Construction in Azerbaijan 2026: state orders shrink, the housing market slows

2026 is a year of cooling for construction in Azerbaijan. The sector, which grew by 9.6% in 2024 on the back of reconstruction work in Karabakh, stood still in 2025 and contracted sharply at the start of 2026. The pace is slowing in the housing market too: prices are still rising, but not as fast as before. Money, meanwhile, is flowing into state mortgages and construction materials.

The sector: when state spending falls

In the first quarter of 2026, construction fell by 19.8% in real terms, and by 23% in January–May. The decline then slowed: −13% in the first half and −8.7% in January–September. The Central Bank links this decline to lower capital expenditure from the state budget. The number of people employed by construction companies also fell by 1.1% in the first half. In January–September, construction accounted for 5.4% of GDP.

Investment: overall growth, housing lags behind

Here is the paradox: although construction is shrinking, investment in fixed capital is growing. In January–September 2026, 14.7 billion manat was invested, 10.9% more than in the same period last year. Investment in the non-oil and gas sector was 9.8 billion manat (+3.1%).

Investment in housing construction, however, is still falling, though not as much as at the start of the year. The real decline was 31.4% in January–February, narrowing to 2.7% in the first half and 3.1% in January–September. Over nine months, about $1.22 billion went into housing construction.

Housing commissioned: the 2025 record

In 2025, 35,390 residential buildings with a total floor area of more than 4.629 million square metres were commissioned in the country — the highest figure in five years. Only about 18.8% of this volume was in Baku. Individual and country houses accounted for 90.2% of the area commissioned in the first half of 2025. In other words, most of the new housing stock is being created outside the capital and through individual houses.

Prices: growth slows, new builds lead

In the third quarter of 2026, the housing price index was 8.4% higher than a year earlier. In the second quarter of 2025, this figure was 13.2%. New builds are rising in price faster than the secondary market: +10.4% and +8.4% in the third quarter.

According to m2map's calculation, the median asking price in Baku in August was 2,735 manat per square metre, while Caliber.Az gives an average price of 2,934 manat for September (these are listing prices, not sale prices). The difference between districts is large: about 4,132 manat in Sabail and 1,452 manat in Pirallahi. Affordability is worsening: according to the Central Bank's calculation, buying a flat out of income now takes 23 years, 2.1 years more than a year earlier. The average wage rose by 7% over the year, while new builds became more expensive faster. Rents rose by 7.4% year on year, and the rental yield on a standard flat is about 4.8%. Buyers are turning to cheaper districts and individual houses.

Mortgages: the state channel grows, banks pull back

According to the head of the Mortgage and Credit Guarantee Fund (MCGF), about 80% of all mortgage financing issued in the country to date has gone through the state-supported channel. At the end of June 2026, loans issued with MCGF funds made up 58% of the portfolio and had grown by 10.8% over the year, while loans issued from banks' own funds had grown by just 1.4%. The difference lies in the interest rate: 7.04% on new loans with MCGF funds and 12.76% on those from banks' own funds.

Mortgage loans issued by banks in January–August totalled 262.9 million manat, 13.7% less than a year earlier. Budget funds for social mortgages, by contrast, rose by 33.5% to 63.75 million manat. MİDA's preferential flats sell out immediately: in December 2025, 627 flats were sold within seconds, and in September 2026 a further 535 flats were offered in Shirvan, Yevlakh and Lankaran.

Construction materials: recovery

Production of construction materials fell by 4.3% in 2025, but in January–August 2026 it rose by 9% to 1,005.3 million manat. The picture varies by material: cement production fell by 4% in the first half (1.85 million tonnes), clinker rose by 3%, and rebar production dropped by 18% in January–February. In 2025, cement and clinker exports rose by 12.5% to about 957,000 tonnes.

Projects: Karabakh, the regions and Baku's master plan

In 2021–2025, about 21.9 billion manat was allocated from the state budget to the reconstruction of Karabakh and East Zangezur, and about 13.5 billion manat is projected for 2026–2029. More than 50 raw material deposits for construction materials have been put into operation in the region. Baku's master plan to 2040 envisages the construction of about 200,000 flats over 14 years.

What is growing and what is shrinking

The sales and advertising budgets of construction companies are not published openly, so this report compares segments rather than players.

5 takeaways for marketers

1. Buyers' financing goes through the state programme. 58% of the mortgage portfolio consists of loans issued with MCGF funds. In developer communications, the message "you can buy with an MCGF mortgage" and the eligibility conditions are no less important than the price.
2. The market is moving beyond the capital. In 2025, about 81% of new residential floor space was outside Baku, and demand for individual houses is growing. Regional media and regional sales channels are coming to the fore.
3. Affordability is the main theme. With 23 years of income and a 12.76% bank rate, the message should be "affordable and reliable", not "premium".
4. A window is opening for B2B. Construction materials production is growing again and cement exports are increasing. It is time for materials producers and suppliers to step up their B2B marketing.
5. When state orders fall, private demand comes to the fore. As budget spending falls, contractors will compete for private clients — and that increases demand for brand and reputation marketing.

The report is based on data published up to 23 October 2026. It will be updated when Azstat releases its full-year results.