The real estate market is an important component of the economic indicators of every country. The price increases observed in the market in recent years and the growing investment interest make this sector even more relevant.
Vugar Oruj, Chairman of the Azerbaijan Society of Appraisers, shared the latest situation in the real estate market in an interview with Ölkə.Az.
We present the interview:
- In recent years, real estate prices in Azerbaijan have been rising sharply. What are the main reasons for this increase?
- It was previously thought that price increases were solely due to market demand. There is a fundamental economic law that when there is high demand in the market, price increases are inevitable. Currently, it is not just the increase in demand that characterizes the price increase in the real estate market. There are other factors involved. What are these factors?
First and foremost, the growth of the country's economy. As the economy grows, naturally, prices in the real estate market of that country also increase. The tourism sector is developing. More foreign tourists are turning to the country's real estate market, and at the same time, the real estate market is becoming a globally renowned market. The Azerbaijani market is currently one of those markets. In developed European countries, as you know, real estate is offered at very high prices, and there are countries where real estate is not a priority due to their lack of economic development.
One of the main reasons is precisely the high attractiveness of real estate from an investment perspective today. Currently, both ordinary citizens accumulating capital and entrepreneurs make decisions at the end of each year about where to direct their investments, and the unambiguous answer to this question is often real estate.
- Why is real estate more attractive for investment compared to other assets?
- Firstly, real estate not only appreciates over time but also generates regular, sustainable income when used productively and beneficially. If it's a non-residential property, it's leased; if it's a residential property, it's rented out, generating significant income. Therefore, real estate both increases in value over time and creates opportunities for permanent, stable income. For this reason, a large portion of the population invests in this direction. This, of course, leads to price increases.
Besides, there are many other reasons. We have analyzed this, and as the Azerbaijan Society of Appraisers, we have identified about 15 reasons that affect prices in the real estate market. One of them is urbanization. As we know, there are differences between the development of Baku and the regions. The vast majority of jobs are located in Baku and its surrounding areas. Therefore, people from districts and regions are increasingly moving to Baku in search of work. This increases demand in the rental market.
As the number of applications increases, income opportunities in the rental market expand, and entrepreneurs direct their activities in this direction. Apartments are purchased, undergo some cosmetic repairs, and are then put on the rental market. This has also become an additional business area that has gained prominence in Azerbaijan in recent years.
Furthermore, there are external factors. What do I mean by external factors? Not just in Baku and its surroundings, but generally, real estate worldwide is experiencing a period of price increases. The price of gold is rising, the logistics and production costs of both food and non-food products are increasing, and consequently, their prices are rising. This general price increase affects both the country's economy and the global economy. This is one of the factors that cause price increases in the real estate market.
At the same time, real estate is considered a low-risk investment. Even in the event of any emergency or natural disaster, if the real estate is insured, the risk is minimized. However, in other sectors, for example, in business activities, if there are changes in legislation, problems may arise in the development of that business sector, or revenues may decrease if alternatives emerge. Real estate, on the other hand, is a sector where income can continue for many years, even centuries. In this regard, its priority as an investment direction is natural.
Another important factor is urban development and development projects. According to the "Baku City 2040" project, the renewal of infrastructure and the urban landscape is planned while preserving the historical image of Baku. Within this framework, demolition decisions have been made for nearly two hundred dilapidated buildings. The construction of new buildings, the creation of parks, and landscaping work are planned in place of these buildings. This is also a factor affecting price increases.
At the same time, the construction of large residential complexes is planned in various areas of the city. During the construction of these complexes, price increases are observed both in those areas and in the surrounding zones. One of the main characteristics of price increases is natural price appreciation. The price increase of land plots, in particular, plays an important role here.
As we know, among real estate types, land is the only type of real estate that we can consider the primary type of real estate. This is because all other types of real estate – buildings – are located on land, and we know that land, unlike other types of real estate, does not increase. That is, the territory of the Republic of Azerbaijan is 86.6 thousand square kilometers, and it is impossible to increase this territory.
It is possible to increase the construction volume. For example, a two-story building can be demolished and a fifteen-story building can be built in its place. But the land area beneath it does not change. The price of land plots is offered at a higher price each year compared to the previous year. This means that if an investor could buy one hectare of land for 10 million manats five years ago, they might be forced to buy that land for 20-25 million manats five years later. As a result, construction costs increase, and this increase affects the price of both the land and the buildings on it. This makes real estate more attractive for investment.
In addition, there are also artificial factors. For example, a citizen wants to sell their apartment in a building and is offered 200,000 manats. The intermediary states that they can sell this apartment for 220,000-230,000 manats and asks to be authorized to sell it. After the sale is completed at that price, other neighbors also put their apartments on the market based on the same price. As a result, prices increase by 10-15 percent due to artificial intervention in the area. We call this process the "domino effect." Such artificial factors are also one of the directions characterizing price increases.
- Is the price increase limited to Baku, or is there a similar dynamic in the regions (e.g., Ganja, Sumgayit)?
- Land and buildings have increased in price compared to the previous year, regardless of their location. However, only major economic and financial crises, wars, cataclysms, and pandemics can create a situation where the price of real estate either stabilizes or decreases. If there are no unusual events, no extraordinary events have occurred, real estate should experience price increases everywhere. There is a difference in the degree of increase. Naturally, where infrastructure develops more, the price increase is higher. That is, the price increase is higher in Baku city and its surroundings. However, in the regions, areas with tourism development potential, regions less dependent on the center and requiring less subsidies, and regions with the ability to form their own budgets economically, experience higher price increases.
Overall, as land areas decrease, it is a natural process regardless of location. That is, price increases occur everywhere. In our regions, price increases are higher in areas with tourism potential. In areas with limited land, high density, and large populations, land prices increase more. In districts with developed infrastructure, there are many entertainment centers, recreation areas, and non-residential properties; in those areas, the prices of non-residential properties increase more. In areas where people want to be closer to the sea and acquire individual houses as recreation spots, the prices of individual houses and villas in those areas increase. Whichever type of property is more utilized in an area, that demand arises, and this ensures price increases in that direction.
- Why do old buildings of "Khrushchev" and "Leningrad" projects compete with new constructions in price? Why doesn't the expiration of the service life of these buildings affect prices?
- There are residents and citizens who cannot afford to buy new constructions. They automatically turn to the old housing market, and naturally, dynamism arises in that market, and prices increase. Currently, this trend, i.e., price increases in old buildings, has slowed down compared to previous years. There are reasons for this. One of the reasons is that, as you know, information has been disseminated that dilapidated buildings will be demolished first, followed by other old buildings that have reached the end of their service life. Therefore, newly married couples and citizens who want to buy their new apartment try to opt for new buildings. If, for any reason, we consider other factors, for example, there is also the issue of taste. There are individuals who find old buildings more suitable and comfortable for them. Such approaches also exist. But, of course, all these increase the number of applications to the old housing market, and price increases occur in those buildings. According to our forecast, if the price increase in the new housing market in 2026 will be approximately 10-10.5 percent, in the old housing market, it will be approximately 6-6.5 percent. This shows that the population will increasingly decide to buy new housing.
This is a natural process. Because the lifespan of the projects you mentioned is still ongoing; according to norms, these buildings are in their final stages. However, new constructions will last for another 80-100 years. In this regard, there are many differences not only between old buildings and new constructions but even among new constructions themselves. There are buildings built in the early 2000s that have already been in use for over 20 years. There are also buildings that are newly constructed. Currently, there is more demand for newly constructed buildings than for old ones. This is because old buildings no longer fully meet new standards in terms of modern tastes and construction norms. New buildings constructed in accordance with the construction norms defined by the State Committee of Urban Planning and Architecture of the Republic of Azerbaijan surpass both old constructions and previous new constructions in terms of their quality indicators. In this regard, as time passes, tastes change, demands change, standards change, and every newly built building is more attractive than the one built before it.
- According to the State Committee for Property Issues, foreign citizens acquired 6913 real estate properties between 2021 and 2025. The activity of foreign citizens in Azerbaijan's real estate market has recently attracted attention. Russian citizens account for 70 percent of the properties purchased. Why are Russian citizens buying apartments en masse in Azerbaijan?
- Those Russian citizens are actually Azerbaijanis. Because it is very rare for a Russian or a representative of another nationality living in Russia to invest in Azerbaijan. True, such cases exist. It is particularly related to new constructions in the Nardaran settlement. The most interesting projects are in that area. There are even investors from Europe and other foreign countries there. However, within the mentioned 70 percent, approximately 60 percent are likely our compatriots. Although the number of our compatriots engaged in business and economic activities in Russia has decreased somewhat compared to previous years, they still exist. Many of them were expelled from Russia, and the majority of them returned to our country. The annual income of our compatriots living and working abroad eventually turns into an investment. This investment, of course, should be directed by our compatriots to their homeland. This is a natural process.
Recent events have shown that living and operating in Russia is somewhat risky. I would also like to note that Azerbaijan is more suitable for investment among the regional states. This is because Azerbaijan has political stability and economic and financial stability. For many years, the exchange rates of foreign currencies against the Azerbaijani manat have remained stable. All these increase investment attractiveness, and fortunately, there are no terrorist attempts, conflicts, or political struggles in our country. Therefore, in terms of investment, Azerbaijan is more suitable than Russia, Ukraine, and even brotherly Turkey. In this regard, a further expansion of investment volume is expected in the future. The purchase and sale of real estate should be considered as an investment. That is, these individuals are making investments for investment purposes, not for living or temporarily staying in Azerbaijan. Real estate in Azerbaijan is the main investment direction, and the apartments and properties purchased carry the characteristic that the goal for the next year is to own more expensive and more valuable real estate.
Imagine that Azerbaijani banks, including 2025, were providing interest rates of approximately 9-11 percent for deposits, and 10 percent of this was subsequently taxed. However, real estate has seen a minimum annual price increase of approximately 13-14 percent between 2022 and 2025. This shows that investing in real estate is more profitable than keeping money in the bank. Also, let's consider that investment in real estate is low-risk. A certain portion of bank deposits may not be returned, or economic and financial cataclysms may occur. However, real estate, as long as there is no natural disaster, is an investment direction that always stays in place and increases its value. In this regard, real estate always attracts both citizens of the country and foreign citizens, including our compatriots.
- What is the situation in the market this year? How do you assess the first month of the year?
- Let's start with the last months of last year. We felt a lot of movement and dynamism in the final months. This is natural. Because, as I mentioned earlier, capital accumulation occurs throughout the year. At the end of the year, citizens decide on the new directions they will pursue in their lives. For example, they buy a car, a garden plot, invest in land, or buy another apartment. Since these investments occur at the end of the year, there is significant dynamism in December, which also carries over into January. Currently, there are no major leaps in terms of price increase trends in the real estate market. The increase is tending to stabilize to some extent. This does not mean that real estate prices will decrease in 2026. Many people think that if 2026 is a period of economic and financial optimization, austerity, and difficulties in economic activity, with increased taxes, this will affect real estate and prices may fall. These assumptions are completely wrong. Those who make these forecasts are mainly representatives of the financial sector. They express opinions based on economic logic, but I must note that the price increase of real estate is not solely dependent on logic. The main factors here are the number of people applying to the market, the economic situation in the country, changes in the purchasing power of the manat, trends occurring abroad, and the emergence of additional investment opportunities in certain sectors within the country.
If stock securities, stock exchanges, and other investment areas become active in Azerbaijan, and citizens can take advantage of the opportunity to invest in large corporations and can direct themselves more towards these areas, then in such a case, the price increase in real estate may stabilize to some extent. But in no case is a decrease in real estate prices expected in 2026. This is contrary to existing economic rules and the principles I have mentioned.
- Buying a house with a mortgage or an internal loan?
- If the conditions set by the Mortgage and Credit Guarantee Fund and the budget allocated, time, and citizens' ability to meet those indicators are suitable, then naturally, the citizen should benefit from the loans offered by the Mortgage and Credit Guarantee Fund. This is because the interest rates offered are lower than those of internal loans. Currently, the interest rate for subsidized mortgages, i.e., the mortgage form you mentioned, is four percent. Non-subsidized normal mortgage offers are around 7-7.5-8 percent. This is completely consistent with current macroeconomic indicators and average interest rates.
I believe that the volume and duration of loans offered by the Mortgage and Credit Guarantee Fund should be increased. Why? Because, for example, a citizen who takes out a subsidized mortgage of 100,000 manats cannot afford to buy any apartment unless they have an additional reserve of 150,000 manats. Even if they do, they can only afford to buy an apartment on the outskirts of Baku city, in remote areas. In this regard, I think it would be better if the subsidized mortgage amount were increased to 150,000 manats initially, and the non-subsidized, simple mortgage amount to 200,000 manats. That is, the conditions for buying an apartment would be more suitable. In terms of duration, as you know, the current period is approximately 20-22 years. However, if we consider international practice, the possibility of extending this period to 30-35 years for young families should be considered. This increases the repayment period and also reduces the monthly payment amount financially. This ensures the accessibility of credit and also creates opportunities for taking out more credit.
The other form of credit, i.e., internal credit, is high in terms of interest. It also has its advantages. Its advantages are that the amount is not as low as in state mortgages. However, in terms of interest, for example, if a person buys an apartment for 200,000 manats, when paying it off with an internal loan, the total amount paid over the entire period is slightly more than double the price of that apartment. But when paid with state mortgages at those interest rates, it results in approximately 30-40 percent less payment than an internal loan.
Therefore, in this regard, I think it depends more on the citizen's economic strength and capabilities, and regardless of whether it is an internal mortgage or a state mortgage, both mortgage conditions need to be made somewhat more accessible, their amounts need to be increased, and the duration needs to be extended. The goal should be for more Azerbaijani citizens to be able to acquire housing.