CBN, 18 April 2005

BAKU, Azerbaijan - Non-homeowners will be able to get mortgage loans by the end of the year, which is seen as the most optimistic scenario for developing mortgage lending in Azerbaijan. Banking authorities lobbying for the introduction of a new financial tool say that it is necessary to accumulate $30-50 million in the State Mortgage Fund to begin the distribution of mortgage loans.

The Azeri parliament passed last Friday, in the third and final reading, the law "On Mortgage," which paves the way for the distribution of mortgage loans by the end of 2005 leading to a solution of housing problems in growing Azerbaijan.

"I see the law as being socially oriented, as its main goal is to assist to layer of the population with low incomes in buying apartments through loans," the head of the National Bank of Azerbaijan (NBA), Elman Rustamov, said after the law was adopted in the parliament.

The precise mechanism for mortgage lending will be reflected in a five-year state program developed by the NBA.

According to the NBA head, depending on state funding and funds attracted from abroad, the president will determine the specifics for the allocation of loans for various social layers of the population.

Rustamov said that there will be no age bias for getting mortgage loans.

"Age bias will not be an issue in granting loans. The terms of the mortgage for young families will be reflected in the program. It will be open to everyone," said Rustamov.

"I think $30-50 million will be enough in the first stage. However, Azerbaijan can not allocate mortgage loans for more than 10-15 years. The loans must be returned as quickly as possible. In this way more people can get mortgage loans," Rustamov said.

"By determining internal and external sources for financing and forming the State Mortgage Fund, we will allocate the funds to high profile Azeri banks and set a margin for loan distribution to the population. The government will be able to regulate the upper scale of the interest rate, which is expected to be much lower than current rates for long-term loans," Rustamov said.

The sum of the loans cannot exceed $30,000-50,000 and can be no less than $10,000.

"Interest rates for credits have not been defined yet. The abovementioned loans will be granted from the mortgage fund and the fund does not yet know the interest rate of future credits. Preliminary information is that the interest rate for loans to be allocated for 10 years will be equal to 10-15 percent. Credit terms will be facilitated in the future. For instance, in Kazakhstan, credits used to be allocated for 3-5 years with 20-interest rate. The credit period is equal to 20 years with 13 percent," the NBA chairman said.

The Mortgage Fund will issue notes under state guarantee and place in foreign funds for attracting additional financial resources.

According to the program, the commercial banks selected by the NBA will be offering the loan for at least a 10-year term with low interest rates and will accept real estate as collateral.

"An Azeri citizen will pay some 30-40 percent of the sum in advance, while the remaining amount will be paid annually through mortgage loans by parts. Working on the law, we were taking into consideration those people, who have sufficient resources for initial payments and serving the loan in the future. The law is convenient for those who are able to pay $100 a month to serve the loan," Rustamov added.

As the NBA head said, the commencement of mortgage lending in Azerbaijan would regulate the chaotic construction sector and prices for apartments, which are skyrocketing in downtown Baku to $2,500-$3,000 per square meter.

Azerbaijan, and its capital Baku in particular, is experiencing a construction boom.

"The country is like a big construction yard, which needs to be regulated and stimulated by the law," Sattar Safarov, head of the economic policy commission of the parliament, said.

The state budget allocated more than $117 million for the construction sector in 2004.

"Through state funding as well as private capital, 1.5 million square meters of housing was built in 2004 and this trend will continue in 2004," Safarov added.

As the State Statistics Committee reported, during January-March 2005, some $50 million was invested in construction, which is 239,300 square meters of housing area, twice as much as the same period of last year. Leading Azeri banks with a broad client base support the idea of mortgage lending.

"Azeri banks are developing at a high pace, which subsequently leads to the increasing of the resource base and credit portfolio. Mortgage lending may become a new source for making profit," the head of commercial Rabitabank, Zakir Nuriyev, said.