BizCLIR

Azerbaijan has established basic foundations that permit the sale and development of real estate through granting of private property rights and private property to its citizens. The overall property rights regime, however, is still somewhat weak and unproven, and is unlikely to support rapid growth in development needed in the coming years.

The urban real estate market of Baku has been steadily developing since independence and on the surface appears to support substantial growth and development. The legal framework, however, has not developed to support real estate financing for the increased growth that is currently needed, much less the additional increases expected through growth in oil industry investment, including the expected immigration of thousands of new foreign oil employees in the next few years. Issues of title, though technically covered by the law, still haunt developers and purchasers, reducing the size and pace of investment.

The rural land regime is both simpler and more complicated. Since independence, the government has effectively privatized more than 90% of agricultural land, but did so by granting small, scattered parcels that are difficult to farm efficiently. Small farmers have not yet developed any system for trading, buying or selling their plots in order to create more efficient holdings. Mortgages on agricultural land are permitted, but only in support of agricultural activity. The mortgage market, however, has not developed because there is no significant market for the underlying land itself: a foreclosing lender simply cannot sell repossessed land to anyone.

Registries for land and buildings work sufficiently to meet current demands. Land and buildings are registered separately in separate government registries, so that there is no harmonized cadastre and registry, but the market does not seem to care at this time. Harmonization and unification will be a goal for the future, especially for urban land. The more important short-term need is in clarifying ownership rights and reducing confusion over the many overlapping laws in this area.

Supporting institutions are quite limited, consisting primarily of notaries and a few competent real estate services. Notaries act as the gatekeepers for the system, protecting title and ensuring legitimacy in transactions. For the most part, they are functioning effectively in this role, but the costs are unnecessarily high. It is also not clear whether they are prepared for any significant increase in market activity.

As to real estate services, there are a few very sophisticated real estate agencies providing reliable services in Baku, but they are competing with a number of much lower priced “cell phone” realtors who purportedly have no offices and limited professionalism. Better regulation is needed to protect the public, which will require changes in the current licensing regime and might best be operated through a self-regulating real estate organization, but no such organization yet exists. Market information is not yet organized through any centralized listing services.

The highest demand for reform among stakeholders is in the enforcement of property rights. Most users are generally satisfied, or at least not unduly concerned, with the overall legal regime, but do not feel that the courts effectively handle property issues when a dispute arises. This problem has been noted throughout this report, suggesting that reduction of the use of courts through better definition of the law will be the first step, while greater resources are employed to address the fundamental reform issues within the judiciary.