The FINANCIAL — Apartment rental and purchase by foreigners has slumped by 25% recently. The restricted visa policy and prohibition of agro-land purchase by foreigners contributed to this decrease in the real estate sector.
In February, the total number of registered real estate transactions grew by 17% in comparison with the same period of the prior year. Meanwhile, as a large share of deals is made via hypothec loans, the trend is predicted to decrease in line with the devaluated national currency. The planned expansion of businesses leaves hope that demand will remain active in commercial spaces during 2015.
“The main segment of our customers is comprised of foreigners. Accordingly, we closely watch all the problems that they face. The problems of our customers directly impact on our business. Prohibition of agro-land caused a reduction of transactions. Agro-land was most prioritized for our foreign customers. Those people were also purchasing or renting apartments in Tbilisi. Consequently, the prohibition of land purchase led to a decrease of transactions in apartment purchase and rental as well,” Papuna Kokhtashvili, Owner at RE/MAX Property Advisors, real estate company, told The FINANCIAL.
RE/MAX is an American international real estate company that relies on a franchise system. RE/MAX Georgia is already represented by four offices. “Foreign investors operating in Georgia have been facing difficulties while dealing with real estate issues. This was the main reason for opening an office in Georgia. Quality, efficiency and competence of agents were the main problems that foreigners have been facing. Accordingly we jointly decided with the US office to open a branch in Georgia,” said Kokhtashvili.
A total of 50% of consumers at RE/MAX Property Advisors are foreigners. The number of foreign customers at the company has reduced by 25-30% during the past six months. 70% of deals at RE/MAX Property Advisors are made on rentals. The demand for apartment and office space rental is equal at the company.
According to Kokhtashvili, before implementing the new visa policy, foreigners from Arab countries and Iran were the most active in Georgia. As he said, the Association Agreement with the EU was increasing their interest, seeing a perspective for expanding businesses on EU markets. “Closing the door to foreigners has impacted the real estate business as well,” he added.
“Representatives of Arab countries and post-Soviet states were dominating among our clients. Currently, the activity of representatives of post-Soviet states is lower than a year ago. Their decrease is mostly linked to the global problems that are taking place in the region. As for the citizens of Arab states, their reduction is connected with the changes in visa policy,” Kokhtashvili said.
“Foreigners rarely start businesses with big projects. At first they investigate the market. So if an investor plans to invest over USD 3-5 million, they first make a deal worth 60,000 in order to test the ground,” he added.
According to the National Agency of the Public Register, the number of registered transactions on the real estate market has increased by 17% in February 2015, in comparison to the prior-year period. The number of transactions reached 45,356 throughout Georgia. Primary transactions have grown by 17.7%, and secondary – by 17% in February of the current year, compared with a month before. The number of primary transactions was 7,892, and secondary – 37,464 in February 2015.
The number of transactions has increased by 31.5% in comparison with prior months. The growth has been shown on primary transactions – by 46.2%, and secondary – by 28.8%.
The ratio of primary and secondary transactions during February 2015 has been equal compared to the ratio of the same month of the previous year. 82.6% has been made up by secondary transactions, and 17.4% – by primary.
“Real estate continues to be one of the best options for investment. The alternative directions that the market offers for investment are more risky. Real estate is one of the quickest-starting businesses in Georgia. The current ongoing constructions on almost every street are good proof of that. Many residential and office spaces do not meet the modern demands. In addition, consumers’ needs have changed. All together this increases the activity of this sector,” said Kokhtashvili.
Kokhtashvili said that interest in the real estate market from foreigners has been quite active due to the dynamic promotion of the country that took place in previous years. Although he noted that the recent changes in visa regulations made the existence of foreigners in Georgia questionable.
The planned expansion policy of chain businesses is most positive for Kokhtashvili. He believes that it will maintain the demand for commercial spaces. “The network expansion policy is a very positive trend that we are observing on the Georgian real estate market. Fast food, pharmaceuticals, MFOs and banks are continuing to expand. As central districts have already been assimilated, companies have moved to remote districts. Businesses are copying their competitors. Accordingly, when a company opens one branch in any specific district, others do their best to do the same. Finally this results in demand for real estate,” he said.
“When big shopping malls were established in Tbilisi there was a fear that small spaces in central trade districts would remain without tenants. However, currently the chain expansion policy is balancing this demand. The entrance of companies via franchise deals has maintained the stable demand for spaces on the first floor,” said Kokhtashvili.
Kokhtashvili expects that the demand for residential apartments will decrease due to the recent reduction of solvency capacity. “The major share of real estate transactions is made in US Dollars. Accordingly, devaluation of the national currency is an additional burden on the sector. Over 60% of deals in real estate were made via hypothec loans. Accordingly, devaluation will result in an increase on the interest rate for loans and reduction of demand for real estate.”
“Demand still exists for apartments in the suburbs worth USD 30-40,000. The solvency ability of consumers around this sum still exists on the market,” he added.
Kokhtashvili believes that during 2015 demand for apartment as well as commercial space rental will be maintained.
During the current year several international clothing brands have left the Georgian market, the list includes: Tom Taylor, River Island, Debenhams, 123 and Alcott. Some of the spaces that were rented by the above-mentioned brands still remain available for rent.
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