Gubad Ibadoglu: “Forecasts of price hikes of real estate in Azerbaijan are irrelevant”

Doctor of economic science, head of the Economic Research Center, Gubad Ibadoglu, spoke to VK about recent events in the economic sphere of Azerbaijan.

-       The opening of the Apsheron gas deposit will soon cause a growth of dividends in this sphere or will drilling require more spending, what do you think?

-       From the political and economic points of view, the opening of Apsheron is a great success for our country. We knew about this deposit long before, but at that time exploration and exploitation of this deposit demanded great spending, so no investors were attracted. Prospecting was provided and it was proved that a great volume of gas reserves are situated there. However, major investments were demanded for exploitation of the deposit. We have no accurate analysis of how much Apsheron will cost. Considering current industrial technologies and equipment, this deposit is not very profitable. But if in the future technologies will modernize and new ways of gas and oil extraction are developed, the deposit could be very helpful to Azerbaijan. Exploitation of this deposit will start after 2020.

-       What are the best gas importers for Azerbaijan?

-       Today Azerbaijan exports most of its gas to Turkey. Last year Azerbaijan exported 6.135 billion cubic meters of gas. 4.135 billion of them to Turkey; 0.9 billion to Georgia; 0.8 billion to Russia; 0.3 billion to Iran.

Reconnaissance of the Umid deposit began in 2011. If we look through future prospects, the gas reserves of this deposit are 2.2 trillion cubic meters, and this figure can increase to 2.8 trillion. Azerbaijan extracted 26 billion cubic meters of gas in 2010. In 2011 it plans to extract 28-30 billion cubic meters. By 2020 extraction of gas is planned to increase to 43-44 billion cubic meters annually.

I think Azerbaijan gains best benefits from gas exports to Turkey and Europe.

-       What steps should be taken for the free economic development of other Azerbaijani cities? Should some industrial facilities be moved from Baku to other cities?

-       Azerbaijan needs to expand its free economic zones. I think the process of liberalization of the economy and market relations should continue in the country. We should gain access to the World Trade Organization as soon as possible and simplify imports, exports and other customs procedures, make them more transparent. These reforms will open new opportunities for development of the private sector, improving the whole economy of the country, filling the state budget with non-oil revenues. Most of the industrial sector of Baku is unused. But there are oil-producing plants in the city center. Their activity is unjustified from environmental and urban planning points of view. Removing these plants outside the city demands billions. Construction of new oil-producing plants will demand a lot of expenditure as well. That is why purchasing new equipment for these plants is more reasonable, as new technologies will lead to less pollution of the environment.

-       During recent years food prices rose 12% in the country. What are the reasons for this?

-       The main problem is the insufficient amount of essential commodities. In recent years the agricultural sector has been in crisis, so food products are imported. Inflation growth is observed in other countries as well. The other problem is that there is no competition in the Azerbaijani market, prices are defined by monopolists.

-       The government is discussing an increase of social mortgage volumes and simplification of home mortgage principles. What conditions should be changed for real purchasing of homes on credit?

-       The simplification of mortgage principles is a very important decision. Today 17 documents are needed for a mortgage in Azerbaijan, which causes difficult bureaucratic procedures. Despite the fact that the law presupposes a minimum first deposit of 15% of the whole cost of a flat, many banks demand a 30-40% deposit.

Most of all home mortgages are needed by young families, who have no major capital. A minimum deposit of 15% should become a maximum deposit of 15%. At the moment the law does not define a maximum percentage, so banks use it for their own interests, decreasing their risk and defining principles favorable for themselves.

Social mortgages vary from 35 thousand to 50 thousand mantas. But this sum is not enough for purchasing a good apartment. For social mortgages annual interest is 4%, while for a commercial mortgage it's 8%. Banks shouldn’t fill their budgets from mortgage credits, they simply shouldn’t lose money.

-       Will a real estate price hike occur if the social mortgage volume is increased?

-       Today a social mortgage is available to few people. I don’t think any increase of its volume by 2-3 times will influence the real estate market. Prices are not very favorable for most citizens. Today real estate prices are unreasonably high. That is why forecasts about a price hike of real estate in Azerbaijan are irrelevant.

Interview by Ramin Naziyev, Baku. Exclusively to VK