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Why Azerbaijan’s real estate prices remain high?

7 September 2015 09:00 (UTC+04:00)
Why Azerbaijan’s real estate prices remain high?

By Nigar Orujova

Prices in the real estate market remain stable in Azerbaijan, while many have been waiting for them to drop since early 2015. After the devaluation of national currency in February, many people turned to the idea of buying real estate, expecting a decrease in prices. However, this was not to be the case.

The property market in Azerbaijan is now going through changes, having slightly decreased in prices after recent economic shocks – the fall in oil prices, the devaluation of manat, etc.

The consulting company Value and Sources released a number of reasons why an apartment in Baku is not any getting cheaper.

The company said the fact that housing prices in manat remained unchanged in the last year and has declined by an average of 25 percent in dollar, is controversial.

“This is an average index, so it turns out that if the price for half of all housing in Baku fell in manat over the last year, the other half, on the contrary, has risen,” the company noted.

All this happens under conditions of low liquidity in the market and increased liquidity should lead to higher prices, the company said.

“In this situation, lower prices would be an adequate response. But why is not it happening?” the company inquires.

The first reason, according to the company, is that despite the drop in revenue, free capital in the manat has increased.

“The decline in purchasing power affected the market only in dollars. In any case, for a person whose monthly income is 600-700 manat, the only way to buy an apartment is mortgage,” the consulting company reports.

The existing conditions adversely affected the revenues of the few buyers who wish to purchase a house for cash.

“Before the manat devaluation, the majority of cash savings of the population, in their hands and in banks, were in dollars. The devaluation of 33 percent, respectively, increased savings in terms of manat. Therefore, the amount of funds allocated for the housing market, in theory should increase, which in the future would lead to higher prices,” Value and Sources said.

The second reason is the lower interest rates on dollar deposits. Before and after the devaluation, dollar deposits were the main instruments for investment in Azerbaijan. However, a significant decrease in interest rates has led to the fact that people began to invest in real estate, which again lead to an increase in prices.

The company also named other reasons for the stable prices such as the overall situation in the banking sector and reduced confidence in houses under construction. Thus, stagnation leads to the stability of prices in the housing market.

Another reason is psychological: the reluctance to sell apartments. As prices started to go down last year, many owners were driven to sell their property earlier this year fearing a sharp drop in prices.

“It was the right decision then, but now the majority of sellers are in no hurry to sell the property,” the company explains.

Prices fluctuate in real estate market

The overall standstill in the construction market continues as prices fluctuate.

The average cost per square meter in the primary housing market in Baku in July amounted to 1,087 manat (about $1,036), which is 7.12 percent (or 7.17 percent in dollars) less than in June, consulting company MBA Group reported in August.

The company notes that the most of the proposals on the market relates to economy class apartments of up to $1,000 per square meter and middle class apartments costing $1,000-1,500 per square meter.

The share of apartments in this price range is 53.6 percent and 38 percent respectively of the total portfolio of offerings. The proportion of apartments worth more than $1,500 per square meter in the portfolio is 8.4 percent.

Most of the offerings in the primary housing market were recorded in Nasimi, Khatai and Yasamal districts of Baku in July, which accounted for 64.1 percent of all proposals.

The average cost per square meter on the secondary housing market in Baku decreased by 0.43 percent in both manat and dollar terms in July compared to June, reaching $1,605, which is up to 1,669 manat.

MBA Group said the decline in prices could be attributed to the weakening of purchasing power.

During the reporting period, the volume of proposals on the secondary housing market of the capital has decreased by 12 percent.

Despite the ambiguous situation, the interest of foreigners in the real estate market of the country is increasing. The number of properties owned by foreigners in Azerbaijan reached 2,850 last year. This means that the number of properties of foreign citizens in Azerbaijan increased by 53 percent in comparison with 2013.

Overall, the number of properties owned by foreigners doubled in the last three years in Azerbaijan.

Real estate has always been considered a reliable investment instrument to preserve and increase capital not only for Azerbaijanis, but also around the world. The relative stability attracts more people to invest in the market.

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Nigar Orujova is AzerNews’s staff journalist, follow her on Twitter: @o_nigar

Follow us on Twitter @AzerNewsAz

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