constructions, since in some cases the construction works do not meet any criteria - neither urban planning nor construction,” President Ilham Aliyev said at the expanded government meeting dedicated to socio-economic development countries in the first half of 2018. President noted ugly buildings built in Baku, the height of new buildings is not taken into account with the place chosen for construction, a number of buildings are erected in residential areas where trees are cut down, and the general architectural landscape is not taken into account.

President warned that very serious measures would be taken to stop illegal construction of new buildings, and that the officials who create conditions for illegal construction would be severely punished.

To solve these problems, in September 2018, the president signed the decree “On additional measures to improve urban planning”. Thus, without a corresponding conclusion of the State Committee for Urban Planning and Architecture, no building will be allowed.

In this regard, today in the capital, the process of laying the foundations of a number of multi-storey buildings, whose projects do not meet the updated requirements for quality and aesthetics of urban development, has been suspended. One of the criteria for the construction of multi-storey buildings is the size of the territory allocated for construction - this area should not be less than 40 acres, a place should also be allocated for parking, planting green spaces, etc.

According to experts, the tightening of requirements in this area will not have a significant impact on the reduction of construction volumes and will only contribute to the withdrawal of insufficiently responsible players from the market.

Construction materials for export

According to Dovletkhan Dovletkhanov, Deputy Chairman of the State Committee for Architecture and Urban Planning, modern development requires new technologies and upgrade of urban planning. The construction sector is a link to improve other sectors of the economy.

In particular, one of such industries is the production of construction materials. The development of this trend can be clearly seen at the 24^th BakuBuild Azerbaijan 2018 International Exhibition held in the last decade of October. Over 300 companies from 22 countries attended the region’s largest construction forum including Azerbaijani companies with about 40% of the total number of participants.

According to Deputy Minister of Economy Niyazi Safarov, the future of Azerbaijan is tied to this industry. "Azerbaijan has a mechanism to encourage investment, and 20 construction companies have used it to produce construction materials. Currently, the country produces cement, bentonite and other construction materials also presented at the BakuBuild exhibition under the brand Made in Azerbaijan," Safarov said.

Today, about 77% of the total volume of building materials is produced by private sector of the economy. Over the past decade, this segment has grown by 2.5 times, and the number of companies involved has increased more than 12 times.

It is noteworthy that the production of construction materials in Azerbaijan for the second year in a row shows a steady growth trend, significantly exceeding the pace of development of the construction sector as a whole. Thus, according to the State Statistics Committee, for three quarters of this year, the volume of production of construction materials in Azerbaijan reached ₼448.5 million, which is 32.2% more than last year. In particular, the most significant growth was achieved in cement production - 2.6 million tons (an increase of 21.7%), asphalt - 220 thousand tons (88.7%), construction bricks - 224.7 thousand cubic meters (6.8%), as well as processed marble, travertine, alabaster and products from them (almost 44%). Positive dynamics also can be observed in the production of plastic pipes, electrical cable, paint and varnish products, some finishing materials, etc.

Remarkably, the volume of construction materials in Azerbaijan did not decline even in the most difficult period of the crisis, in 2015–2017, when annual growth rates were at a level not lower than 6-7%. Moreover, the devaluation of the manat led to a double rise in price for all types of imported building materials. At the same time, the growth rate of prices for local building materials is incomparably lower, and in a number of positions the price parameter remained completely unchanged. This situation initiates a steady increase in orders in the domestic market and, accordingly, an increase in the production of local products. On the other hand, the price difference when converting manat ensures greater competitiveness of Azerbaijani building materials in foreign markets, stimulating their export.

In a nutshell, the improvement of the housing construction sector during the last two years, as well as the implementation of construction projects thanks to a public-private partnership guarantee a steady demand for local products in the construction industry and help upgrade and increase production volumes in the industry.