CONSTRUCTION IN THE TREND AGAIN

Reforms to stabilise the situation in the Azerbaijani economy taken over the recent years have shown the best results in the housing sector. The second chance for mortgage financing, demolition of old houses and five-story buildings made of concrete panels, construction of social apartments by MIDA LLC played an instrumental role stimulating the positive dynamics of the industry.

However, the greatest effect in this direction was achieved thanks to the presidential decree “On the simplification of issuing permits for the operation of certain multi-apartment buildings” adopted in February 2019. As a result, in just seven months of 2019, the housing construction sector has grown more than threefold.

Absolute record

“We take steps to revive the construction sector, and several hundred residential buildings are currently under construction in Baku. This positive trend has an impact on the construction materials production sector, creates conditions for the creation of new jobs,” President Ilham Aliyev said at the recent meeting related to the socio-economic sphere.

Current trends in the construction market indicate that in recent years, housing and construction cooperatives (HCC) of Azerbaijan have been able to overcome the crisis period of 2014-2016 associated with the devaluation of the national currency, a reduction in bank lending and a decrease in budget financing of urban development projects. Remarkably, the most positive dynamics are visible in the segment of housing construction, which today is noticeably ahead of the general pace of development of the construction industry.

The latter is especially noticeable given the negative processes in capital construction, which recorded a 9% decline last year. This trend continued also in 2019. This imbalance is due to the still relatively low level of investment of corporate and budget structures in capital projects, including infrastructure, utilities and road construction.

On the contrary, in the field of housing construction, a significant increase was achieved: about 1.7 million square meters were commissioned in 2017 and 2 million square meters in 2018. Last year, housing cooperatives actually came close to the significant indicator of the relatively prosperous year for Azerbaijan (2013), when the volume of housing reached 2.1 million sq. m.

However, the highest indicators in the field of housing construction, in comparison with the entire period of independence of Azerbaijan, were achieved in the current year. According to State Statistical Committee, the total area of ​​housing commissioned in January-July 2019 exceeded 3.4 million square meters, which is 3.1 times more than the same period last year. Including in July of this year alone, over 2.3 million square meters of housing were commissioned, which is also an absolute record.

Decree and its outcome

Such impressive growth indicators in housing construction are largely thanks to the implementation of the presidential decree “On the simplification of issuing permits for the operation of certain multi-apartment buildings” dated February 19, 2019. According to the document, permits should be issued for the commissioning of residential buildings, in which all construction and installation works were completed before January 1, 2019, including the construction of all floors, sidewalls and roofs, and with occupied apartments.

During the cabinet meeting on the results of socio-economic development in the 1st quarter of 2019, President Aliyev recalled the need for comprehensive support for the construction sector, which is one of the key sectors of the Azerbaijani economy and provides jobs for tens of thousands of citizens. “Currently, about 400 high-rise buildings are being built in Baku, which indicates that there is a lot of recovery in the construction sector. The government must fully support entrepreneurs, and it is necessary to eliminate all bureaucratic obstacles,” President Ilham Aliyev emphasized.

In order to accelerate the process of issuing permits for the operation of multi-floor new buildings, the Ministry of Emergency Situations of Azerbaijan was instructed to check the stability of the structure, fire safety and the readiness for operation of elevators and engineering and communications systems for multi-storey buildings, which are fully completed and partially commissioned up to 1 January of the current year. According to estimates made by the Ministry of Emergencies in early 2019, the number of multi-apartment residential buildings not accepted for operation in recent years in Azerbaijan reached 434, of which 381 were in Baku.

Since February, the specialists of the Ministry of Emergencies carried out the necessary checks, identifying the deficiencies, and submitted conclusions to the State Committee for Urban Planning and Architecture on the readiness of buildings for operation. In particular, during February-July, positive reviews were given on 133 buildings (complexes) with 359 entrances with more than 21.9 thousand apartments with a total area of ​​more than 2.2 million square meters. As a result, the State Committee for Urban Planning and Architecture and the mayor offices of a number of regions of the country received relevant documents and positive reviews about the buildings, 129 of which are located in Baku, 3 in the Absheron region and 1 in Ganja.

At the same time, the government continues the work on eliminating deficiencies in the remaining multi-apartment complexes with a view to their subsequent commissioning. On July 30, a meeting was held with the participation of relevant government agencies and representatives of the owners of 23 buildings who were not issued positive opinions because of the identified deficiencies. To eliminate defects within five months, housing cooperatives are given an opportunity to re-apply to the Ministry of Emergencies for diagnostics. With the prompt elimination of existing shortcomings and a positive assessment of the relevant government departments, we can expect that starting from the beginning of next year more than two dozen apartment complexes of Baku will be commissioned.

“The presidential decree contributes to the revival of the capital’s construction market,” Nusret Ibrahimov, general director of the consulting company MBA Group, an expert in real estate said. “In the past, investors and construction companies have not been able to commission residential multi-story buildings for a long time, faced with a number of bureaucratic delays on the part of some government agencies, but now these violations will be stopped.” Thus, the February decree played an invaluable role in stimulating the development of the construction sector in Azerbaijan.

Growth factors

Remarkably, the statistics do not fully reflect the real picture of the development of the industry because the most of the buildings commissioned were built much earlier. All this time they were included in the list of frozen objects, the acceptance of which was delayed due to identified deficiencies or other reasons.

In fact, 2019 was only the historical point of registration of housing built in recent years. For a more realistic assessment of the dynamics of the development of the housing segment, one should rely on other data from the State Statistics Committee, according to which for 7 months of 2019, capital investments in housing construction reached ₼689.9 million, ensuring a growth rate of 16.6%. This is quite acceptable, but incomparable with the above record figures. Moreover, the volume of investments this year is still slightly inferior to last year's industry indicators: for example, capital investments in the housing segment in 2018 amounted to nearly ₼1.3 billion (growth of 32.3%).

It is noteworthy that last year observed a relatively high dynamics of capital investments in housing construction, and this trend was associated with a number of other circumstances, including an improvement in the balance of payments and stabilisation of foreign trade indicators, which provided the private sector with the necessary liquidity. The increasing factor of deferred demand also played a role: the growth of solvency of citizens and investors accelerated the dynamics in the real estate market and, as a result, influenced the determination of construction companies to increase the volume of works. Not the last factor in this process was the process of issuing soft loans renewed from the end of 2017 through the Azerbaijan Mortgage and Credit Guarantee Fund.

On the other hand, the steady growth trend in the area of ​​housing commissioned (primarily in Baku) and the investment attracted here is largely due to state support. Such as the growth of the state allocation of projects in social housing construction carried out by the department of the State Agency for Housing Construction - MIDA LLC, the demolition of dilapidated housing and panel five-story buildings in Baku and the modern development of urban neighbourhoods. All this ultimately stimulates the activities of housing cooperatives.

Currently, two projects for the construction of social housing in the Yasamal district and one in the village of Hovsan are being implemented in Baku through the state agency. Recently, MIDA signed a contract for ₼7.5 million, providing for the construction of two nine-story two-block houses in Sumgait on a 0.76 hectare site.

MIDA acts as the largest state customer in the capital's construction market, whose contracts have provided work for about a dozen housing and communal services. A total of 15 contracts were concluded (₼122.8 million) for the construction of schools, kindergartens, roads and high-rise buildings in social housing complexes.

The expansion of housing construction has a tangible multiplier effect on related industries, primarily on the production of building materials. In January-July of 2019, the volume of production of building materials in Azerbaijan in total terms amounted to ₼460.5 million, which is 7.8% higher than the figures for the corresponding period last year.

Thus, a second chance for one of the main sectors of the non-oil sector of Azerbaijan, construction, eventually turns into a growth factor and the main indicators of the country's economic development.