1. The Real Estate Market Survey has been conducted by RENTALS Ltd, a Tbilisi based Real Estate Brokerage Company. It deals with recent developments in Georgian residential property rental market, gives some light on the processes taking place for the last 5 years and brings the latest figures amended by the global crisis.
2. Below you will find a break down of Real Estate (RE) segments and some comments on each them, as well as the clear quotes for 2, 3 and 4 bedroom apartments/houses (furnished and unfurnished) in the most wanted residential areas by the foreigners (Vera, Vake, Saburtalo, Digomi).
General Overview
3. The Georgian Real Estate (RE) market enjoyed 5 years of tremendous growth starting from 2003. There has been a considerable increase in prices in every sector of RE including residential, commercial, office, land, warehousing segments.
4. The most dramatic growth has been observed on land prices. During the years 2003 and 2008 the prices for land in various regions of Georgia increased by almost 1000%, i.e. The one and the same plot of land could cost USD 1,000 in 2008 whereas one could have bought it at USD 100 in 2003. The biggest growth rate was evidenced in 2006 and 2007, when the prices have nearly doubled.
5. There was less increase in residential RE but the figures were still surprisingly high. The price of 1 m2 of residential space in Vake (the most popular living area in Tbilisi) has grown by 500%, reaching an average price of USD 1,200 per 1 m2. It is worth mentioning that the highest price – USD 2,800 for 1 m2 turnkey apartment in Vake district was offered by the Bagebey City Group (a RE developer) in the first half of 2008, increased from USD 600 in 2002.
6. With a very rough calculation of the total number of building permits issued as of today and space to be delivered in residential RE sector in the nearest 2 years is more than 2 million m2, which equals to approximately 20,000 individual apartment units in a pipeline. The number is not that high compared to other Eastern European countries but is rather significant for Georgia provided the economic prosperity of individual households.
7. In late 90th the first RE developments appeared in the very center of the city. They were limited to only Vera and Vake districts. During the last 3 years, the number of new RE developments at the other districts of Tbilisi (Didube, Ortachala, Isani, Gldani, Didi Digomi etc.) was considerably increased, Saburtalo being the most heavily in demand. By the end of the first half of 2008 the RE sector was one of the biggest employers in Georgia.
8. Such a boom of residential RE development was a result of two major factors. The first being availability of mortgage facilities and the second one, huge interest of foreign investors, wishing to buy cheap and enjoy a considerable capital gain. Talking about the mortgage loans, it is worth mentioning that the mortgage portfolios of the local commercial banks have been multiplied several times during 2005-2008. Basically, the banks did not ask for additional collateral, except the apartment in the unfinished construction, due to expected and almost guaranteed price increase. At the same time the banks were financing the developers so they had double profits on the same projects.
9. The major problem of the Georgian developers was a considerable undercapitalization. During the years of 2004-2007 the developers needed a very small amount of money to start their projects or even no start-up capital at all. Sometimes they just were successful to convince the inhabitants of the old buildings (those quite damaged by the years or earthquakes) to give them the land in return to the promise that they get from 20% to 30 % additional space once the new building is completed. Having obtained these engagements with the inhabitants the RE developers were starting sales of the potential property at a very cheap price just enough to start an excavation works. After the first floors of the development were seen from the streets the confidence of the potential buyers were dramatically increasing. They were applying for the mortgage loans and most of them were successful.
10. In general, during the years 2003-2008 investments in properties were considered to be the most convenient, less risky and high yield tool in Georgia.
Situation after Crisis (June, 2008)
11. It is widely thought that the recession process in Georgian RE sector started in August, 2008. Certainly, the Georgian-Russian conflict had a very negative impact on the general economic situation in the country and by all means, RE suffered quite heavily. But the roots of the crisis were obviously seen already in May, before the war. The most significant signs of the precaution to the RE were the decisions of the banks to limit their exposures in RE. In May, 2008 the major banks nearly stopped financing all RE developers, as well as introduced more rigid criteria for individual mortgage loans. In a month time the sales of the apartment units of the developers has been decreased by 30%. The reason of a downturn was a considerable proportion of sales supported by mortgage loans. Some of the developers had up to 90% of sales through local commercial bank support/financing.
12. After the August events it has become quite clear that many of the international investors had changed or at least suspended their aspirations entering Georgian RE market for some time. Another significant reason of changing plans by the investors was the overall economic crisis, when the RE had lost its fascination of being the one of the best investment tool due to its steady decrease in price worldwide.
13. Subsequently, the two above mentioned reasons (the global crisis and Georgian-Russian conflict) has resulted in serious decline in total sales volume in RE market in Georgia.
The General Character and Terms of the Rent
14. During the years 2005-2008 the number of people buying apartments compared to those building or buying private houses was reasonably high. It has several reasons, but the major one was the price. As mentioned above due to the developers’ shortness of money they were pre-selling apartment units at discounted prices at the beginning of the projects. That made deals very attractive for those who wished to buy-to-let, whereas the individual houses were not that much in demand and were comparatively expensive. As a result we observe a greater number of apartments vs. private houses being available for rent at the moment.
15. The most of the demand falls on the fully furnished and equipped apartments/ houses. Therefore, the landlords wishing to lease their properties are supposed to bring them to turnkey condition. Most of these apartments are fully furnished and equipped. There is also a demand on the apartments without furniture and equipment but it is less common. The number of the potential tenants wishing to have their apartment in core and shell condition is fairly small.
16. As to the terms of lease contracts the majority of them are done for 1 year period with an option of extension for the same period. Mainly, the landlords are quite cautious with the long term contracts unless they have a price alteration clause. The reason for that is the 5 years of experience when the prices have been almost tripled during the period. Even at the moment, when the prices are decreasing, the landlords still feel unconfident to sign long term contracts without price alteration option clause.
17. Another particularity of the Georgian RE rental market is that the landlords are really reluctant to make any changes in the finished apartments. For any fundamental change in the construction or the design of the apartment/house it is considered to obtain a written consent of the landlord and to carry out the works on the tenants’ expense.
18. Below you will find figures that the landlords wish to get as their monthly rental fee provided that there is no need for them for additional investments. Should there be a need for additional investments by the landlord (which exceeds two month rent), the prices of rent will certainly be different.
19. The below stated rental fees are gross fees, from which the landlords are supposed to pay their taxes.
Break Down of RE Segments
SALES
Decrease (Volume)
Decrease (Price)
Comments
Land Sales
90%
30-70%
The main driver for land sales was high demand on the new residential and commercial developments. At the moment the market is in recession process, i.e. there are not many new projects coming. All the major developers are rather concerned with completing of their current projects. Thus, the demand for new lands has decreased considerably. Another reason of such a decline is the deterioration of the global financial situation when the lands lost their speculative value.
Unit Sales by the Developers
90%
20-30%
The downturn in sales in developers’ portfolios has created a risk of completion of the projects. That resulted in mistrust by the potential buyers towards the development to be delivered in the future. Another reason of the fall in sale is a very high interest rate on mortgage loans and their limited availability.
Secondary Sales
10-15%
10%
For those in real need to buy some properties for their personal use the only stable segment of the RE appeared to be existing properties available on the secondary market (vs. those to be delivered in future). The fact fueled much the secondary market which suffered less compared to other RE segments. Still we can observe some decrease in total volume and price and the main reasons for that are again limited, expensive mortgages and the expectations that the prices might still decrease.
RENTALS
Commercial Rentals
30%
30%
As the sales of the retail shops have declined due to the global crisis more and more shops find their rental fee high enough to pay.
Office Rentals
0%
20-30%
Due to the economic situation many of the tenants either decided to change their offices for the cheaper ones, or negotiated favorable prices from their landlords. There is no decrease in the volume but in prices.
Residential Rentals
10-15%
10%
Although the recent political and economic developments had changed plans of many business people intending to come to Georgia, there is no big change in volumes and prices of residential rents.
Residential rentals suffered less from global economic and local political turmoil. There is only a slight decline in this sector. There are three major factors behind this:
-- A. Even during the period of 2003-2008 the prices of residential rent were unreasonably low. The correlation of sale vs. rent was below one percent. Meaning that the apartments that cost USD 100,000 could have only been rented for USD 600-700. Consequently, it led to the decline of prices in sales whereas the rentals remained more or less the same;
-- B. Another reason for the steady rental pricing is an increased number of various observers from different international organizations as well as increased number of staff in diplomatic institutions. Immediately after the Russian-Georgian conflict we observed considerable increase of demand on rentals by the above mentioned institutions.
-- C. The third reason is a limited access to bank loans. Great number of apartment/house owners was applying for additional funding to banks. The banks have limited their exposures to the public sector. Those who are lucky to get these expensive credits have to pay 24-30% per annum. As a result there is a real deficit in quality dwellings.
VERA-VAKE (Districts)
NET (m²)
Gross
Rental Range
Mid-Level Rent
Unfurnished Apartments
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
1.700
2.300
2.000
3 bed room, study, dining
147
210
280
2.200
3.000
2.700
4 bed room, study, dining
211
246
330
2.800
3.300
3.000
Furnished Apartments
2 bed room, study, dining
120
146
190
1.900
2.500
2.300
3 bed room, study, dining
147
210
280
2.400
3.200
3.900
4 bed room, study, dining
211
246
330
3.000
3.500
3.200
Unfurnished Apartments
2 bed room, study, dining
120
146
190
2.400
3.200
2.800
3 bed room, study, dining
147
210
280
2.900
3.800
3.300
4 bed room, study, dining
211
246
330
3.600
5.400
4.500
Furnished Houses
2 bed room, study, dining
120
146
190
2.700
3.500
3.200
3 bed room, study, dining
147
210
280
3.100
4.000
3.500
4 bed room, study, dining
211
246
330
3.900
5.700
4.800
NOTE: The figures in the sheet are gross monthly rental fees for the landlords provided that there is no need for them for additional investments. Should there be such a need the prices of rent will be different.
SABURTALO(District)
NET (m²)
Gross
Rental Range
Mid-Level Rent
Unfurnished Apartments
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
1.500
2.200
1.900
3 bed room, study, dining
147
210
280
2.000
2.800
2.500
4 bed room, study, dining
211
246
330
2.500
3.000
2.700
Furnished Apartments
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
1.800
2.400
2.100
3 bed room, study, dining
147
210
280
2.300
3.000
2.700
4 bed room, study, dining
211
246
330
2.800
3.400
3.200
Unfurnished Houses
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
2.200
3.100
2.600
3 bed room, study, dining
147
210
280
2.700
3.700
3.200
4 bed room, study, dining
211
246
330
3.400
5.000
4.200
Furnished Houses
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
2.500
3.300
2.900
3 bed room, study, dining
147
210
280
2.900
3.800
3.300
4 bed room, study, dining
211
246
330
3.600
5.200
4.300
NOTE : The figures in the sheet are gross monthly rental fees for the landlords provided that there is no need for them for additional investments. Should there be such a need the prices of rent will be different.
DIGOMI
NET (m²)
Gross
Rental Range
Mid-Level Rent
Unfurnished Apartments
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
n/a
n/a
n/a
3 bed room, study, dining
147
210
280
n/a
n/a
n/a
4 bed room, study, dining
211
246
330
n/a
n/a
n/a
Furnished Apartments
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
n/a
n/a
n/a
3 bed room, study, dining
147
210
280
n/a
n/a
n/a
4 bed room, study, dining
211
246
330
n/a
n/a
n/a
Unfurnished Houses
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
2.200
2.800
2.500
3 bed room, study, dining
147
210
280
2.600
3.400
3.000
4 bed room, study, dining
211
246
330
3.200
4.700
3.900
Furnished Houses
MIN
MAX
MAX
MIN
MAX
AVE
2 bed room, study, dining
120
146
190
2.300
3.100
2.700
3 bed room, study, dining
147
210
280
2.800
3.700
3.200
4 bed room, study, dining
211
246
330
3.500
5.000
4.200
NOTE 1: The figures in the sheet are gross monthly rental fees for the landlords provided that there is no need for them for additional investments. Should there be such a need the prices of rent will be different.
NOTE 2: There are no new residential apartment units available in Digomi district
46 Rustaveli Ave. / 37 Griboedov Str.
(+ 995 32) 245 45 66; 245 45 99; 299 64 12
info@rentals.ge
