FROM OVERHEATING TO STABILISATION

Azerbaijan's real estate market is gradually emerging from a phase of rapid growth and transitioning towards a more moderate and predictable dynamic. Following a five-year period of significant growth, during which the aggregate housing price index reached between 45 and 47 per cent, the rate of increase in value is beginning to stabilise.

However, it is not yet possible to discuss price reductions or a return to housing affordability: the market is moving from emotional overheating to a more rational, albeit still expensive, model.

S&P: Growth to slow to inflation level

International rating agency S&P Global Ratings anticipates that housing price growth in Azerbaijan will moderate to 5-6 per cent this year. This figure is almost in line with the inflation rate. According to the State Statistics Committee, average annual inflation in 2025 stood at 5.6 per cent, compared to 2.2 per cent in 2024. The Central Bank forecasts inflation at 5.5 per cent in 2026 and 4 per cent in 2027, while the Ministry of Economy estimates it at 4.8 per cent and 4.5 per cent, respectively.

If the S&P forecast materialises, it will mean the market transitions to growth close to the inflationary backdrop – that is, effective stabilisation in real terms.

Current dynamics, however, remain high. According to the Central Bank of Azerbaijan, over the past five years, prices for housing in the primary and secondary markets have increased by an average of 46 per cent compared to June 2020. According to calculations by the Assessment Chamber, the overall price index increased by 14-16 per cent in 2025. The primary market saw a 13-15 per cent rise, while the secondary market experienced a 14-17 per cent growth. This is lower than in previous years, suggesting the beginning of a 'cooling' phase.

The Assessment Chamber has stated that the higher growth in the secondary market is due to buyers, discouraged by high prices in new developments, opting for more affordable alternatives.

Nahid Hasanov, Chairman of the Disciplinary Commission at the Assessment Chamber, notes that the market is gradually emerging from the state of emotional growth that formed after the start of the Russia-Ukraine war and is increasingly oriented towards fundamental economic factors. The influence of speculative expectations has weakened, and processes have become more rational and predictable.

At the same time, the market is becoming increasingly differentiated. A so-called two-speed model is emerging: in central and infrastructurally developed districts of Baku, price increases persist, while on the periphery, the rate of appreciation is slowing and liquidity is decreasing. Absheron and Sumgayit serve as alternatives for the middle segment, where price increases are estimated at 8-11 per cent, yet regional imbalance is growing.

It is important to note that certain segments continue to display heightened activity. Housing at the construction stage remains the most dynamic. According to the forecast of Vugar Oruj, Chairman of the Azerbaijani Association of Appraisers, in 2026 the average price progression for such properties in Baku will be 17 per cent, and in 2027—18.5 per cent. Maximum dynamics are expected in central districts—Sabail, Narimanov, and Yasamal. Investor interest in land plots remains strong. While in 2025 the increase in land prices amounted to approximately 20 per cent, in 2026 the process may slow to 15 per cent, and in 2027 to 11.5 per cent. In the segments of private residential houses and non-residential premises, a more restrained dynamic is forecast.

A gradual slowdown is also anticipated in the secondary market. In 2025, the weighted average price growth for older apartments in Baku was 9.4 per cent. In 2026, a decrease to 6.5 per cent is possible, and in 2027 to 5.2 per cent. Higher dynamics will persist in central districts, while the process will be moderate on the outskirts. This indicates the market's transition to a phase of stabilisation and more balanced development.

Investment and legalisation

The Central Bank of Azerbaijan has noted an increase in investment flows into the construction sector, as evidenced by the growth in both the total volume of funds directed towards residential building construction and their share in the structure of fixed capital investments. In recent months, this trend has intensified, which is directly reflected in the market's activation.

The State Statistics Committee has reported that last year, 14.5% of total utilised fixed capital investments, amounting to ₼3,074.4 million, were directed towards the construction of residential buildings. The Central Bank attributes the increase in investments to sustained demand for housing and the implementation of new projects by the public and private sectors. The construction sector continues to be a significant driver of domestic investment demand.

The property legalisation process is another structural factor that has a significant impact on the market. This refers to the formalisation of ownership rights for houses lacking title documents, based on a presidential decree. Legalisation has been shown to increase both the official supply on the market and its transparency, thus bringing a significant volume of real estate into the legal framework.

It is estimated that there are over 500,000 residential properties in Azerbaijan that lack documentation, with a combined market value in excess of ₼50 billion. This effectively represents a significant segment of assets that for many years remained outside full legal circulation.

As reported by Nigar Alimova, Chairperson of the State Service for Cadastre and Real Estate Registry, a large-scale legalisation campaign is already underway. The decree signed by President Ilham Aliyev on July 16 last year will allow nearly 100,000 citizens to officially register their homes. The new document introduces substantial additions and amendments to Resolution No. 439, adopted in 2015.

According to Ms Alimova, the new decree constitutes an amnesty, effectively recognising a range of previously non-recognised certificates and documents as title-establishing documents. This initiative presents a valuable opportunity for property legalisation, with forecasts indicating that it will enable around 100,000 families to formalise their housing rights.

She emphasised that the document makes a significant contribution to resolving the issue of unregistered houses and brings into the legal fold property that has been in an uncertain status for decades. Furthermore, land plots from former collective farms, state farms, and other agricultural enterprises, allocated to citizens on the basis of orders, will be able to undergo legal registration. Such documentation will be recognised as grounds for formalising ownership rights, allowing owners to officially secure their property rights.

Consequently, the legalisation process has the potential to be a catalyst for the structural recovery of the market, thereby expanding the transparent segment of real estate and strengthening the institutional base of the sector.

Despite the stabilisation of growth rates, housing affordability remains a significant challenge.

As Nahid Hasanov has stated, the discrepancy between the real incomes of the population and real estate prices is increasing. The purchase of an apartment in Baku has evolved into a socio-economic goal for many citizens, and is no longer solely an economic decision. Prices are rising faster than wages, reducing purchasing power and putting pressure on the rental market.

The slowdown in sales market activity has led to an increased demand for rentals. Over the past year, rental rates have increased by 13-15 per cent, and the average monthly rent in Baku has reached ₼850-900. This level is already regarded as a psychological limit for many families. The rental market continues to face challenges due to high mortgage rates, migration to the city centre, and investors' need to maintain returns.

Experts are cautioning that if price growth continues to outpace population incomes, there may be a risk of a reduction in the number of transactions this year. Furthermore, should supply exceed localised demand, this could result in an accumulation of unsold apartments and the formation of so-called 'dead zones'. The restricted availability of accessible long-term financial instruments beyond state-backed mortgages also limits market expansion.

It is evident that Azerbaijan's real estate market is entering a new phase. Growth rates are decreasing, price dynamics are becoming more predictable, and investment activity persists. However, the structural problem of housing affordability remains unresolved. In the absence of the development of social housing, the expansion of financial instruments, and increased statistical transparency, stabilisation will merely signify a slowdown in appreciation, not a real easing of conditions for buyers.