Review of construction sector in Azerbaijan (January-February 2014)

According to the Azerbaijani State Statistical Committee, the construction work totaling 973.1 million manat was conducted in Azerbaijan in Jan.-Feb. 2014. The volume of construction work increased by 4.2 percent compared to the same period of last year.

Some 62.5 percent of the total volume of construction work accounted for primary construction, reconstruction and expansion, 19.5 percent - overhaul, 2.6 percent - current repair and 15.4 percent - other construction work. Some 80.5 percent of the construction work was carried out by non-state construction companies.

Main indices of construction sector in Azerbaijan in Jan.-Feb. 2014

Source: State Statistics Committee

Construction market correction continued in February 2014 after the records of 2013, when commissioning of housing exceeded two million square meters per year in Azerbaijan first time in the history, according to the Azerbaijani State Statistical Committee. Commissioning of housing decreased by 15 percent in February compared to January.

Around 102,400 square meters of housing were commissioned in February compared to 120,500 square meters in January 2014 and 114,400 square meters in February 2013. In total, some 222,900 square meters of housing were commissioned in 2014 which is by 9.4 percent less compared to the same period of 2013 (246,000 square meters).

Baku's real estate market is expected to be greatly changed in connection with the demolition of the old houses on the Nariman Narimanov prospect (former Sovietskaya). According to MBA Group consulting company, the demolition of almost 10,000 residential houses on this territory allows to predict a hike in market prices.

Up to 2,000 apartments are offered on the market monthly. The matter rests in the demand for 10,000 apartments as all these people will search for new houses after receiving compensations. The new buildings are being built in the city, but mainly premium and business class. The lack of middle-class apartments and such a great demand will lead to a significant increase in the market prices - up to 10 percent.

Secondary housing market

The cost of one square meter of secondary housing in the Azerbaijani capital of Baku has risen by 6.3 percent from 1,874 to 1,992 in February, according to 'MBA Group' consulting company.

The sharp rise in prices can be attributed to the decision on demolishing of around 1500-2000 residential buildings on the territory of Baku known as the "Sovietskaya" street.

Another cause of the price hike can be the assumptions of the population that the prices will increase in the country this year. One of the reasons that give rise to such expectations is the increase in fuel prices in late 2013.

Most of the portfolio included cheap houses within a month proceeding from market conditions or the nature of demand. In February, the share of expensive homes increased from 44.17 to 44.87 percent, while cheap ones decreased from 55.83 to 55.13 percent.

Most of the portfolio (38.5 percent) accounted for apartments worth $85,000-$95,000.

The average number of sold rooms was 2.56, the average price of a flat was $65,569, the average cost of an apartment was $166,688 in February.

Building material market

In Jan.-Feb. 2014 the companies engaged in production of construction materials in Azerbaijan produced goods worth 50.0 million manat, which is 10.6 percent more than the figures for 2013, according to a report from Azerbaijani State Statistics Committee.

In January-February 2014 the companies produced 331.9 tons of cement (an annual growth of 38.2 percent), 17,800 tons of plaster (a decrease of 49.5 percent), 6,600 tons of ready-mixed concrete (an increase of 13.8 percent), the committee said.

Commercial housing market

According to MBA Group consulting company, the prices for houses for rent in Baku increased by 9.6 percent since early 2014.

The average price for renting one apartment in Baku amounted to $814 increasing by 4.82 percent over the month.

The growth rate of prices for house rents was significantly lower than the growth rate of prices for the sale of apartments (five percent versus 26 percent) in 2013.

Currently, stagnation is being observed in the housing rental market, as the first three months of the year are the off-season for this market.

The work on demolition of residential facilities in Baku's Sovetskaya Street is not a factor that can affect prices for house rental for the time being.