TENANT OR OWNER?

In recent years, consistently high property prices in Azerbaijan—particularly in Baku—have hit the housing sector hard, dashing the hopes of many prospective buyers. For most families, especially young couples without homes of their own, renting has become the only viable option.

While long-term renting is common in Europe, the US, and other parts of the world—often spanning decades or even a lifetime—Azerbaijanis traditionally prefer owning a home, even if it’s a modest one. However, saving enough to purchase a property while simultaneously paying rent has proven extremely difficult. To address this challenge, Azerbaijan introduced the rent-to-own housing model, which has been successfully implemented over the past five years through the Mortgage and Loan Guarantee Fund (IKZF).

The Role of Mortgages

According to the State Statistics Committee, housing prices in Azerbaijan rose by nearly 10% in 2024 compared to 2023. The primary housing market saw an increase of 11.3%, while the secondary market experienced a 9.8% hike.

Numerous factors have contributed to this surge, with demand playing the most significant role. This demand is fuelled not only by natural population growth but also by large-scale programs targeting the demolition of outdated housing. However, for the average buyer, understanding the reasons behind rising prices offers little consolation.

It’s worth noting that Azerbaijan has maintained a successful long-term mortgage lending program since 2006, which includes favourable terms for social groups. In 2024 alone, 4,685 mortgage loans totalling ₼439.8 million were issued through the Fund’s authorized banks. Of these, 3,609 loans (₼357.7 million) were standard mortgages, while 1,076 loans (₼82.1 million) were offered under preferential terms.

Since 2006, the total volume of mortgage loans issued by the Fund has surpassed ₼3.31 billion, improving the housing conditions of more than 52,530 families. Notably, 67% of these loans have gone to young people and young families, while about 22% have supported regional development across the country.

In recent years, IKZF has also introduced guaranteed mortgage loans, and their volume has nearly doubled. In 2024, 275 guaranteed mortgage loans worth ₼28.3 million were issued—an increase of 87.1% in quantity and 97.9% in value compared to 2023. The Fund attributes this growth to the relaxation of appraisal standards and significant reductions in guarantee-related fees. These changes aim to make homeownership more accessible for people with limited savings, allowing them to secure mortgage loans with smaller down payments.

Despite these advancements, down payments remain a significant hurdle for many. Although the minimum down payment requirement in Azerbaijan is only 10-15% of the total property cost, many—especially young families—struggle to save even this modest amount due to soaring market prices. This is where the rent-to-own model steps in to provide a solution.

The Appeal of Rent-to-Own

The rent-to-own model is the newest housing finance instrument in Azerbaijan, introduced by a 2019 decree from President Ilham Aliyev and practically implemented in March 2020. The program aims to address the housing needs of citizens whose savings are insufficient to buy property, even under favourable state mortgage conditions.

One of the model’s primary advantages is the ability to become a homeowner after just 12 months of renting. Its popularity has grown rapidly in Azerbaijan due to its affordability and straightforward requirements. According to Aslan Zeynalov, Deputy Director of IKZF’s Rental Housing Department, any Azerbaijani citizen under the age of 60 with official income can participate in the program.

The term “official income” extends beyond wages. Entrepreneurs who have been in business for more than 12 months can apply, and even small business owners paying flat-rate taxes—such as hairdressers, tailors, and other professionals—are eligible. The program also accommodates individuals receiving social assistance, benefits, or pensions.

Another attractive feature of this model is its flexible credit evaluation process. Even citizens with a negative credit history can qualify for a property, provided they have officially verified family income at the time of application and no overdue active credit obligations.

According to Zeynalov, the entire application process—from submission to property selection—is conducted through the Electronic Mortgage and Credit Guarantee System on Azerbaijan’s e-government portal (e-gov.az). This eliminates the need for applicants to visit multiple offices or gather excessive documentation.

New Flats, New Opportunities

In terms of location, statistics show that within the program’s first four years, rental properties with the option to buy were offered at 14 locations. Six of these are in Baku, three in Khirdalan, and three in the settlements of Masazir, Saray, and Mammadli in the Absheron district, with two more in Sumgayit.

All properties available under this scheme are newly constructed, having been built after 2013 to meet rising demand. The Mortgage and Credit Guarantee Fund carefully selects these properties to ensure affordable rental rates. The residential complexes feature spacious courtyards and are conveniently located near schools, kindergartens, medical centres, and public transport stops.

Each flat is fully renovated and equipped with modern amenities, including a combined heating system with a two-circuit boiler, as well as individual water, gas, and electricity meters. Property rights are officially registered with the state, ensuring that all units have the equivalent of a bill of sale.

Investing in the Future

The growing popularity of the rent-to-own model is evident in the numbers. In 2024 alone, 1,871 lease agreements were signed—a 30.9% increase compared to 2023. Since the program’s inception in 2020, nearly 6,500 contracts have been concluded.

Young families make up more than 60% of the program’s participants, with many opting for one-bedroom (44%) and two-bedroom (32%) apartments due to the affordable monthly rent. By paying rent, families are investing in their own homes, ultimately becoming sole owners. Importantly, participants are shielded from fluctuations in the housing and rental markets, as rental payments remain fixed for the duration of the contract.

Experts also view this model as a catalyst for stimulating the construction sector and stabilizing rental prices. While it may be too early to predict the long-term impact on the broader property market, many believe that as demand continues to grow, the construction industry will expand to meet it.

In the meantime, the rent-to-own mechanism offers Azerbaijani families a tangible path to homeownership—turning the dream of owning a “small corner” into a reality.