The FINANCIAL — Real estate, which has been the second leading sector after banks in Georgia for the last few years, was said to be doing a good job in creating a healthy competitive market in the country. Athough the local real estate ‘war’ could never have predicted the real war coming this August. The recent Russo-Georgian war affected much the country’s developers leaving them with old reserves to continue already-planned projects and to raise construction costs.
“The recent war highly affected our sales. We sold only one flat in August. As other developers, we also stopped our sales in that period,” Tiko Ratiani, Arci, one of the leading companies in Georgia, told The FINANCIAL.
Another leading company Axis says it sales since August decreased by 45%.
“If we talk about the immediate post war period, it is obvious our sales certainly decreased but for the time being the situation has recovered. Prior to the crisis, a tendency of gradual increase of sales dynamics was observed,” said Giorgi Kapanadze, the Director of Axis.
According to Kapanadze, prices on housing estate have increased more than 3.5 times since 2003.
Today the prices of Axis are different in the various districts of Tbilisi: 1 sq.m in Saburtalo costs minimum EUR 635, Vake minimum EUR 1,010 per 1 sq.m.
“Compared to 2007 we increased prices on the real estate market by 40% in 2008. In general if you look at the market, after August’s events the prices on real estate have been reduced by 10-12%,” Ratiani says.
“The reason might be that customers refrained from the purchase of fixed assets after the war. In our opinion the price will increase again in spring. If prices go down on construction materials, Arci will with great pleasure reduce its prices. Otherwise though the prices will stay stable.”
The cost of an Arci flat ranges from USD 750 to USD 2,000. The price depends on the region and its condition. They have both economy class products and spaces for high income segments.
The company said its sales reduced by 30% in 2008 compared to the previous year (including October data). The pace of sales will be more active in the New Year period and the rate of data will be reduced, company representatives believe.
Company income in 2007 was USD 13 million and in 2008 around USD 20 million.
As Ratiani noted, today Arci is constructing dwellings in five regions of Tbilisi. They are also constructing a complex of mixed type in Batumi. Hotel and office buildings are built together with a house for dwelling. Construction has been completed. The construction object will be completed by the end of the year. They are selling dwelling spaces on current construction sites. Arci sells all its spaces. They do not work on rent.
Office and commercial spaces are in almost all construction sites. Commercial spaces are mainly on the ground floor and offices in separate buildings. For example, in Avlabari Arci has one project Little Avlabari, where they have a 4 storied building for offices, which you can purchase even now. As well as office spaces, there are dwelling flats and commercial spaces in the complex.
The price for one square meter starts from EUR 2,000. In Vake the cost of 1 square meter starts from EUR 2,500. Prices are different according to the regions and locations. For example, there are office spaces in the trading centre Karvasla. Price for the offices on the last floor (Nadzaladevi) is USD 3,100 per square meter.
Arci is working on seven projects now. Six projects are being constructed in Tbilisi’s various districts and one in Batumi, the Black Sea city. This year three houses will be completed from Arci projects and the others in 2009 and 2010. “We are planning the execution of new projects in 2009.”
Arci optimized some of their personnel who had been on free leave.
“Arci’s projects were not stopped in August. We had big reserves of construction materials. Having that reserve meant we could continue construction on all seven projects in Tbilisi and Batumi. As well as in Tbilisi Arsi started construction in Gori, and provided for the reconstruction of a house damaged during the war. Arci managed itself during the crisis because of our 20 years of experience. Today the situation is more stable, which can be proved by the sales data,” she added.
In Ratiani’s words, office space acquisition is more profitable than the monthly payment of rent fees. Rent mostly loses money, though it depends on the organization. If it is a representative company or they have projects that require months only, then neither company will buy the office space.
Arci cooperates with Bank of Georgia, TBC Bank, Bank Republic, Cartu Bank, and Basis Bank – with all the leading banks in Georgia. “Also we are holding negotiations with foreign banks and hope that we will start cooperation with them in the nearest future.”
Arci offers mortgage acquisitions with 5 year expiration terms and 17% interest rate per year. It depends on the customer who buys the flat. The interest rate also depends on your first payment.
Axis has developed projects in Didube where the minimum price is EUR 545 per 1 sq.m, Avlabari – minimum EUR 650 per 1 sq.m, Saguramo Townhouse and Villas minimum EUR 115,000 per townhouse.
Axis’ ongoing and planned construction projects in Tbilisi and other cities in Georgia include: Business centre Axis towers (Chavchavadze ave.), Axis palace office centre (Gamrekeli str.), Multifunctional Complex Axis palace 1 (32 Saburtalo str.), Multifunctional Complex Axis palace 2 (34 Saburtalo str.).
Dwelling Complex Axis palace 3 Sairme (51 Sairme str.), Multifunctional Complex Axis palace 4 Avlabari (25 Bochorma str.), Multifunctional Complex Didube Three Yards (10 Kedia str.), Dwelling Complex The greenest courtyards (75 Chavchavadze ave.), Residential House Abashidze (34-36 Abashidze str.), Saguramo townhouse (Saguramo).
They cooperate with almost all the major banks in various fields. “As for our own down payment options – Axis is the only Development and Construction Company on the Georgian market providing a 120 month down payment service without bank involvement. Our annual rate (APR) is 18%. The cap rate for office estate is 10%, for that reason it would be cheaper to rent a space.”
Iberia, one of the leading real estate development companies in Georgia that operates on the Tbilisi real estate market, has grown dynamically over the last nine years. Iberia has completed nine projects and has 11 ongoing projects in various sectors, such as residential, office, commercial and hotel.
In January 2008, Iberia successfully completed significant capital increase by issuing new shares, representing a 40% equity stake in Iberia, of New York based investment fund Firebird Aurora Fund, LLC. The proceeds were invested in new projects.
In October 2008, Iberia successfully negotiated a wholesale funding package to the amount of USD 6.3 million from OPIC for its subsidiary JSC SB Iberia for the construction of an apartment building for moderate-income families in Tbilisi, thus becoming the first Georgian real estate development company to receive commitment for foreign funding in the aftermath of the conflict in August.
Iberia executes its planned projects with Bank of Georgia. They will build a house on Kavtaradze St. followed by another one in Saburtalo district.
“In this project Iberia invested USD 1 million and Bank of Georgia – USD 6.5 million. Monthly payment will start from USD 300 to USD 500. Construction completion is guaranteed and loans will be issued with lower interest rates,” declared Irakli Gilauri, General Director of Bank of Georgia.
“The sales had a stable increasing tendency over the past several years, but this year the famous august events stopped the tendency and we think that slowdown will still continue for some time,” Ana Ivanishvili, Marketing Manager Iberia Real Estate LLC, told The FINANCIAL.
“Iberia suffered from the war and financial crisis but due to its existing strong financial investors’ base, it will be able to get out with limited damage. The only problem caused by this conflict was reduced sales but this had not generated any financial losses,” she added.
Prices on 1 sq.m housing estate of Iberia: Vake: USD 1,350-2,450 with one payment and USD 1,440-2,600 with deferred payment.
Bagebi (Iberia Hills): USD 1,640 with one payment, USD 1,900 with deferred payment.
Compared to November 2007 and November 2008 prices have approximately increased by 59%.
The ongoing projects of Iberia in Tbilisi are buildings at 7 Kipshidze Street, 73 Abashidze Street, 13 Radiani Street and housing estate in Bagebi village – Iberia Hills.
Planned Projects in Tbilisi include: Business Centre on Malikishvili Street, Business Centre on Chakhrukhadze Street, residential house on Gorgasali Street, residential house on Zubalashvilebi’s Street, residential house on Kavtaradze Street, Hotel in skiing resort – Bakuriani Village.
Written By Sopho Kheladze