Ambitious Residential Property Development In Azerbaijan
Article: Ambitions aside, real-estate investors are interested in this oil-empowered albeit struggling economy.
The global financial crisis had its impact on planned and ongoing projects in Azerbaijan, though the pace of construction has slowed down recently because of the lack of funding. Local developers remain extremely interested nevertheless.
After the construction boom earlier in this decade, the real-estate market in Azerbaijan changed considerably both for residential and commercial real estate.
Affordable housing (or the lack thereof)
The Central Bank of Azerbaijan has taken the initiative to organize an extended debate in order to create a program for affordable housing.
- In addition to developing a proper mortgage market, the initiative also aims at addressing the problem of increasing supply of affordable housing.
- Without adequate affordable housing, the Bank says that it would be difficult to establish the mortgage market and solve the housing problem.
- Baku, the capital, is short of about 15 million m² of housing and previous initiatives could not take off because of the lack of government funding.
- Now it is hoped that the private sector would contribute capital, and the aim is to increase the supply of housing by about 3.5 million m² every year.
Azerbaijan’s oil industry
In 2006, Azerbaijan started pumping crude from under the Caspian Sea through a new pipeline. It now sends 1 million barrels of oil daily to a Turkish port.
- This makes the country a major energy producer with a lot of promise.
- If the proposed Nabucco pipeline, running from Turkey to Austria, materializes, Azerbaijan would become a major supplier of gas linking Central Asia to Europe – and receive billions of dollars in revenue at the expense of Russia.
Residential real estate in Azerbaijan
One of the most ambitious real estate projects anywhere in the world is taking shape in Azerbaijan.
- Avesta Concern is planning a huge, lobster-shaped project called Khazar Islands, which will create a complex of 55 artificial islands in the Caspian Sea, offering thousands of apartments, a minimum of 8 hotels, a Formula One racetrack, a yacht club and Azerbaijan Tower (which, at the height of almost 3,500 feet, will be the tallest building in the world).
- When the project has been completed, 800,000 people will live at Khazar Islands, and the hotels will accommodate another 200,000 so that the total will be almost half the population of Baku.
- The project is expected to cost about USD $100 billion and the Azerbaijan Tower alone is expected to cost USD $3 billion.
Meanwhile, back in to the present –
- Prices of old apartments rose by 13% in the Baku secondary housing market within the last year with higher increases being recorded at 28.5% in Garadagh, 16% in Nasimi and 15% in Xhazar.
- Prices hit record highs. The average prices psm in Sebail was USD $2,200, USD $1,765 in Nasimi and USD $1,625 in Nerimanov.
Why the record highs?
- One reason could be that price rises are cyclical and now in the growth phase.
- Another reason could be the increase in money supply, meaning more people have money and are spending it on real-estate investment.
The bottom line
Housing in Baku is a combination of small apartments and houses and many houses are hangovers from the Soviet era. However, there are many newly built properties and apartments with lifts, as well as reliable round-the-clock water supply – and about half of them are equipped with central heating.
The housing shortage combined with the optimistic prospects for the oil-fueled economy, make Azerbaijan a desirable investment destination.