Mortgage lending in support of construction

Azerbaijani government undertook a next step in an economic crisis period, directed at supporting the construction sector. Thus, mortgage lending has been restored in the country on 1 June. It was ceased in summer of 2007 due to financial shortage.

The construction sector has become the first victim of the global financial crisis and the activity of this sector has considerably reduced over the past period. Thus, according to the monitoring by the Participants of Estate Market public union, 455 buildings were built in Baku in April-May compared to 461 in March and 555 in early June 2008.

The process of reduction in number of active participants in construction industry is still going on at the same time. In May, 178 companies were engaged in construction compared to 189 in March and 212 construction companies in early June 2008. Finally, the average price of first real estate decreased by 1.7 percent in May and amounted $970 per 1 square meter compared $987 per 1 square meter in April and $1,006 in March and $1,130 in May 2008.

On the market of real estate builders and realtors faced problems of declining sales, reduction in staff, freeze o promising projects and difficulties in refinancing debts. Following this, producers of construction materials were also concerned with reduction in construction: they do not any more believe in the bright future of the construction market.

Cement market, which dropped in price twice in the past two months, was first to caught the fever. As a result it led to cheaper cost of construction and then decline in demand for other materials. For example, prices on construction materials market in Baku fell 5.1 percent in May compared to March. By the beginning of the year prices fell 10.8 percent and 49.5 percent compared to the same period of 2008.

Monitoring by Participants of Estate Market into 36 items and 87 varieties of building materials showed that the observed decrease in 36 and 51 kinds of prices have remained stable and there was no increase in prices over the past three months. In anticipation of further declines, population reduced demand, which immediately was felt by players of the real estate market.

Building material

March in manat

-/+ in percent

April in manat





Cement (Garadagh)




Glass (white)




fittings (in tons)









It is known that availability of sound in consumer demand is stimulus to development of any industry. In theory, it is mortgage lending that creates demand.

Under the new mortgage lending conditions, mortgage loan by the standards of Azerbaijan Mortgage Fund (AMF) has been issued in national currency - Azerbaijani manat to Azerbaijani citizens from 3 to 25 years. The loan amount shall not exceed 50,000 manats and the annual interest rate on loans is 8 percent. Also, the amount of the credit should not be more than 85 percent of the market value of real estate secured by a mortgage on the date of issuance of the loan. Monthly payments on mortgage loans should not be more than 70 percent of the borrower's monthly gross income.

Moreover, mortgage borrower's opportunity to sell mortgaged property is one of the innovations. Previously, in case of the problems with repayment of the loan, the mortgage became property of the bank, which determined further fate of the property. Another innovation will enable to increase access and address the issue of obtaining a mortgage loan as the amendments to the law; one can also lay uncompleted property, under which a loan is involved.

Social mortgage loans will be issued starting from June 18. The presence of social lending along with conventional mortgage also greatly expands the range of potential customers - the number of applicants for loans is increasing noticeably. This is especially true for young families with average incomes.

Thus, family members of war victim, families of national heroes, internally displaced persons, and civil servants with experience of not less than three years, candidates of sciences and those with doctor's degree, persons with special achievements in sports, as well as those with minimal military experience of three year have an access to soft loans. The very soft loan is granted for 30 years under 4 percent per year.

Today, more than 60,000 young families are in need of housing in Azerbaijan including an additional 200,000 refugees and internally displaced persons. Some of them are going to buy a flat, others to improve their housing conditions. Terms of preferential mortgages would help improve their housing condition and will play a huge role for the real estate market as a whole.

Many construction companies took position of waiting for the resumption of construction activities since mortgage lending has been resumed. People also started to collect information and even search for facilities under mortgage.

Experts forecast growth in housing prices with a favorable combination of circumstances, together with this, noting that the impact of credit should not seriously affect the price of construction market due to the fact that the proposal significantly exceeds demand. Instead, the market will experience significant activity which will also impact building materials market. All of these processes will lead to employment in the country.


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