A New Trend in the Development Sector
Between January and October 2020, the newly built apartments market shrank by 24% in Tbilisi and by 36% in Batumi compared to the same period last year, according to the sector analysis prepared by Colliers International. These figures illustrate the significant damage sustained by the real estate and development sector as a result of the pandemic.
Following relaxations in lockdown restrictions in summer, the residential market in the country, which had witnessed a slump due to the pandemic, is now slowly showing signs of recovery.
Estimates provided by market surveyors show that city-based developers managed to sell over 22,600 transactions with a total of circa 1.5mln Sqm area in 10M of 2020, when compared to 30,700 during the same period last year. The analysis points out that with developers innovating on marketing prowess to include financial benefits, discounts and easy payment options to attract buyers during the lockdown, as well as the state offering a mortgage subsidy program, sales have seen an uptick in the third quarter of 2020 over the preceding one. Notably, standing at -15% YoY, the transaction growth rate of old apartments drove the decrease of total transactions in October. As for the number of new apartment transactions increased by 3% YoY in the same month. However, increased infection numbers and additional restrictions imposed for the second wave of the Corona Virus are likely to hamper the recovery pace in coming months. On the other hand, news about COVID-19 vaccine results are encouraging for economic recovery expectations going forward.
International development firm York Towers is among those actively working to ensure that continuous development is maintained, while simultaneously looking after customer interests. The company states that it is trying to keep up with the current global trends and offer customers acceptable terms that are tailored to them.
It is worth noting that York Towers is not solely reliant on the Georgian market. The company has been successfully operating in numerous countries for many years. “As soon as the pandemic took shape, we began focussing our efforts on the speculative investors whose contact details we had collected at a time when they were expressing great interest,” company CEO Amr Alabwaz stated, adding that this method allowed the development firm to meet its minimum financial targets for 2020. Nevertheless, 2021 will be a year full of challenges as developers will have to work hard to attract investment. York Towers has brought numerous investors from Europe and the Middle East on board of its projects over the last five years. From the day the company was founded, it has been striving to create interest towards Georgia among foreign investors, and has accumulated considerable experience in attracting funding from abroad. According to the company CEO, interest towards Georgia is particularly high among Mid Eastern countries and Russian investors. “If we look at the 2019 statistics, Mideast countries accounted for the largest share of investors with 42% of the total figure, followed by Russia with 18%. Significant interest also comes from European countries and Israel, which accounted for 6% of investors in 2019. If we consider the current investment market conditions, on the rise since the beginning of 2020, average FX mortgage rate increased marginally after August (5.7%), standing at 5.8% in September. GEL mortgage rate dropped to 10.8% in September, currently 3.5pp lower than May’s high. Both FX deposit and mortgage rates currently remain below the rental yield, underlining attractiveness of apartments as income-generating assets.” Mr. Alabwaz stated.
Nevertheless, the process of attracting investment is currently also facing obstacles. For example, the volume of foreign investment in real estate during the second quarter of 2020 was USD 79.8 million, compared to USD 297.6 million during the same period last year. Against the background of reduced air traffic, when foreign investors find it difficult to travel to Georgia, York Towers is trying to communicate with them online and maintain development and growth.
Aside from the difficulties with attracting investment, developers are also citing the devaluation of the Lari against foreign currencies as a problem, as it affects the price of real estate, creating further challenges for the sector.
The Colliers International reports show that falling prices are placing internal payment plans under risk. This particularly applies to the projects that are at an early stage of development, as well as contracts with low down payments. Market observers, citing conversations with developers, are reporting a falling number of instalment payments. This can be resolved if developers can show customers that construction will proceed as planned. To this end, banks will have an important role to play. “If funding remains stable and construction continues without delays, customers will see that their property is not under threat and will be more likely to stick to payment plans,” the Colliers International summary states.
On the other hand Mr. Alabwaz, highlights that “the sales prices are mostly displaying a tendency for YoY decline for old apartments in most of the districts in Q3 2020, while the prices remained resilient in more districts for new apartments. As for the rental prices, monthly rates continued to decline in September, averaging USD 4.9 per Sqm for Tbilisi, down -3% MoM, however only in USD, prices remained on the same level in GEL terms.”
In September, for the first time since the start of the 2020 crisis, apartment sales increased in Tbilisi. This was partly due to the easing of pandemic-related restrictions during the summer, while the state mortgage subsidy programme has also had an effect. According to the Georgian government, loans totalling GEL 364 million had been issued as part of the mortgage subsidy programme by the end of September. The budget report shows that 3823 beneficiaries have taken advantage of the programme so far. While this is not a great number, it has contributed towards the process of saving the developers.
York Towers clients are among those who took advantage of the mortgage subsidy programme to purchase real estate at favourable rates. “From mortgages issued since July 6th, 34.3% are the beneficiaries of the state subsidy program. The proportion of total mortgage loan value to total sales stood at 53% in Q3 2020, up 24pp compared to Q2 2020. This is why the programme will play an important role in the economic growth that we expect to see over the coming months,” Amr Alabwaz told Forbes Georgia.
Real estate market analysts have concluded that isolation has led to an increase in demand for private homes both in and outside the city. Growing demand for apartments on the outskirts of Tbilisi was already noticeable during the spring lockdown. People are now more interested in purchasing and renting homes in an isolated environment, away from large crowds. Such trends have also been noticed by the management of York Towers.
“In recent years, customers had been buying smaller apartments in the suburbs of Tbilisi. This year, they started to show preference for properties with private yards outside the city, where they are isolated from the public and feel safe,” the CEO of York Towers stated.
To this end, the company has innovative and environmentally friendly offers for its clients. It could be said that they constitute a new statement on the Georgian real estate market. More specifically, they include the Lisi View project in Mukhattskaro, where numerous villas form part of a single complex and a single architectural concept, and York Town in Tabakhmela, the company describes as a perfect place to unwind.
Such projects are also a guarantee for a calm and safe future, as eco-friendly residences will remain an attractive and secure investment in the long term. York Towers views these projects as one of the company’s main competitive advantages, which will help them overcome the current period of uncertainty.
“Residential properties shall be witnessing maximum traction from homebuyers in suburban areas. The work-from-home option has changed preferences towards larger apartments and houses in the suburbs. Homebuyers shall be willing to travel a little further to buy a larger home to accommodate a dedicated working space within their houses. The next 2-3 years will be a lot better. We have chosen to focus on an area of development business that will become increasingly popular on the market. Investors will also show more interest towards such projects. Eco-friendly settlements are a new trend that will help overcome the existing challenges in the development sector,” Amr Alabwaz insists.