New buildings grow together with prices

Since 2000 Azerbaijan has been continuing to live "construction boom". The increase of the construction works in Azerbaijan has resulted to that the construction sector became the second after the oil sector. According to the information provided by the Consulting Company MBA, more than 200 construction companies operate in Azerbaijan which continue to actively erect new high buildings. Today more than 800 buildings are under construction in Baku. Thus, the population has concentrated preference to the newly constructed buildings.

Source: State Statistics Committee

The trust of buyers on new buildings is caused by that quality of their construction has improved. The large construction companies pass audit on reception of the certificate of quality. Also Public Service on Consumer Market Control at the Ministry of Economic Development of Azerbaijan started monitoring of the market of the construction materials used at construction of high-storey buildings. Monitoring is carried out both amongst the goods of local manufacture and imported building materials. The Public Service demands participants of the market of building materials not only to observe the quality, but also provide guarantees on expensive building materials.

Due to great demand, the prices for high-rise buildings continue to grow, it is possible to tell, not annually, but daily. At present, averagely the price of sale of square meter of the area in the new buildings in Baku has practically surpassed a rod in $1,100. As compared to May 2007, in May 2008 the rates of increase of the prices for the real estate in Baku have even become more intensive character. Over the past five months of this year, the price index reflecting dynamics of the prices, has raised up to 334.5 points. In a percentage equivalent, the increase of the real estate prices over the past five months, it has made 20.1%, and as compared to May 2008 - 33.4 %. In May increase made up 2.9 %.

Average price for sq.m, USD
Комнаты May Increase, %
One-room 1,899 0,1
Two-room 1,844 0,2
Three-room 1,824 0,2
Four-room 1,785 - 0,2
Five-room 1,612 - 0,1

Source: MBA Consulting Company

The price increase in the first market is connected with the rise in the prices for elite houses. As before, most of new buildings are constructed in the districts of Yasamal, Nizami and Khatai. Over the last months, nearly 5,000 apartments were presented to sale. Basically consumers buy apartments in Nasimi (20 % of market sale), Narimanov (18.8 %) and Yasamal (20 %) areas of capital.

Average price for sq.m, USD
Комнаты May Increase, %
One-room 1,899 0,1
Two-room 1,844 0,2
Three-room 1,824 0,2
Four-room 1,785 - 0,2
Five-room 1,612 - 0,1
Districts May %
Azizbeyov 1,112 0,2
Binagadi 1,630 - 1,0
Garadagh 1,449 0,3
Yasamal 1,762 0,3
Nizami 1,508 0,5
Narimanov 1,831 - 0,1
Nasimi 1,935 - 0,1
Sabunchu 1,462 - 0,5
Surakhani 1,137 -0,3
Sabail 2,447 5,7
Khatai 1,391 - 0,7
Absheron 1,082 4,0

Source: MBA Consulting Company

Price changes in the market of the real estate are closely connected with the tendencies in the world and inside the country. The prompt rise in housing price is connected firstly with improvement of well-being of the capital population. Despite the fact that the price of sq.m rose averagely by almost $100 per month, activity of buyers and solvent demand only increased. Today in Baku it is possible to sell almost all constructed houses and purchasing capacity of people does not weaken. The agiotage amplified also from the process, peculiar to our mentality, speculative operations. Practically all new souses are redeemed by intermediaries at the stage of its construction for the purpose of the subsequent resale and reception of significant dividends, and thus, provoking splash in demand for housing. It is shown that many representatives of regional elite wish to buy to apartments in capital, and it considerably strengthen pressure upon the real estate market.

Also, the number of citizens of other states getting property increases in Azerbaijan from year to year. Up to now, more than 500 foreigners have got real estate in Azerbaijan. Basically, they are citizens of the CIS, the USA, Great Britain, France, Israel, Bulgaria, Iran, etc. Purchase of property by them is connected with their business activities here. Thus, intensity of purchasing apartments was shown by citizens of Iran who were afraid of the beginning of war between Iran and the USA and beforehand bought apartments in Baku.

The intensive rise in prices was accompanied by growth of the prime cost of constructions which made up 12.1 %. The process was caused by increase of expenses for building materials which rose by 8.4%, other expenses - 3.7 %. The ratio of the prime cost to the market price of the real estate makes 1/2. For last year, expenses of the construction companies on building each square meter of housing area have increased in 2 times. So, one year ago, practically $226 was required for construction one sq.m. Now expenses have increased by 2 times. Despite reduction in profitableness of constructions because of growth of costs, the majority of the construction companies compensated profitableness due to increase of cost of apartments. On this background, for a year, the market cost of the real estate increased approximately by 35%.

In addition, the price increase strengthens insufficient internal production of building materials. According to public organization Participants of Real Estate Market, only 40% of the construction materials sold in the market is the Azerbaijan manufacture. Accordingly, a principal cause of rise in prices for building materials is the price increase for building materials in the world market and increase in expenses for transport and import.

Since the beginning of year of the price for building materials have grown by 20%. According to researches of public organization Participants of Real Estate Market, cost of wood increased by 22.1%, armatures - 13.2 %, slate - 15 %, a channel - 24.6 %, metal pipes - 12.2 %, glasses - 16.8 %.

The price rise for the real estate is also supported by presence of mortgage crediting. After a mortgage agiotage which has entailed deficit in credits, Azerbaijan Mortgage Fund of the National Bank was compelled to suspend its activity. Today many Azerbaijan commercial banks provide mortgage credits within own programs. Credits are provided approximately under the annual rate of 10 %. However average term of crediting makes nearly 3 years, and advance payment makes up 25 % of cost of apartment. Local banks are not capable to allocate long-term credits and the Government of Azerbaijan will take all necessary measures for encouragement of activity of commercial banks in this direction. Now for development and renewal of activity of the Mortgage Fund, the National Bank negotiates on attraction of finance from the International Finance Corporation, German KfW and other large commercial banks.

After re-establishing activity of the Azerbaijan Mortgage Fund, the price for the real estate can jump up even more. Availability of the mortgage begins to support solvent demand in the market.

Taking into consideration the situation as a whole, according to the forecasts of the Head of State Service for Register of Real Estate, Arif Garashov, the price in the real estate market of Azerbaijan will rise by 22% by the end of year.

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