The FINANCIAL — Development companies interviewed by The FINANCIAL exclude the possibility of price reduction of real estate in 2010. The industry professionals expect prices to rise by approximately 15%.
Increased demand for real estate became more obvious especially in the second helf of 2009. However the inflated construction boom that Georgia experienced in 2007-2008 will not be repeated anytime soon, developers say.
“The boom in the real estate sector in Georgia that took place before the August 2008 war was the result of the stable development of our country over several years. A boom is an economical phenomena that does not repeat itself at frequent intervals. Beside the fact that the recession in the real estate sector was not natural and was due to the results of the August war, I still think that the return of such a boom in this sector will not happen anytime soon,” Ana Ivanishvili, Head of the Marketing Department of Iberia Real Estate, told The FINANCIAL.
“Since the August war we have fixed a 20% price reduction on buildings that are newly built and those that are under development. Compared to the last quarter the price changes were reduced by only 3-5% for the same types of building complexes. The situation is better for office and commercial spaces. Compared with last year prices for commercial spaces have increased by 10%. Office spaces have decreased by just 10%, but after the last quarter they increased by 5%,” Ivanishvili says.
Considering the latest tendencies, in 2010 Iberia Real Estate is expecting a price increase of 15-20%.
“It will happen if the situation remains stable,” Ivanishvili adds.
Ivanishvili expects a return to the pre war situation in a minimum of two years if stability is maintained in the country.
“The recent decision of the banking sector to resume giving out loans is a positive sign,” she says. “This will encourage an increase of customers’ purchasing capacity. There still exist some limits on hypothec credits though. Banks are giving out hypothec credits only for completed projects.”
Prices per square meter at Iberia real Estate start from 850 USD and go up to 25,50 USD, for the so-called elite houses located in the most prestigious districts of the city.
“Currently we have four projects under development. Iberia Hills, with 22 4-floor living complexes, is an A class residential district and will be finished in May 2011. Construction of the structure of the house on Radiani Street is already finished and the renovation works will be completed in spring 2010. 85% of the construction processes are on Kipshidze Street and the complex will be open for residents in September 2010. The fourth project is a house on Abashidze 73, and will be finished in December 2011,” Ivanishvili declares.
Iberia Real Estate managed to get credit line of USD 10 million from Overseas Private Investment Corporation (OPIC). “With the help of this sum we managed to finish the projects under development and fulfilled our responsibility towards our customers. We are already working on financing new projects and accordingly we remain optimistic about the future,” Ivanishvili notes.
Development company Arci managed to sell approximately 10,000 square meters over the 11 months of 2009. August and September were the most active months in terms of sales for the company.
“We expect that prices of real estate will rise by 30% and on old houses by 20%,” says Giorgi Baidarashvili, Sales Manager of Arci.
“Our prognoses are due to several reasons, the first is that the newly built houses will be sold under the rehabilitation project of old Tbilisi and this will cause a deficit on the market. Accordingly we will see increased prices in the construction business. These processes will be supported by the total imrovement of the economical processes,” says Giorgi Baidarashvili, Sales Manager of Arci.
The approximate price of one square metre at our company is USD 1,000.
Currently Arci has 7 projects under development, one in Batumi and the rest in Tbilisi; in Ortachala, 2 projects in Avlabari, Nadzaladevi, Vake and Saburtalo.
Baidarashvili says that the company needs USD 35-40 million to complete all the projects that are currently under development. “Arci has not managed to attract any foreign investors, just local ones. Foreign investors tend to invest money abroad because of reduced prices on the real estate markets there,” he says.
Baidarashvili is optimistic that in one year the previous boom in the construction business will return with the same volume as of before the war.
He mentions that increased limits on hypothec credits is very important for encouraging the real estate market. “But the fact is that banks give out loans very cautiously and in very small amounts,” Baidarashvili says.
“Banks are also not giving out loans for projects that are under development and this initiation just encourages the sales of old houses,” Baidarashvili says.
In 2009 Development Company Axis sold a total of 4,000 square metres.
“In the first and second quarter we sold 700 square metres, the rest in the second part of 2009. The most active period in sales was July, when we sold 800 square metres,” says Rezi Nijaradze, Head of Marketing department of development company Axis.
The approximate price per square meter in Axis for objects that are under development is USD 800 and USD 1,050 for completed projects.
Nijaradze excludes the possibility of price reduction in real estate in 2010. “I think that there will be an increase of 10-15%. The price increase in real estate will be determined by price increases of construction materials. After summer 2009 prices of construction materials started actively rising and if this tendency continues then the overall cost of real estate will also rise,” Nijaradze says.
Nijaradze does not rule out the possibility of a return of the previous boom in real estate in Georgia, but says that it is difficult to say when it will happen. “We are seeing that the demand for real estate is rising but it is hard to say when it will return to the volumes of 2007. Perhaps it will be reached after 2011.”
Axis has several projects under development: Palace 1, on Saburtalo Str; Palace 2, Saburtalo 36; Palace 3, Sairme str 51; residential space at Abashidze 36; Chavchavadze 75 and Kedia 10.
“Currently we are negotiating with investors abpout putting money in to concrete projects but they are not finished yet,” Nijaradze declares.
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