Azerbaijanis Priced Out of New Mortgage Market

Akif Suleimanov has long dreamed of buying his own home. The 32-year-old has been married five years and currently lives in a one-room apartment on the outskirts of the Azerbaijani capital Baku with his wife and two-year-old son.



Akif held high hopes for a new law which created for the first time a mortgage market in Azerbaijan. Unfortunately, although he works as a manager at one of the many foreign firms in the oil-rich Caspian state, and earns 350 US dollars per month - a good salary by local standards - he could not secure a loan.



As a result, he was unable to afford even a simple one-room apartment for 20 thousand dollars in Baku’s suburbs.



“Even though I earn twice the average in Azerbaijan, the banks turned me down, because half of my monthly salary does not cover the monthly interest rate,” said Suleimanov.



“Every month I pay 100 US dollars in rent,” he continued. “I thought that I could buy an apartment with a mortgage loan, but it turns out that this is only for the rich.”



Many are unable to take advantage of the country’s new mortgage law.



Azerbaijan’s parliament, the Milli Mejlis (national assembly), first considered such legislation in 2003 on the suggestion of the country’s banking association. After long debate, and a number of rejections, the law was passed in April last year. First payments began on March 1, 2006.



Under the law, the 15 national banks can award loans from three to 15 years, and the maximum sum cannot exceed 30 thousand manats (around 32,500 dollars).



An Azerbaijani pays 30 per cent of his home’s cost, with the banks covering the remaining 70 per cent. Interest rates are relatively high – 12 per cent. If a borrower cannot return the total amount of the loan in 15 years, the bank will seize the property.



Rena Melikova, head of the legal section at the National Bank of Azerbaijan, told a local news agency that when the bank repossesses a borrower’s home, an auction will be held and the difference between the selling price and the outstanding debt will be refunded to the borrower.



To help create a national mortgage market, the country’s cabinet of ministers created a mortgage fund of 25 million manats (about 28 million dollars) from which the banks can draw.



Specialists, however, say that the new law is riddled with flaws. To begin with, they say that the amount in the national mortgage fund will not even cover two per cent of the country’s housing market.



Ali Masimov, independent economist and parliamentary deputy who was earlier associated with the opposition Popular Front, says that more importantly the lending terms price the mortgages well above the means of the average Azerbaijani.



“A person cannot hope to qualify for a mortgage loan unless he is making at least 500 US dollars a month,” said Masimov. “This puts mortgage loans well out of reach of the majority.”



Masimov also says that because of Azerbaijan’s huge shadow economy, many who could actually pay the interest rates will also not qualify for a loan.



“There are quite a lot of people making one thousand dollars or more a month, who hide most of their income from tax authorities,” he said. “These people will not be able to take out a mortgage either.”



Allahyar Muradov, an economic analyst with the Azerbaijani Academy of Sciences, says borrowers will end up paying the bank nearly double the price of their property.



He also believes that even employees of Azerbaijan’s leading oil companies, among the highest earners in the country, will also have a hard time getting a loan.



“Their contracts typically run for one, three or five years,” Muradov told IWPR. “Despite the high salaries, banks will think twice before they give them a loan because of the limited nature of their employment.”



Muradov also pointed out that the top limit of thirty thousand manats was a miserly sum for Baku, where apartments can reach one and a half thousand to two thousand dollars per square metres in the city centre.



It is, however, the population of Baku that needs the mortgages most. More than 40 per cent of Azerbaijan’s population is concentrated in or around the capital.



Because of Baku’s explosive growth in past years, “tens of thousands, if not hundreds of thousands of people” rent their homes, says Muradov.



Masimov, however, is hopeful that the banks will gradually ease their conditions.



“Azerbaijan’s lending terms do not compare favourably with other economies,” he said. “For example, Turkish banks charge only five per cent interest compared to our 12 per cent.



“When the mortgage lending programme first started in Russia, only five per cent of the population was able to benefit. Then they had to relax the terms.”



But officials defend the lending conditions they have established. Fuad Mamedov, the mortgage fund president, recently told journalists that the government did not establish the fund as a charity in order to provide housing for the homeless.



Other analysts point out that homebuyers in neighbouring countries, such as Georgia, are prepared to agree to similar terms to those in Azerbaijan.



Meanwhile, Akif Suleimanov is considering taking credit directly from a property developer, though this has its downside.



The period of payment is very short, he says – three years – and the company charges an even higher rate than the banks: 17 per cent.



But, he says, “you don’t have to be a registered taxpayer or produce a lot of paperwork to do this”.



And if this gambit fails? “Looks like we are doomed to live in other people’s flats for the rest of our lives.”



Shahla Abusattar is an independent journalist in Baku.