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Devaluation to Raise Demand and Prices in Real Estate Market

Devaluation to Raise Demand and Prices in Real Estate Market
Markets Review 

2017 May 24 ( Wednesday )  14:12:28
Print version
Русский Azərbaycan

Baku / 24.05.17 / Turan: Despite the low confidence of the population in banks, the demand for real estate in Baku does not increase, and prices for housing and land for construction are stable so far. This temporary lull is caused by the wait-and-see attitude of buyers, experts say.

"Today the population keeps their savings in dollars and does not trust money to banks. People are waiting for the right moment to profitably invest in real estate," Executive Director of the Association of Realtors of Azerbaijan Elnur Azadov told Turan IA.

This right moment, according to the agency's interlocutor, will be the fall of AZN to the US currency. "Simply put, potential buyers are in expectation of further devaluation of the Azerbaijani monetary unit. In this case, it will be profitable for them to convert their dollars to AZN, as the price of real estate is listed in the national currency," Azadov said.

Falling AZN will certainly provoke a surge in the real estate market, the representative of the Association of Realtors believes. At the same time, not only demand, but also prices will rise. As a result, not all will benefit from the devaluation, but only those who will benefit from exchanging foreign currency and buying property at the initial price.

This explanation of the lull in the real estate market in the crisis of the banking system is justified, since this direction in Azerbaijan is the second in the rating of monetary investments after financial and credit organizations. Meanwhile, the demand in the rental of residential real estate, including daily rental of apartments, has almost doubled. According to the interlocutor, this is due to the growing number of foreign visitors and a no less acute problem caused by the outflow of bank deposits.

"The rental income in our country is lower than the deposit rates, and the return on investment in real estate is at an average level of 5%," an expert in real estate Rashad Aliyev said. "However, the population prefers real estate and it happens for two reasons. Firstly, realty can rise in prices, and secondly, there is low confidence in banks."

It is noteworthy that from January 2015 to January 2017, prices in the real estate market declined by 1.5%. However in new buildings for this period an increase of 1% was recorded. This indicates a temporary stagnation in prices and demand. Bank deposits also melt. Thus, according to the international rating agency Moody's Investors Service, the confidence of depositors in banks in Azerbaijan is already low. "According to our estimates, in 2016 (excluding the effect of the AZN devaluation), an outflow of 20% of the population's deposits in the banks of Azerbaijan occurred," the report says.

The situation with the restructuring of the external obligations of the International Bank of Azerbaijan (IBA) may lead to a sharp outflow of the population's deposits from the banking sector, Moody's reports. "If customers see the IBA defaulting on the inability of banks to return deposits in foreign currency, this could lead to their outflow from banks," the survey says. --- 0-