The FINANCIAL — Against the background of the dozens of failed residential development projects on the Georgian market, m2 acts a shining example of success in the sector by having completed its residential project at the Hippodrome a whole four months ahead of schedule.
The demand for new constructions on the Georgian residential real estate market currently exceeds supply. m2 plans to launch new product line this year. The company will be offering reduced prices, targeted at the wider sector.
The project is situated at 13 Tamarashvili Street, near the former hippodrome area, in the centre of the city as well as being close to nature. The residential complex consists of nine separate buildings. The planning concept is based on the efficient use of every square meter. Buildable area of the complex is 60,724 square meters. Apartments vary from 47 to 172 sq.m. Penthouses with large terraces and panoramic views are situated on the top floors of the buildings.
97% of apartments in the complex are already sold.
“Demand is quite high for residential property. Demand has never been a problem in this area. The problem has been with trusting the developers, who have generally not completed projects. The volume of transactions in this sector is increasing every year. Accordingly, the demand does exist but we are facing a lack of supply, especially in the primary market. Due to the lack of new housing supply, trades in the secondary market prevail,” Irakli Burdiladze, Chairman of the Supervisory Board of m2, told The FINANCIAL.
The Dutch development bank FMO issued a credit line of USD 20 million for m2. Out of this facility the company drew down only USD 10 million, which was repaid ahead of the schedule.
“International financial institutions never had problems with confidence despite the recent events in Ukraine. Meeting obligations with FMO further raises the confidence of the international financial institutions towards our country and the sector overall. Having a professional management team is the key factor in attracting financial resources,” said Burdiladze.
“FMO is currently financing two construction projects in Tbilisi. After the 2008 crisis people have generally been wary of buying apartments under constriction. In two projects that we have financed, we saw that people do have confidence in buying an apartment because in the end there is a sound developer behind it all. That is why we chose to finance those two projects,” said Eowyn Teekens, Diverse Sectors Investment Officer at FMO.
“The total loan facility that FMO approved for the construction business in Georgia amounted USD 35 million,” Teekens added.
According to Burdiladze, after signing the AA, standards in the construction business will further improve. However, in his words, this will not result in an increase of cost, as access to lower interest rate financial resources will balance it.
“We welcome the entrance of high standards. Our constructions are already in line with EU standards, in fire protection, as well as from an energy efficiency point of view. We have implemented such technologies that are used throughout Western European countries. This, of course, leads to a rise in the cost of the construction. However, in return, there are other resources, such as low-interest credit resources, which will compensate in part for these increased construction costs. If a developer properly manages his project he will manage to compensate for the increased costs. Therefore, in the end it will not affect the price,” said Burdiladze.
In order to diversify the financing structure m2 issued USD-denominated bonds in April 2014. “We sold USD 5 million worth bonds in just one month. This demonstrates the level of confidence customers have in our company,” he added. Today m2 has also announced the second issue of USD 10 million worth of bonds, with a bond par value of USD 1,000 yielding as high as 8.42% pa (before tax).
“We plan to reduce price per square meter and become affordable on the wider market. This year, starting from August, we shall be launching new projects and offering 1-bedroom apartments for only USD 29 000,” Burdiladze told The FINANCIAL.
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