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Baku real estate flourishes

Baku real estate flourishes

September 2016

Azerbaijan has risen to prominence in the last two decades, not only because of oil wealth but due to the architecturally distinctive skyline of its capital, Baku.

 

In just 20 years, the population of Baku has surged, growing from 1.5 million to almost four million residents. According to Ilham Behbudov, Director of Baku-headquartered Corporate Real Estate Solutions (CRES), this has been the catalyst for strong domestic demand, with a rising price-meets-quality focused middle class driving residential development.

“Combined with the historical scarcity of residential stock and fast paced economic development, there has been major pent-up demand for residential space in all segments,” he remarks.

“Developers are already responding to the demands of a stronger middle class, and many projects within the Baku White City area are good examples of this trend,” he adds.

Luxury projects have set the market tone in recent years, and he also sees ongoing opportunity at the higher end of the market.  “I am confident that this segment will continue to develop in line with the overall strategy for Baku to become a regional tourism, cultural and business hub,” he adds.

And tourism growth is very much on the government agenda. What is perhaps less well known is the fact that Baku is also a UNESCO World Heritage Site and a former Capital of Islamic Culture (2009).

Historic attractions including the old walled city, Shirvanshahs Palace and Maiden Tower sit alongside 21st century landmarks like the Flame Towers, the Zaha Hadid-designed Heydar Aliyev Centre and the giant rolled carpet inspired Azerbaijan Carpet Museum.

However, with fluctuating oil prices and global economic issues reaching all corners of the real estate market, Azerbaijan has not escaped unscathed, as Behbudov explains: “Obviously, we are not immune to the downturn in the world economy and impact of falling oil prices; and oil revenue is still a substantial part of the country’s revenue.

“But decades of investment in infrastructure and new developments has turned Baku into a fantastic location with major tourism attractions, an active event calendar and business attractions. By taking into account new economic realities, we are seeing price stabilisation.”

Significant domestic demand is also fuelling interest in higher quality developments. Added to this, the resident expatriate population, the majority of who work in the oil and gas industry, is ensuring sustained demand for leased residential and office space.

Investment

The investment landscape is equally diverse. Says Behbudov: “The primary demand is coming from domestic buyers, who are buying homes to live in as well as for investment purposes.

“However, the combination of quality infrastructure, major tourist destinations, an enjoyable climate and government focus on economic diversification is turning Baku into a regional jewel; and, moving forward, we anticipate increasing demand from foreign investors and buyers.”

According to August 2016 data published by Numbeo, an online database of user contributed data for cities and countries worldwide, the average price per square metre for a city centre apartment stands at Azerbaijani Manat (AZN) 2,417.50 (USD 1,482) with units outside of the centre averaging out at AZN 1,006.76 (USD 617) per square metre.

Investors can expect a gross rental yield of around 5.45% in Baku city centre and 5.14% outside of the centre with rental rates for a one-bedroom in central Baku currently averaging around USD 317 versus just USD 140 farther afield.

Three-bedroom city centre units rent for around USD 784 per month, which drops dramatically to USD 273 out of the centre.

Notable developments

Popular residential developments include Port Baku Residence and units within the high profile Baku White City project.

A masterplanned city within the city, and located just four kilometres from the medieval walled city area, the long-term multi-phased Baku White City project is transforming a 221-hectare site into a series of 10 mixed-use urban districts under a government decreed regeneration plan. Once fully completed it will be home to 50,000 people and include up to 18,000 commercial and retail units.

A luxury residential development with Caspian Sea and city waterfront views, Port Baku Residence’s three residential towers comprise 800 top quality apartments.  Listings on CRES’ website for the development include a 127-square-metre two-bedroom apartment on Neftchilar Avenue for a monthly rental of USD 1,962 and an 84-sqaure-metre two-bed unit for sale for USD 281,000, with a 266 square metre four-bed hitting USD 767,000.

“Port Baku Residence is designed to accommodate the taste of the high-end and luxury segment of the market, with Baku White City appealing to middle and upper class buyers,” says Behbudov.

Situated on a hill overlooking Baku Bay and the capital’s new architectural icon, the Flame Towers trio includes the Fairmont Hotel as well as 130 luxury apartments and 33,000 square metres of Grade A commercial space.

He also says that gated residential housing communities from developers like Dreamland are introducing new lifestyle opportunities to the market, with a combination of modern infrastructure and the comfort of more ‘rural’ locations. “Historically, suburban locations would be viewed as suitable for seasonal residences only, not for year-round living; but this is changing.”

Lending and financial sector market confidence is also turning a corner, as he explains: “Many large banks are focusing on mortgage programmes and real estate financing; and there is also a show of support on the part of the government to make real estate more affordable to the middle and lower middle class segments of society.”

This is a prime area of concern for the lower end income buyer, with Numbeo data putting the average disposable net monthly salary at around USD 280 with a yearly mortgage interest rate of 10%.

Rise of high-quality offerings

With the fast tracking of Baku’s skyline in recent years, competition in the development sector has also undergone something of a sea change.

“Historically, in the late 90s to early 2000s, developers were spoiled by overwhelming demand and would invest little into marketing campaigns as well as including features and amenities to create added value for buyers, and raise the profile of their development,” notes Behbudov.

“This has significantly changed, with developers now competing for buyers and placing a much stronger focus on these features such as parking, playgrounds, wellness services etc., as well as financing offers,” he adds.

With buyers coming to the table with much higher expectations, Behbudov says that this has also presaged a move towards mixed-use developments. “Many developers have turned towards mixed-use, which offer an all-inclusive experience ranging from shopping, wellness and, kids facilities to the provision of office space.  Port Baku Residence and Port Baku Towers are two very good examples of high-end mixed-use developments.”

Foreign real estate ownership is a work in progress, and while there are no restrictions in freehold title ownership for developed properties, freehold land ownership for foreigners is not permitted.

Baku remains at the forefront of development for the country’s real estate industry, as the vibrant economic heart of Azerbaijan. However, Behbudov is seeing the city slowly extend its residential real estate perimeter to reach new boundaries.

“Surrounding suburban areas are gaining in popularity since they can now offer comparable lifestyle experiences and, in many cases, easier access without the congestion of big city living,” he remarks.

“Looking outside of the capital at regional locations, summer and winter resort area such as Shahdag, Quba and Qebele are seeing strong demand, with many Azerbaijanis choosing to invest in second homes for seasonal use. It’s also worth looking at suburban Baku locations close to the sea where you can find amazing villas/houses for investment,” he concludes.

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