Investing in real estate abroad and at home

By Gulgiz Dadashova

Buying a house is without a doubt one of the most important decisions that you will make in your life. Besides turning a house into a home, real estate is also an alluring investment.

With the growing salaries in Azerbaijan in recent years, many Azerbaijanis have started investing in real estate abroad. The euro crisis has made investing in real estate in Europe an attractive one.

The 2008 world financial crisis that began with the mortgage problems influenced the prices. As a result, real estate has become very attractive for foreign investors. Business is developing so rapidly in Azerbaijan that special agencies after investments in real estate abroad have popped up.

Azerbaijanis usually buy property abroad for business interests but also for personal affairs as the number of young Azerbaijanis studying abroad is increasing year by year.

Ogtay Hagverdiyev, an economic expert recently told local media that over the past 10-15 years, Azerbaijani citizens have invested billions of dollars in real estate abroad. However, the absence of relevant statistics prevents us from coming up with exact numbers.

Rich Azerbaijanis have various options to invest in the high-end markets, i.e.: Monte Carlo, Dubai, London and Paris. Also, wealthy citizens can choose property in Austria, Switzerland and Germany. In the absence of official statistics, it can be said that Azerbaijanis prefer to purchase luxury houses where the market is expensive and stable.

Nariman Agayev , Chairman of the Sustainable Development Research Center earlier told echo.az that Azerbaijani citizens, mostly prefer to buy properties in Turkey, and then in England, particularly in London, Italy, Monaco, Zurich, Russia, Austria and France.

He said so far private sector investments only in Turkey amounted to $1 billion.

Nusret Ibrahimov, CEO of MBA Group- a consulting company- also believes that middle-class Azerbaijanis prefer real estate in Turkey or Eastern Europe.

"There are just a few people in Azerbaijan who have the ability to buy expensive real estate, for example in Europe," the expert told local media. «As a rule, the Turkish real estate is budgetary and a stable option for the middle class. If you compare prices in the markets of Turkey and Azerbaijan, in general, Turkish real estate is cheaper, but the cost of housing rate in Istanbul is more than in Baku. This means that for many it’s cheaper to buy houses in Baku. "

Turkish home sales jumped highly this year as stabilized interest rates spurred a surge in mortgage loans. The number of homes sold jumped 25 percent to 95,645 in October, with mortgage sales rising 31 percent, according to data published by the state statistics office in Ankara today.

Foreigners purchased 806 facilities in Turkey in October - 612 of them in the province of Antalya.

Home prices in Istanbul increased more than 24 percent in August from a year earlier, the fastest since 2010, according to Turkey’s Central Bank. Prices nationwide rose at an annual rate of 15 percent, Bloomberg reports.

Russia is also among the preferences of Azerbaijanis, as a growing number of Azerbaijani citizens are studying there or have relatives there.

Elnur Azadov, Executive Director of the Azerbaijani Association of Realtors said although Russian, Ukrainian and other real estate markets in the neighboring countries do not maintain a competitive advantage compared to Turkey, Azerbaijanis with relatives or business in these countries prefer to buy real estate in Russia.

"We can talk about the opportunities, risks and investment attractiveness of a country, but talking about the real situation with the purchase of real estate is not possible without having statistical data and precise calculations. While the small middle class prefers the budgetary real estate in Turkey, rich Azerbaijanis buy homes in prestigious areas of Moscow region, " he said.

Moscow´s resale apartment prices fell by 2.13% during the year to the first quarter 2014 - an 8% fall when adjusted for inflation.

In September, dollar prices of apartments in Moscow lost 2.5 percent, falling from $4,988 to $4,863 per square meter, while ruble prices made a similar drop, according to data from analytics firm IRN.ru. On the primarily ruble-denominated secondary market, prices have risen by about 0.5 percent.

The stagnation in the secondary market is a result not only of low appetite among buyers, but also investors' reluctance to part with properties at today's low prices, Best-Realty president Grigory Poltorak told Vedomosti.

Real estate in Europe

Europe is still most favorite place for the super-rich citizens to invest in property. Research by estate agents Knight Frank in mid 2014 found that investors from outside of the European Union flocked to the most stable residential markets in London, Vienna and Geneva in the wake of the 2008 financial crisis.

The report estimated what someone looking for luxury property can get with €1 million (810,000) in Europe’s top cities – and it’s not much. Monaco tops the list, offering a paltry 20.6 sq m for the price and London comes in a close second, with 33 sq m, followed by Geneva, Paris, Zurich, Moscow and Venice. At the bottom of the table, parts of Spain seem comparatively good with €1 million buying 166 sq m of luxury in Madrid and Barcelona.

The Bank for International Settlements reports that house prices generally grew in emerging regions outside Europe. In Asia, year-on-year growth rates remained high in a number of countries in the first quarter of 2014 - for instance, prices increased in real terms in China (+13%), the Philippines (+13%) and Malaysia (+5%). Price developments were mostly negative among central and eastern European countries, but prices in the Baltic countries rebounded sharply.

Real price growth was negative in Japan (-2.6%) and was generally weak or negative in continental Europe. Prices rose in Germany (+1.2%) and the Nordic countries (+1.7% in Denmark and +4.8% in Sweden), but continued to fall in the euro area's southern periphery (Italy, -5%; Spain, -3.8%; Portugal, -1.2%; and Greece, -6%).

Residential property prices rose by 9.5% in the United States and 6% in the United Kingdom, year on year. Real house prices also grew, by 7% in Canada, 7.7% in Australia and 2.2% in Switzerland, three countries that were less affected by the crisis, as well as in some countries that were severely affected by the crisis, such as Ireland (+7.2%) and Iceland (+6.4%).

Domestic market

Experts in Azerbaijan believe the local real estate market still keeps its investment attractiveness for the vast majority of the population of Azerbaijan. They believe that the sector is still attractive in view of rising prices and relative stability.

Rising revenues allow Azerbaijanis to upgrade their living styles, move from the old houses to new, brighter and larger ones. Yearly rising birth rate and number of marriages also ups demand for houses. The number of immigrants arriving in the capital from the region as well as from other countries is also increasing which in turn leads to an increase in the portfolio demand and contributes to the growth of prices.

Nusret Ibrahimov earlier said that an increase in supply in the real estate market of Azerbaijan in 2008-2010 caused a reduction in housing prices.

“Declining pace of construction since 2008 has led to today's realities - there is a shortage of apartments in the primary housing market, that is, the supply shortage. This deficit is particularly felt in the group of cheap housing. Ultimately, reducing the supply leads to a rise in the price,” he said.

Previously, people with enough money could build a house. However certain restrictions were introduced in this area in 2008. Persons who do not have a base, experience and financial capacity are prohibited to enter the building sector. This area is already licensed and therefore accidental entrepreneurs and construction companies have left it. Only companies that know their job and meet the standards are working in the market,” he said.

The analyst added with regret that most of the remaining companies in the market mainly construct houses of "premium" and "elite" classes.

"These companies are not interested in building low-cost houses for the general consumers. As a result, there is a shortage in this segment, which in turn leads to a rise in prices, " he said.

"Stabilization and rising prices in the housing market began from the 4th quarter of 2010. It is expected that prices will continue this year. However, the growth rate will not be like what it was in 2013. The monitoring allows predicting the rise in prices this year at 10.6%," he noted.

Rising prices in the housing market of Baku in the 4th quarter of 2010 amounted to about 3%, in 2011 - 6%, in 2012 - 9.8% and the rise on the secondary market was 20% and in the primary - 28% in 2013.

Vugar Bayramov, Chairman of the Center for Economic and Social Development also noted that the real estate market is active in 2014, predicting stagnation in late 2014 and a drop in demand for real estate market since the first months of 2015.

He said that if the drop in oil prices continues, it will lead to a drop in demand for the property market and lower prices.

The expert believes that there is no real ground for the new higher prices in the real estate market of Baku. He added that demolition conducted due to the expansion of infrastructure in the capital, has not led to the infusion of large amounts of funds in the real estate market. He believes stagnation in Russia’s economy, and a sharp decline in oil prices will lead to the lower prices and declining of the real estate market in Baku.

"Azerbaijanis working in Russia invest part of their funds in the real estate market in Azerbaijan. However, these investments decreased after May, and in recent months, this figure downed to a minimum. This is one of the reasons for the decline of activity in October. Prices of oil markets, the situation in Russia, the unstable exchange rate and a sharp drop in the ruble are affecting the housing market. The activity has fallen by more than 30 % this October compared to October 2013, " he said.

The total area of housing put into operation in Azerbaijan in the first half of 2014 amounted to 824,600 square meters, which is 10.2% less than the same period last year, the State Statistical Committee said.

The total area of housing put into operation in Azerbaijan in 2013 amounted to 2,139 million square meters.

Currently, the country’s housing stock 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 the private housing.

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