The FINANCIAL — According to construction company Axis housing prices are likely to increase in two years time, depending on the costs of inputs which has been drastically increasing over the last few years.
Households still find it hard to get housing, notwithstanding the fact that construction companies have started building fairly low cost structures. As leading companies expressed in interviews with The FINANCIAL, change in the preferences of households has forced them to start constructing economy class-houses (relatively cheaper ones) so as to respond to the market demand.
Newly married couple Batu and Ilona who got married in September last year, are still searching for better housing. As they said in an interview with us, taking out mortgage loans of 800 GEL means that family income has become impossible as most of the banks denied the offer. Due to this reason they have decided to save money for at least 1-2 years hoping to enter into an agreement with some construction companies to get interest free housing and to cover the total pay gradually.
“The large construction companies like Axis have been avoiding entering into an agreement with a client on non-completed “on air” inner mortgage systems which were quite popular before the crisis hit Georgia,” said the PR of Axis Mako Bigvava.
“The recent years have really demonstrated a change in consumer behaviour in terms of choosing a house to buy. Some years ago the majority focused on places that were being built whereas now they focus on price and the quality of the product. Following this trend we now tailor all of our products to different sets of customers: the lower, middle and higher income families. The signs of changing consumer behaviour were obvious once the crisis started, even before that. Therefore we saw the future demand trends and started the construction of economy class resident houses like the six-storey one we have in Didube,” said Bigvava.
“In September we will have totally finished Axis Didube. The Didube complex is characterized by the lowest price which starts from 720 USD. Currently we have sold only a few of our flats there, and we haven’t specifically sold them beforehand because we wanted the construction works to be completed there first. We have diversified all the segments and we also offer office and commercial spaces for business. Perhaps that’s why we are the leading company on the market and by the end of this year we are going to build 125 storeys overall,” she said.
“The quality of our materials and construction facilities is the same wherever the location. The things that affect the rest of the price are location, design, service, etc.
The highest priced product in our network is Axis on Barnov, due to the location and external design.
Currently we are overseeing the construction works of seven projects: Didube, Palace 1, 2, Sairme, Chavchavadze, Barnov, and the Hippodrome. The prices of our products range according to the location of the building. On Barnov the maximum price equals 1,300-1,500 USD. But there are also some discounts provided that a client is willing to buy 200-300 sq.m space meaning of course there will be discounts of up to 10%.
There were certain challenges concerning four of our projects: Palaces 1 and 2, Sairme and Chavchavadze. However we have announced new action plans to our loyal customers about when we are going to give them the key to their house. So now everyone knows when their flats will be finished and detailed monitoring of the construction is also possible for customers at our office. The reaction to this announcement was pretty positive, as they were notified about it just two weeks ago,” Bigvava told The FINANCIAL.
“The specifics with regards to banks have also changed. We were offering mortgage loans on non completed flats to our clients before but the crisis has shown uncertainty on the market, and now only completed flats are sold at Axis. Actually this approach has long been accepted abroad and there is no bank to work with construction companies on mortgage loans as they are doing it on their own. The fact of the matter is that with previous cases you had to be buying an incomplete house whereas now we ensure that all the construction works are put in place.
The overall price has fallen slightly since the crisis hit Georgia. The peak in price increase started early in 2006 when they shot up to 600-700 USD abruptly but now what we are seeing is that the price is not likely to decrease in the near future. The increase of price will depend on the stability within the country’s borders.
In general the most demanded flat spaces start from 50-100 sq.m.
The VTB Mortgage Loans programme which was launched 2 months ago did prove to be successful, as “the market demand for mortgages has increased this year,” said Givi Vadachkoria, Deputy Head of Retail Business at VTB.
“We launched the first mortgage loan programme in Georgia this year, although we had attempted it in previous years. The loan is meant for those willing to buy, repair and construct a flat. The requirements for those willing to withdraw money ought to satisfy the following conditions: must have a stable income of at least 1,000 GEL, have a stable track record of the last 12 months, and the income should only belong to a one member of the family not several household members’ incomes totalled, but in addition this is another sort of backing of the loan which increases the amount of loan en masse,” said Vadachkoria in an interview with The FINANCIAL.
“Our loan programme is aimed mainly at middle and higher income families because of the reason that even if we tried to count a salary less than 1,000 GEL per person, it wouldn’t be viable to cover the whole amount of the mortgage withdrawn. Even with 1,000 GEL, the borrower gets 8-9,000 USD yearly for a 10 year period, so this is the sort of margin that we consider to work in Georgia,” said Vadachkoria.
“The interest rate of our loan starts from 13%. Once a client approaches VTB, we evaluate whatever his/her wealth is which should equal the amount of money he/she wants to borrow from us. On average people withdraw 50-70,000 USD to buy a relatively good house. Most of the clients demand purchasing a house on a 5-10 year mortgage term. Our clients mainly buy houses of 50-120 sq.m and the age group is within 23-65 years, while 30 year olds account for the majority of our clients,” stated Vadachkoria.
“We have also cooperated with Axis, especially in Palace 1 where we are selling a commercial part for interested clients. We give it to them needing only their personal identification card, requiring only 10% participation which is in turn our backing in case the client can’t afford to pay the rest of the money afterwards.
“One very important restriction is that construction works should be completed by the time we disburse the loan, ratified by the registry”.
By the end of this year we expect capital investment of over 8-9 million GEL. So far we have disbursed 5-6 million GEL,” Vadachkoria told The FINANCIAL.
Moduli, which has 6 ongoing construction projects says that they’ve almost sold all of their flats, even before being build. The prices of which were 400-700 USD during the financial crisis. Only some of Chachava’s flats remain unsold – 20%, the prices of which start from 600 USD.
“In addition we don’t charge any interest on inner Moduli mortgages which have always been popular among our clients. The mortgage conditions are very simple: as 10% of the amount is paid beforehand and then the rest allocated for the remaining period until the construction works are over,” said Eka Gakheladze, Head of the Sales Department at Moduli.
There are relatively simple mortgage loan conditions at BR which can be taken on the basis of leasing, a salary of 400 USD, income from one’s family or other type of business activity.
“If the borrower owns a small business venture, then it should be proved that it is a profitable one.
Provided that a borrower can’t afford that much salary or any of the other abovementioned conditions, then he can also involve a family member’s support when taking out the loan. In this case total income would be counted which should be 1,200 GEL.
The rate of interest charged starts from 13% and can be allocated within 25 years. The amount of money taken is unlimited. The interest can be paid monthly if it’s a salary, and quarterly if it’s family business,” said the PR of Bank Republic Tamar Shavdia.