The FINANCIAL -- The
Georgian construction business in private sector saw an increase in
turnover by the end of 2013, and expectations for 2014 are optimistic.
The planned signing of an Association Agreement with the EU by August
2014 is predicted to return the same boom to the sector that it
experienced up until the crisis in 2008 However generally real rstate
market reacts slowly to positive changes in the environment and it may
take some time.
Some of the largest projects on the market includes the development of a modern shopping center by CBD Development near the Airport with an investment over 50 million USD (1st phase) as well as large residential projects by Lisi Development, Dirsi, and SBRE. Nikoloz Urushadze, General Director at Paragon LTD, a member of the Royal Institute of Chartered Surveyors (RICS), told The FINANCIAL.
The reconstruction of the Tbilisi department store into a modern shopping center at Freedom Square is another upcoming project in the near futureThe hotel industry is also attracting large interest from investors. Rixos 5 star hotel is being developed by investors from Israel. Redix has started the planning of a new brand name hotel with 160 rooms. Also there are plans to build Hotel for International Ibis Hotel. As for the residential niche, with the number of new residential projects under way as well as planned there will be no shortage of supply in this segment. The basic foundation has been laid in 2013 and the main investment projects will be implemented in 2014. 2014 should be a positive year. In any case, such signals can be seen for now,” said Urushadze.
“The potential for political instability was the major risk factor for investors in the past. As we have seen, it is now transforming in a positive way. The initialization of the Association Agreement (AA) with the EU has proved to be a big deal for our society as well as our investors. The economic situation will be similar to that of Eastern European countries’ economies in 2000-2002 when these countries attracted the largest amount of FDI. Investors are targeting developing countries that are on their way to joining the EU. It’s expected that the previous boom of the construction business will return just after Georgia signs the AA,” he added.
According to Urushadze, so called “problematic real estate projects” still remain unresolved due to the inadequate bankruptcy law in the country. “I was involved in the management of some construction companies operating in the residential business. The one of the main problems they are facing is the current law on bankruptcy. The procedures are so complicated that companies simply fail to go bankrupt. The Government needs to revise the existing law on bankruptcy. According to the current law of bankruptcy, government takes 10% from the project’s market value for administration of the process. This is added to the VAT tax and other expenditures that should not exist at all. Satisfying the interests of the victims as well as the resolvement of the complications of the project should be the main focus of the bankruptcy procedure. Nothing can help the developmentcompanies as they are in debt for a long time. However, the chance of satisfying thecustomers of defaulted projects- can be possible,” said Urushadze.
According to statistical data, the turnover of the construction sector amounted to GEL 571 million in the second quarter of 2013. The figure is GEL 159 million more than in the previous quarter. The number of employees in the sector has also increased. 45,611 employees were counted in the construction sector, up from 40,863 in the first quarter. The average monthly salary amounted to GEL 1,067 while in the first quarter it was GEL 851.6.
Total turnover of the sector amounted to GEL 4,444.7 million in 2012.
Out of the total FDI of USD 232 million attracted in the second quarter of 2013, 17% was made up by the construction sector.
Archi Group launched five new projects in 2013. “The recovery of the sector has been observed since the parliamentary elections were held in Georgia in 2012,” said Ilia Tsulaia, Director at Archi Group.
“We plan to launch several new projects in 2014. The existing stability in the country has given more guarantees to business,” said Tsulaia.
According to him the decision to launch new projects was due to the increased levels of consumer activity.
Development company Axis increased its construction volume by 250% in 2013. “Such activity by the company is due to the stability and reduced interest rates offered by commercial banks.”
Axis started construction of new residential housing near the hippodrome and plans to launch new projects in 2014,” said the General Director of Axis.
Urushadze from Paragon summed up 2013 as a relatively slower year compared to pre-election period “The level of economic growth was also slow and it reflected on real estate as well. Investors targeting the real estate sector are firstly looking for political stability. In this case investors paused their ongoing projects and decided to wait for the further development of the situation.”
“The change in government after nine years has caused numerous changes. The first year is generally a period of familiarization with the situation. Accordingly, the government is less effective, which is quite natural. Citizens are more hopeful about upcoming years and the government responds with greater efficiency. Positive messages have been delivered by the government recently. The prioritization of the economic sector was quite encouraging for investors reflected in the increased demand for feasibility studies, and analytical market reports that reflects their re-newed interest in the new projects,” said Urushadze.
According to Urushadze, tThe amount of residential space per person is just 14 square meters. “This is the lowest rate in Europe pointing to the room of expansion on the residential market. However, the demand is lower due to financial problems but the potential for further growth exists constantly and as soon as people find resources, the demand shall increase. Large number of residences in Tbilisi are also at the end of its life cicle and need replacement.”
Some of the construction materials used in Georgia, mostly those that are recovered from previous older buildings and reused, can cause lung cancer, according to real estate expert Nikoloz Urushadze.
“Asbestos, silicate brick, lead as well as chemical substitute paints are all poisons that can cause cancer and other deseases. These products are imported from China and other unreliable locations. Putting relevant controls into place in the construction code is therefore important. The law should prohibit the import of such hazardous materials, all of which are banned in Europe,” said Urushadze.