The FINANCIAL -- Tourism-related projects are the main focus of foreigners investing in Georgia. Among them Arabs are the main decision-makers of the moment. The rental of office space by political parties has contributed to an increased demand for office space. Meanwhile, a significant increase has been shown in the renting of residential apartments by the day, with growth reaching over 70%.
In June 2016, a total of 57,007 real estate transactions were registered in the country, which is 16% more than in June last year and 22% more than in May. Growth has been observed both in the primary (19.3%) and secondary (22.8%) markets, said the latest data published by the National Agency of Public Registry (NAPR).
“Our foreign customers are mostly interested in tourism-related segments. Mostly their focus is on old Tbilisi as the district has already been established as a main destination for tourists. We can say that people are ‘hunting’ for land in old Tbilisi. Citizens of the Persian Gulf - the UAE; Bahrain; Kuwait; Oman; Qatar; Iran and Saudi Arabia are the dominant decision-makers out of all our customers. This segment is really interesting for us, as they have quite big financial resources and risk-takers. If, for example, European investors require a feasibility study and meeting with ten experts before making a decision, Arabs make a decision rapidly as soon as they like something. Arabs are quite actively present in Tbilisi and also in Batumi,” Papuna Kokhtashvili, Managing Partner at RE/MAX Property Advisors, told The FINANCIAL.
There are two segments of foreigners who purchase real estate in Georgia, said Kokhtashvili, dividing them further: the first is those who purchase property and later sell it to their citizens in their homeland with a higher margin. They act this way, because they see investors interest towards Georgia as an investment destination and try to get benefits by pioneering on the market. As he added, the number in this category is really high. The second segment is those who purchase property for their own use: accommodation, business or investment purpose.
“Foreign investors are expressing big interest in three and four star hotels,” he said.
“The Georgian economy is always sensitive towards various fluctuations and elections are no exception. Due to the political uncertainty leading up to the elections many interested people have switched to a mode of waiting. Especially when investors are planning to launch huge-scale projects, they prefer to spend several months deliberating. I frequently hear complaints from my colleagues that foreigners never seem to make a final decision. However, it is just a part of this process. It is common for investors to come here several times, measure their risks, study the market locally and only after that make a final decision. In general it is a six month cycle,” said Kokhtashvili.
As Kokhtashvili said, currently hospitality projects are dominating in the Georgian construction market. “We see many five-star and class A hotels under construction. Established limits on coefficients concerning construction in down-town has contributed to the expansion of building outside of the city centre. Accordingly, construction has moved to the peripheries. As expected, we are witnessing mass construction in the territory around Tbilisi Sea and Digomi. City centres are mostly taken up by the hospitality segment.”
As Georgia is still lacking the number of beds per traveller that it needs, Kokhtashvili found it hard to predict whether this segment will be saturated once the ongoing complexes will be completed. “A clear benefit is that the increased competition will cause a price reduction; as we frequently hear complaints that the cost of hotel accommodation in Tbilisi is high. Another advantage is that the existence of many international brands in Georgia raises our image and creates confidence in us as an investment destination.”
Several A, B and C class trade complexes have been completed recently. This has increased competition on this market. However, there has not been a reduction in cost yet. So far only the quality has been enhanced at this time.
According to Kokhtashvili, the pre-election period had its effect on office space. Political parties have started looking for office space. However, as he said, this will be a short-term effect. He expects that after the elections, next year they will be closed down.
Overall, the demand for office space has increased by over 15-20% as of July 2016 in comparison with the same period of last year.
2016 has been booming for those segments which offer the renting of apartments by the day. Daily rent has increased by over 60-70% this year compared with the previous year.
The residential segment equals last year’s data and has not shown any changes this year. “Out of low and middle cost complexes, out of ten potential purchasers over six or seven are asking for mortgage conditions. This has forced developers to offer more customer-oriented proposals. As a result, we frequently hear about five or seven year credits. Georgian customers are paying the greatest attention to prices. In accordance, already-completed projects try to compete with more attractive prices. As for foreigners, they have different preferences; like a green environment and other services,” said Kokhtashvili.
“In terms of investment projects, they have been reduced this year. The main reason is the economic difficulties in our neighbouring countries, the representatives of which were the main dealers. Another reason is that potential investors have switched to waiting mode due to the upcoming elections in Georgia,” he said.
According to Kokhtashvili, the cost of renting in Georgia has recently been reduced. “If for example a year ago the monthly cost for an apartment’s rent in the Saburtalo district was USD 500, currently it is available for USD 300. I would not name devaluation as the only reason for this reduction. An important factor has been the increased competition. Lots of ongoing projects, which meet consumers' demand have been completed and were offered for sale. Many people started purchasing apartments as an investment source for further rent. Currently we are witnessing a boom in the rent of apartments offered by the day. As for the demand for rent, it remains almost the same as it was last year.”
“Those people who prefer to invest in real estate are closely observing some developing trends. For example, some buyers look closely at the details concerning specific districts that are part of a development project of the Government’s. They then purchase real estate in those very districts and after completion of the renovation works by the Government, sell at a higher price,” Kokhtashvili said.
“In order to invest in real estate profitably I would suggest looking in detail at the development projects of Tbilisi City Hall, the Ministry of Infrastructure and investment funds. They have details regarding the proposed development of specific districts or regions which will definitely cause an increase in real estate cost in those places and their surrounding areas,” Kokhtashvili told The FINANCIAL.