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What is Happening in the Development Business of Georgia?

Investors Find Georgia’s Development sector Very Attractive

Over the past period, scales of construction works are evidently growing in Georgia, especially in Tbilisi. Foreign investors find Georgian development market more and more attractive.

Today, various development projects are being implemented in Tbilisi districts. Besides the central part of the capital city, development companies give priority to the Tbilisi outskirts too.

The Caucasus Business Week (CBW) has inquired how successful and progressive Georgia’s development sector is and whether investors find it attractive.

Over the past period the development sector’s attractiveness has considerably increased and investors also demonstrate adequate «reaction» to this sector. According to Geostat, national statistics service of Georgia, in 2013 foreign direct investments in the development field marked 49 847.5 thousand GEL, in 2014 – 316 588.1 thousand GEL, in 2015 – 110 678.4 thousand GEL and in 2016 – 106 183 thousand GEL (total amount – 15%).

Givi Korinteli, owner of Green Capital investment fund, noted that foreign investors find Georgian development business quite attractive as a result of growing demand for various types of real estate.

«Two directions are very attractive, including, hotel business, especially 3-star and 3+ star hotels, including branded hotels. This segment records a growing number of tourists and this factor raises the interest of investors», Korinteli pointed out.

According to the last estimations, there is serious demand for 3-star hotels. As a result, investors are able to return their investments and receive profits in 6-7 years, he noted.

As to residential houses, this sector also records the booming signs thanks to quite flexible bank products and rising interest of commercial banks in this business, Korinteli said.

«There are two reasons why commercial banks are interested in this segment: 1. construction works are financed with business loans and these works also represent the so-called retail product for commercial banks as they finance clients with mortgage loans. This is double interest which are re-insured in each other. 2. There are signs of commercializing the new outskirts; For example, new districts in Didi Dighomi, Dighomi, Lisi Lake zone and so on. These directions generate demand for new infrastructure, new complexes that will be different from ones in the city center. Emphasis is made on ecology issues too», Korinteli noted.

This construction boom differs from the 2007 processes. Previously, only the city center was developed, but now more reasonable projects are being implemented, he said.

Tornike Abuladze, representative of Association of Developers, noted that the development market is very attractive in reality, including in terms of simplicity of taking licenses. «There is serious demand for real estate in Post-Soviet space and therefore, it is very attractive. Secondly, Georgia is an exceptional country in terms of simplified licensing regime», Abuladze noted.

Investors show growing interest in Georgian development market. Today, ratio of foreign investments in the sector is about 30-40%, Abuladze said.

«Before 2007 any person, doctor or designer used to go a commercial bank, take a loan and start construction works with money of other parties. This was a wrong model. There was a boom of construction works  in that period, but that process was based on wrong model. A major part of developers were Georgians. After the crisis period, the market was revitalized starting 2014-2015. Today, considerable amount of foreign investments circulate in the Georgian development sector», Abuladze said.

Irakli Kilauridze, managing Director of Colliers International Georgia -Real estate market in Georgia has a stable development course. Residential market is one of the most active sectors of real estate market. On average, 75% of total transactions represent the residential sector. Retail market is shifting from outdated buildings to modern shopping centres. Since 2012, 10 new modern shopping centers have opened and few more are under the construction. The Hospitality market in Georgia is fueled by a consistent growth of tourism sector. In 2016, the number of international arrivals exceeded 6 million. The government is supporting the hospitality market by improving infrastructure, and implementing policies to support business growth and attract investment.

Colliers International Georgia provides bespoke valuation, development, and brokerage real estate services which are based on the research, and local and international market expertise. Our valuation team can provide a reliable assessment of property value which will ease the client’s decision-making process. Our development consultancy team can resolve complex real estate challenges and offer comprehensive development plans for mixed use developments. Our brokerage team helps clients to lease or sale real estate to advance their business goals.

Malkhaz Kunelauri, Redco development company’s projects manager, says that Georgia is a regional center in terms of economic aspects thanks to the most flexible taxation system, flexible, less bureaucratic state sector shaped thanks to several reforms.

«Business sector needs flexible taxation system with less taxes, less bureaucratic state offices, new technologies and services. All these aspects will provide additional comfort for development sector. Moreover, there is the lowest criminal level in the country», Kunelauri said.

Advantage of Georgia is that the number of tourists has considerably increased and it permanently rises and this factor creates preconditions for growing interest in hotel tourism, he said.

«Development and hotel business is being developed in the country and this is real tendency», Kunelauri noted.