Determinants of housing prices in Baku: empirical analyses

• DOI: https://doi.org/10.1108/IJHMA-08-2018-0062
• Pages: 281-297
• Date: 01 April 2019
• Published date: 01 April 2019
• Author: Khatai Aliyev,Mehin Amiraslanova,Nigar Bakirova,Narmin Eynizada
• Subject Matter: Property management & built environment,Real estate & property,Housing markets

Determinants of housing prices in

Baku: empirical analyses

Khatai Aliyev

UNEC Empirical Research Center,

Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan, and

Mehin Amiraslanova,Nigar Bakirova and Narmin Eynizada

International School of Economics,

Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan

Abstract

Purpose –This paper aims to reveal major factorsaffecting housing prices (flats and houses) in Baku, the

capitalof AzerbaijanRepublic.

Design/methodology/approach –Based on cross-sectional data set of 497 flats and 443 houses,

polynomial regressionmodels are estimated for flats and houses separately. Regression modelsare estimated

by using ordinaryleast squares.

Findings –Location, largeness, repair level and existence of bill of sale are major price determinants for

flats. For houses, numberof rooms also matters. Findings reveals that houses are landintensive (more floors,

less land area) toward city center, and viceversa. Price difference due to existence of bill of sale diminishes

significantlytoward the surrounding areas.

Research limitations/implications –The data set represents view of sellers and does not take into

consideration pricebargaining in time of sale; probability of informationasymmetries exists which not could

accountedfor, and urgency of sale is not considered.

Practical implications –Estimation results can be used for housing valuation by real estate market

participantsand investors.

Social implications –Research findingsreveal importance of bill of sale as a major price determinant and

expected to attract policymakers’attention to solve such a big social problem. Additionally, models can be

based forprice estimations in Baku housing market.

Originality/value –The study contributes to the literature by empirically analyzing housing market in

Baku, Azerbaijan.Research produces new practically valuable findings.

Keywords Location housing prices, Bill of sale, Flats, Houses, Physical characteristics

Paper type Research paper

1. Introduction

In many countries around the world, real estate is regarded as an asset that serves as the

source of the passive capitalfor its proprietor. Therefore, real estate market is viewed as an

integral part of the national economies. As a Filipino economist Habito (2009) stated

“housing can be one of the most effective ways of stimulating consumption and production

activity in other sectors of the economy”. The greatnumber of the studies demonstrates the

importance and role of the housing in countries’economic prosperity and growth (Phang,

2001;Leung, 2004;Glossop, 2008) and one of the essential engines of such growth is

investment in housing. According to worldwide practice, a number of factors emphasize

low-risk context of housing investment –consequently, considerable amount of people

views this option as a preferential one. Following this trend, investment in real estate is

widely practiced by Baku residentsas well. Hence, real estate prices have been consistently

Housing prices

in Baku

281

Received20 August 2018

Revised11 October 2018

Accepted17 October 2018

InternationalJournal of Housing

Marketsand Analysis

Vol.12 No. 2, 2019

pp. 281-297

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-08-2018-0062

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1753-8270.htm

a subject to discussions and concerns of all layers of population, from ordinary civilians to

government officials and consequently, public policymakers, real estate owners,

commission agents, as well as purchasers themselves are in great necessity for reliable

sources to base their decisions on. Consideringthe shortage of an appropriate guidance, it is

important to investigate this issue by using empirical estimation tools to provide scientific

evidence.

Being a capital as well as the largest and most dynamic city of Azerbaijan, Baku

experiences constant growth in population. Based on statistics, in 1999, the number of

people living in Baku accountedfor 1 788 854 which increased by 20.9 per cent and reached

2,262,560 in the beginningof 2018 (see Figure 1).

These numbers exhibit the acceleration of urbanization process leading to accretion in

demand and, subsequently, in supply in housing market of Baku. As law of supply

and demandconstitutes, the prices in housingmarket are determined byforces of supply and

demand. In addition, besides the traditional theory of supply and demand, there are also

other significant factors which define the prices in housing market. Generally, these factors

separated into two approaches –macroeconomic approach and hedonic approach. The

macroeconomic approach focuses on the fundamental macroeconomic indicators such as

GDP, CPI, interestrates, unemploymentrates and population growth and theirimpact on real

estate market. Compared to macroeconomic analysis hedonic approach is narrower in scope

but more detailed.Hedonic approach relates theprice of the goods to their qualityattributes.

This approach was first formulated by Rosen (1974) and currently used in wide range of

studies regarding housing market.The basis of this researchis hedonic estimation. Research

aims to definemajor determinants of housingprices in Baku by using empiricalmethods.

This paper is structured in a following way: Section 1 focuses on the review of the

previously done studies. Section 2 concentrates on the hypothesis statement as well as

analysis of additional literature. Section 3 describes the structure of the data as well as the

methodology used in the research. Section4 displays the empirical model and the outcomes

of the econometric analysis. Finally,Section 5 interprets and summarizes the findings of the

research.

2. Literature review

There are series of scientific studies regarding factors that affect the real estate prices and

real estate markets in general. These factors are complicated and therefore classified into

Figure 1.

Populationdynamics

in Baku (1991-2017)

1,700

Source: State Statistical Committee of the Republic of Azerbaijan, 2017

1,800

1,900

2,000

2,100

2,200

2,300

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IJHMA

12,2

282