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Property Development – Georgia’s Most Rapidly Growing Sector

Georgia’s property development sector is growing at high paces over the past years. In 2008-2009 financial crisis broke out in the world, which inflicted serious damage to the development sector.

We should note that over the past 9 years this field has overcome many obstacles and at this stage, it continues growing. At the same time, several directors of development companies have committed suicide because of unfinished projects. During the crisis period, commercial banks attracted considerable assistance packages from the Government, however, they raised interest rates on approved credit lines to the developers, anyway. Meanwhile, public trust towards them declined. Though, Georgian development sector makes advancements anyway.

According to Geostat, national statistics service of Georgia, in the second quarter of 2017 the GDP  in current prices constituted 9 066.1mln GEL. The year on year real GDP growth marked 4.7%, while the deflater rose by 5.9%.

According to the 1H17  indicators, the growth was recorded in the following fields: development (16.4%), hotels and restaurants (12.9%), mining industry (7.4%), real estate operations, leasing and consumer services (7.2%), transport (7%), financing (6.4%), communications (4.8%), governance (4.5%). Reduction was recorded in agriculture sector (-2.4%) and production and distribution of electricity, gas and water (-0.9%).

As to GDP’s sectoral structure, the major ratio is recorded in industry (16.7%) and trading (15.2%). Agriculture and fishing sectors are third with 9.9%, transport and communication is fourth with 89.8%, development sector is fifth with 9.4%, governance is sixth with 8.5%, real estate operations, leasing and consumer services – 6.6%, healthcare and social assistance – 5.8%.

It is worth noting that the development sector finished the year of 2016 with an impressive upturn. Last year the growth was recorded in the following sectors: hotels and restaurants (12.9%), property development (10%$), financing (9.7%), mining industry (9.5%), real state operations, leasing and consumer services (5.9%), production and distribution of electricity, gas and water (4.9%). Reduction was recorded in transport sector (-3%) and communications (-3.1%).

It  should be noted that in 2007-2016 foreign direct investments in Georgia made up 12.9bln USD. The major part of 3.155bln USD (24% of total FDI) went to transport and communications sector and the smallest amount was directed to agriculture sector – 134mln USD (1% of FDI).

As to development sector, FDI inflows marked 1.035bln USD over the past years. The highest inflow was recorded in 2014 – 316.5mln USD, while the lowest marked in 2010 (4.7mln USD).

As to the two quarters of the current year, in January-June of 2017 the development business attracted 125mln USD investments (55mln USD in the first quarter and 70mln USD in the second quarter), which is 20.2% of total FDI. It should be noted that FDI inflows to the development business are lower of only the transport and communications field (271mln USD in the second quarter).

It should be noted that, according to the 2007-2017 economic growth indicators, the development sector was suffering from problems in 2008-2011 years. For example, the year of 2007 recorded a 14% upturn in the development sector, while reduction was recorded in the next three years.

As to the averaged indicator over the past 10 years, in 2007-2016 the development sector was growing by 4.8% on average.

Since, property development is one of the key employer sectors and its advancement brings success to other fields too, it is important that this sector is gaining momentum and this tendency will definitely drive positive changes in the Georgian economy.