Azerbaijan, Baku, 28 April /corr. Trend U.Ismaylova / After collapse of the Soviet Union, the real estate market of Azerbaijan incurred temporary stagnation. From 1995 onwards the activities in the real estate market of the country started escalating, and today 20-22 storey buildings are being constructed in Baku. The development of the construction sector in recent few years has caused flow of huge investments in the region
Trend interview with Director General of consulting company MBA Group, Nusret Ibrahimov.
Question: How do you assess the current situation of Azerbaijani real estate market?
Answer: The market is still under the formation stage. The dynamic rates of economic growth in the country may be called as the key factor affecting the market. In the recent years, the rates of economic growth in Azerbaijan have averaged 22-23%. Export of large oil volumes lead to growth of funds - manat and foreign currency. Pressure of these funds causes the rise of inflation. It is impossible to convince the Country's population that the inflation level will fall and therefore, the citizens try to maximally insure their funds, investing them in real estate or securities. The population directs about 60% of their profits towards real estate. It is a negative fact that the citizens invest large amount of their profits in one segment of the economy. If we want stable development of the economy, all segments of the market should develop in parallel. Many experts think that however the real estate is a locomotive of the economy.
Question: What is the flow of foreign investments into non-oil market of the economy?
Answer: It is clear that the investments in the Azerbaijani oil sector, which is important for country's economy, are decreasing every year and moving towards the non-oil sector, especially real estate market. Currently, the investments in the construction sector of Azerbaijan exceeded the investments into other spheres by 3-4 times.
Question: Can real estate market leave behind the oil sector in Azerbaijan?
Answer: No, because the real estate market has a final volume which cannot be exceeded. Indeed, now we have worn-out housing and a range of hotels and commercial premises are in bad condition. Businessmen are trying to improve the situation with housing resources, for instance, they construct hotels, business centres. However, within next 10-12 years many premises will be constructed, the worn-out ones will be renewed, thus recession will appear in the market. Then, investments will be put in other economic field in the country, such as agriculture and telecommunications.
Question: How do you assess constant rise in prices in the real estate market?
Answer: That is normal. It would be bad if the prices were not climbing up. The hike in prices confirms there are dynamics, development, and hence, money in the market. If prices in some city are not rising, that means there is stagnation instead of development. One should not be afraid of the rise, but drop in prices. If prices in the market drop rapidly, many companies will be bankrupt and will suspend construction; so many people will lose jobs. It should be taken into account that 50% of the country's non-oil sector is formed though the real estate market, and if the property market faces stagnation that will cause a crisis for 50% of Azerbaijan's non-oil economy.
For the time being the property market's activity totals only 13%. That means out of 100 apartments supplied, only 13 are sold. Generally, property market can be considered active only in case the figure is 40%. We had such activity in August 2007, when a building under construction collapsed and killed 25 people. The event reduced people's trust and the activity dropped by 34%. Another cause for drop in the activity is that purchaser's opportunities are less than the prices.
Question: When will Azerbaijani real estate market achieve the peak point?
Answer: I think Azerbaijan will achieve the peak point of property market development in 2012. This forecast arises from the economic regulations. Presently the Government is allotting a large sum of money for the development of construction sector and has also simplified various credit terms. So, the market is growing, incomes are growing, expenditures are also growing, which lead to rising inflation.
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