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Azerbaijan sees rising housing stock

21 November 2014 10:00 (UTC+04:00)
Azerbaijan sees rising housing stock

By Gulgiz Dadashova

The housing stock of Azerbaijan with population of over 9 million people has increased by 30 percent over the past two decades.

The country’s housing stock currently hits 166.4 million square meters and the figure per capita is more than 18 square meters. More than 90 percent of this figure falls to the share of the private housing.

The Economy and Industry Ministry, which deals with the issues of the housing stock, notes that the adoption of the new Housing Code in 2009 played a big role in unfolding major construction and repair work in the country. "The new code allowed to standardize the regulatory framework and ensure the regulation of public utilities, as well as to manage the housing stock," Deputy Minister of Economy and Industry Sevinc Hasanova said.

Experts assure that this tendency need to be continued as the housing stock per capita is still law in the country. In developed countries, about 35-40 square meters falls per capita when the figure is 18 in Azerbaijan.

“Given the fact that about third of households in Azerbaijan is in need of better housing conditions, the housing must also be increased by one-third, or 30 million sq,” said Vugar Bayramov, Chairman of the Center for Economic and Social Development.

Bayramov said about 14,000-15,000 apartments are put in use yearly in the country. “According to our estimates, if the construction of apartments continues with this pace, 60 years will be required to satisfy the total demand. This calculation is based on the fact that about a third of households in Azerbaijan needs in apartments,” he said.

The expert added that given the current average prices, namely $ 500 per square meter, then about $15 billion is required to improve the living conditions of all citizens in Azerbaijan.

He also noted that the Housing Code of Azerbaijan provides for the construction of social housing.” But, unfortunately, no significant changes recorded in this sphere yet,” Bayramov said.

The expert believes the housing problem in Azerbaijan can be resolved through the creation of social housing. "This means the transfer of housing for young families on more favorable terms. For example, according to our calculations, a house can be passed to young family for 70 manats per month and this house will go into the disposal of the family after 20 years."

Bayramov noted that allocation of 400 million manats from the state budget will be enough for the construction of social housing in the initial stage. "This is enough to move the process forward. Moreover, given the possibility of Azerbaijan’s state budget this will not be a serious burden. In this regard, the process can be started already in 2015," Bayramov said.

Mortgage

The Azerbaijani government seeks to adopt new strategy for the development of mortgage lending.

Recently, President of the Central Bank of Azerbaijan (CBA) Elman Rustamov said the new mortgage strategy was presented to the government and it stipulates a number of novelties.

“The document also covers a number of problematic issues that are being discussed by the government. These problems are mainly related to the choice of strategy,” he said noting that it is difficult to name the exact date for adoption of the document.

Meanwhile, the draft law on Azerbaijan’s state budget 2015 submitted to the Parliament provides for 25 percent increase of the state support for mortgage lending in the country. According to the draft law, in 2015 the state budget can allocate 50 million manats for mortgage support. Several MPs proposed to increase the support up to 100 million manats.

Taking into account the social mortgage funding envisaged for 2015, a total amount of funds accumulated in the mortgage fund will reach 266 million manats. In 2014 the Azerbaijan Mortgage Fund (AMF) received 40 million manats from the budget.

Along with budgetary financing, the mortgage fund places bonds. The funds from their sale are directed to the issuance of loans as part of conventional mortgage.

Around 15,425 mortgage loans totaling 613.89 million manats have been issued through the AMF as of October 1.

The maximum amount of a conventional mortgage through the AMF is 50,000 manats at a rate of 8 percent and a maturity of 25 years. The amount of a social mortgage is 50,000 manats at an annual rate of 4 percent and the term of 30 years. The initial payment under the social mortgage is 15 percent, while for a conventional loans - 20 percent.

Expert Samir Aliyev said about 2,500 people get a mortgage loan though the state line yearly. "But our calculations and observations show that new demand forms for annual mortgage formed in the volume of 30,000-40,000. The demand forms due to young families, some of whom do not have his apartment. At least half of these young families need apartment. On this background, 2,500 is a small number,” he said.

The expert considers it necessary to increase the amount of the mortgage. “The funds directed for mortgage can be brought 10% of GDP, which will be about 5-6 billion manats. The state has this capability. This can be done by increasing the allocation of funds from the state budget. In any case, these funds will return back to the budget of the mortgage fund and then again directed to mortgage financing.”

New institution

Also the government earlier announced about plans to establish Housing and Savings Bank which will be a completely new institution.

CBA Director General Rashad Orujov then said the creation of the bank included in the CBA strategy for the development of mortgage loans is presented to the government for consideration.

"Creation of housing savings bank after the German model is one of the important areas of the strategy. The process of creating the bank may begin only after the adoption of the strategy. Therefore, to speak about any term or other details is early yet," Orujov said.

The creation of such bank and promotion of low-cost housing will be implemented in an integrated way, according to the general director.

"Therefore, this document is called a strategy of mortgage loaning. Azerbaijan Mortgage Fund is not the only solution of the housing finance problem. It is necessary to develop a complex approach and use the experience of other countries," Orujov said.

The essence of housing savings bank is that the citizens will be able to receive mortgage loans, putting money in the bank. However, the volume of loan will significantly exceed the amount of the deposit. There are various options in the world and the share of savings for getting a mortgage loan can make up both 50 percent and 30 percent.

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Follow Gulgiz Dadashova on Twitter: @GulgizD

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