Karabakh Reconstruction: the Building Wave and Its Market Effects

While public discussion of Karabakh centres on politics and diplomacy, something else entirely is happening there at a scale that is hard to overstate: one of the largest construction efforts in the region. For anyone assessing property in Baku this is not a distant story - it affects who builds, what it costs, and where the state budget goes.

The scale

The numbers are large, and worth setting out together:

Measure	Amount
Actual spending, past five years	around $14 billion
Great Return programme (first stage)	22 billion manat
Allocated to the liberated territories in 2026	3.5 billion manat (8.4% of budget expenditure)
Planned for the next five years	around 20 billion manat (~$11.8bn)
Share of capital budget to 2029	about 30%

The last line is the most important. Thirty per cent of the state's capital expenditure is directed at one region.

What the money goes on

In the first nine months of 2025, spending broke down as follows:

• 1,525.1 million manat - highway design and construction
• 461.1 million manat - new residential complexes
• 107.3 million manat - railway lines

Note the ratio. Infrastructure precedes housing by a wide margin - roads receive roughly three times what housing does. That is logical: you cannot resettle a region you cannot reach.

And the result is already measurable: 1,411 former internally displaced people from Shusha have returned and settled in the city.

What this does to the contractor market

Here is the aspect that bears directly on a Baku buyer, and it is not obvious.

A construction programme on this scale draws resources. Contractors, engineers, skilled labour, heavy plant and raw materials are all finite, and all are being called on in Karabakh alongside ordinary activity in the capital.

Three plausible consequences:

Pressure on construction costs. High demand for the same materials and the same workforce tends to raise prices. That feeds into the cost of new projects in Baku, and in time into sale prices.

Pressure on timelines. A contractor also working in Karabakh is not necessarily the most available contractor. Anyone buying off-plan should ask about the developer's workload, not only their track record.

And in the other direction - a stronger sector. A construction industry receiving a steady flow of work for a decade professionalises, expands capacity and imports know-how. Over the long run that works in favour of build quality nationwide.

What this does to the budget

Thirty per cent of capital spending for one region means seventy per cent for everything else.

That is a distinction worth holding alongside what we wrote in the economy's dependence on oil: the budget may be less oil-dependent, but it is also more committed. A multi-year obligation of this size narrows flexibility if revenues weaken.

In a scenario of sustained falling oil prices - the second of the three shock scenarios - this is one of the first places pressure would appear. Not necessarily cuts, but a slower pace.

Is this an investment market?

The question arises naturally, and the answer for now is cautious.

Karabakh today is a reconstruction zone, not an open property market. Activity is driven mainly by the state and aimed at the return of displaced residents, not at sales to investors. Infrastructure is still being built, population is still returning, and a secondary market barely exists.

Anyone considering entering there should understand it is a wholly different category from buying a flat in Baku: a far longer horizon, far lower liquidity, and a high dependence on continued government spending.

What the numbers do not say

It is worth being precise about the source. Most figures here come from government publications and budget reporting, and they describe allocation - not necessarily execution.

The gap between an approved budget and money actually spent is normal in any country, and particularly wide in multi-year infrastructure programmes. "20 billion manat over five years" should be read as a policy target rather than a contractual commitment.

What can be verified is retrospective spending - around $14 billion over the past five years - and figures like the 1,411 returnees to Shusha. Those describe what happened, not what is planned.

The distinction matters to anyone building a thesis on it: a multi-year programme can slow, stretch over more years, or shift in priorities. It is less likely to vanish entirely, because it carries high political weight.

What is worth doing

Track the pace, not the announcements. The meaningful figure is what was allocated in a given year - 3.5 billion manat in 2026 - rather than multi-year headline sums.

Ask a Baku developer about workload. If they are also active in Karabakh, that is relevant to your timeline. We covered this in choosing a developer in Baku: a checklist.

And assume cost pressure, not decline. A national building effort tends to push costs up, not down. Anyone pricing a new project in Baku over the next five years should factor that in.

Where prices stand today can be seen in the price per square metre index by district.

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