Amount of mortgage market hits 6 percent of capacity in Azerbaijan

Business Materials 26 January 2011 19:11 (UTC +04:00)

Azerbaijan, Baku, Jan. 26 / Trend I.Khalilova /

At present, the total mortgage portfolio of the Azerbaijani banking sector is higher than 300 million manat, 50 million of which banks issued through heir own expense, Chairman of the Central Bank of Azerbaijan (CBA) Elman Rustamov said in an interview with state television AzTV.

"Last year, there was also observed a high activity in the mortgage market. About 500 families were given soft loans worth 14 million manat. Until now the Azerbaijan Mortgage Fund (AMF) under the Central Bank issued 250 million manat to over 6,300 families," Rustamov said.

The International Finance Corporation (IFC is a member of the World Bank) said the potential amount of the mortgage market in Azerbaijan is estimated at $6.4 billion.

"At a time of the construction boom, the private sector made enough investment in this sector and an extensive work was carried in 2003-2010 to ensure population's demand for housing," Rustamov said. "While the global crisis, the investments in this sector decreased, this shows the crisis's impact on the country's construction sector."

According to research conducted by the CBA together with the Azerbaijani Banks' Association, the country has a large amount of housing supply, which is not coordinated with effective demand. In this regard, the government has already begun discussing ways and conditions for the empowerment of people to buy homes.

"Under our proposals, it is necessary to increase the amount of mortgage loans issued on commercial terms by the AMF, which today amounts to 50,000 manat. However, the changes may affect the size of credit under the social mortgage, because the 35,000 manat (maximum loan amount) is a small sum," Rustamov said.

He said there is a certain inconsistency between the supply in the housing market, its structure and the cost of housing.

"This disparity does not give an opportunity to redirect the mortgage system to the primary market, that is, the purchase of housing in new buildings. Today, mortgage loans issued mainly for the purchase of secondary homes from the old housing stock," Rustamov said.

The main task today is to redirect the mortgage loans to the primary housing market, and therefore "we support a significant increase in the maximum amount of mortgage loan."

Regarding the reduction in mortgage interest rates, Rustamov considers it possible, if lending will be carried out through the state.

"We believe that the social mortgage must be intended only for the privileged category of the population, and the system now works well in Azerbaijan," Rustamov said.

This year, the social mortgage was re-allocated 14 million manat. "Maybe its scope will be expanding a little. For the commercial mortgage, resources should be involved from both domestic and international markets. As a result, banks and mortgage system will be able to offer these funds to the population depending on the cost of involved resources," Rustamov said.

Rustamov said Azerbaijan needs to eliminate the deficit on the mortgage resources. Through macroeconomic stability, and deepening it, and other factors, interest rates will be reduced in Azerbaijan and the cost of money in the country should approach the level in the world markets.

"Today, this difference can not be completely eliminated and equalized with the rates prevailing on the markets of developed countries, but we have room to ease conditions in some degree, and in this regard will be held activities," he said.

The maximum sum of common mortgage loans in Azerbaijan amounted to 50,000 manat under 8 percent per year for the term of 25 years, social mortgage to 35,000 manat under a 4 percent per year for 30 years. Initial payment for common and lax loans is 15 percent.

Conditions of the mortgage lending are as the following: loans must be issues in the national currency with manats and only to Azerbaijani citizens, and an object of the mortgage can only be an apartment or private houses, volume of the mortgage lending must not exceed 85 percent of the market price, monthly payment for a loan must not exceed 70 percent of debtor's monthly income, as well as presence of an agreement on life insurance and others.

The AMF was founded in December 2005 and began to issue mortgage loans in Azerbaijan in March 2006. In June 2007 the fund suspended the mortgage lending due to lack of financing and resumed lending in June 2009.