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

Azerbaijan has changed the conditions of real estate sale. This applies both to the taxation of income from the sale of property and restrictions on the sale of land plots.

According to Article 102.1.9 of the Tax Code of Azerbaijan, the income from the sale of real estate of the taxpayer, which was the place of residence for a period of more than three years, is exempt from income tax.

In other words, those willing to sell housing during three years [since its acquisition] will have to pay an income tax on the difference between buying and selling. The income tax rates in Azerbaijan are as follows:

The amount of annual taxable income

Tax sum

up to 30000 manat

14 percent

over 30000 manat

4200 manat + 25 percent of the sum exceeding 30000 manat

In case of having the second or third housing besides the place of residence, an income tax during the sale is paid regardless of the term of their acquisition.

Moreover, in case of increasing the cost of the housing over 120,000 manat [in accordance with the purchase/sale contract], the VAT payment [18 percent] is envisaged. A three-year grace period is not applied.

At the same time, the sale of a non-residential area is considered an entrepreneurial activity for legal and physical entities. According to the provisions of Chapter XI of the Tax Code, the income obtained from the sale of real estate is subject to VAT and income tax.

However, the individuals who not registered as VAT payers and having the volume of taxable transactions during any month (months) of consecutive 12-month period in the amount of 120,000 manat and less, are entitled to pay a simplified tax. The amount of the simplified tax is calculated by applying the rate of four percent in Baku and two percent - in other regions.

If the volume of taxable transactions during any month of the consecutive 12-month period exceeds 120,000 manat (except those specified in Articles 218.1.1.1 and 218.1.1.3 of the Tax Code), the entrepreneurs must apply for registration for VAT purposes within 10 days from the date specified in Article 157.3 .1 of the code.

The taxation of real estate has started since 2014, but the tax authorities have begun applying this provision since 2015.The construction work increased by 3.5 percent and hit 1.007 billion AZN in Azerbaijan in January-February 2015 compared to the same period of 2014, according to the Azerbaijani State Statistics Committee.

Some 63.1 percent of the total volume of construction work accounted for primary construction, reconstruction and expansion, 18.2 percent - overhaul, 6 percent - current repair and 12.7 percent - other construction work.

Commissioned:

Jan.-Feb. 2015

Compared to Jan.-Feb. 2014

residential buildings, total area, thousand sq. m

262,9

118,0

Hospitals

90

-

Secondary schools, educational facilities

150

55,6

Pre-school educational institutions, facilities

1697,5

100,5

Funds directed to fixed capital, in mln AZN

1282,3

137,3

Including:
- for the construction of production facilities

415,2

84,0

- for the construction of facilities in service sector

1247,0

113,6

According to the Azerbaijani State Statistics Committee, around 141,700 square meters of housing were commissioned in February compared to 102,400 square meters in the same period of 2014.

Around 262,900 square meters of housing have been commissioned since early 2015 or by 18 percent more than in the same period of 2014.

Primary and secondary housing markets

According to the MBA Group consulting company, the price on the real estate market of Baku increased by about two percent in January-February 2015. In January 2015, the property prices slightly declined by 0.18 percent [compared to January 2014]. As for the primary and secondary housing markets, a 0.3 percent decrease was observed. But in February, the prices began increasing. Thus, in general, the market growth hit 2.13 percent, while on primary and secondary housing - 2.1 percent.

Despite the activity on the real estate market reduced by 23 percent in January, the market revived in February. Compared to January, the activity on the real estate market increased by ten percent. There were more transactions on the real estate market in February than in January or March. First, January is the beginning of the year. Last year has not been summed up yet. The houses are often built or bought in February. But this year great activity is also partly connected with the change of the manat rate. A few buyers began to invest in real estate, so great activity was observed by late February.

Land market

According to "MBA Group" consulting company, the price on the land market of Baku increased by 5.15 percent in February 2015 compared to the same period of last year. In January 2015 the growth on this market amounted to only 0.6 percent.

The prices on the housing market of Baku are too high so most people can not buy apartments in the capital. Over the past two years, many potential buyers have passed from the primary and secondary housing markets to the land market.

It is profitable to buy a small land plot and to build a one-storey or two-storey house for 60,000-70,000 manat than to pay a lot of money for an apartment. The most popular districts are Binagadi and Absheron districts. Land plots are often bought there, the expert said.

Rental market

Other situation is observed on the rental market. According to the MBA Group consulting company, the average price on rental housing in Baku reduced by 4.5 percent in February.

In January, the rental prices increased by 1.5 percent, but in February, its cost decreased by 4.5 percent compared to the same period of 2014. The beginning of the year, i.e. January-March is off-season months for rental housing. The revival is observed in the end of summer - August and September-October. The recession is mainly observed on the market in the first half of the year.

Construction material market

The companies engaged in building material production in Azerbaijan, produced goods worth 59.6 million AZN in January-February 2015, or 24 percent more than in the same period of 2014, according to the Azerbaijani State Statistics Committee's report.

During this period, Azerbaijan produced 375,500 metric tons of cement (a 14.9-percent increase versus the same period of 2014) and 32,800 metric tons of gypsum plaster (a 10-percent growth), the report said.

Azerbaijan also produced 2,600 metric tons of ready-mixed concrete (a 60.6 percent decrease), 38,100 metric tons of asphalt (a 9.8 percent decrease), 208,700 cubic meters of precast concrete building structures (a 35.9 percent growth), 1466,9 metric tons of processed marble, travertine, alabaster and items made of them (a 3.1 times decrease).

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