How the war in Ukraine affects the real estate market in Georgia
How much does an apartment in Tbilisi cost?
The Russian-Ukrainian war has radically changed the Georgian real estate market.
The arrival of thousands of citizens of Russia and Belarus, especially, has increased the cost of renting apartments — compared to last year, rent jumped has by 210%. The price of sales has also gone up.
Dry Bridge is a place in Tbilisi where realtors and their potential clients have traditionally gathered for several decades. People meet here every day to rent, sell or buy a home. Discussions of trends in the Georgian real estate market are usually in full swing here.
True, most people now use popular real estate websites and go through companies to deal with property, but there is no shortage of customers at the bridge.
“Prices are rising every day. Remember, some immigrant was selling an apartment on Shanidze? The price increased by $10,000 in a month.”
“I called one of them, said that I have a client who is ready to pay $25,000, and he yelled at me and asked for $52,000. I recently sold an apartment of the same design in the same building for $38,000.”
“Crazy, too expensive, they want unrealistic amounts.”
“This woman is looking for an apartment for her student son and nephews for $300 and she can’t find it, poor thing.”
“I don’t even remember when I rented an apartment to Georgians, it’s all Russians, Russians,” the realtors say among themselves.
A Russian-speaking couple approaches the “brokerage exchange”.
Since the beginning of the war in Ukraine, 1,45,614 Russian citizens have entered Georgia. In September alone, after Putin announced mobilization, 222,274 Russians entered.
“I rented an apartment in early October. In the evening, sometime around ten or eleven o’clock, I published an ad, and already in the morning at nine o’clock it was taken down, and for $200 more,” says Nutsa, the owner of an apartment on Politkovskaya Street in Tbilisi’s Saburtalo district.
Russians are mainly looking for an apartment to rent, but realtors say some are interested in buying.
The Batumelebi newspaper published data from the National Agency of the State Register according to which from March 1 to October 12, 2022, Russian citizens purchased 2,964 apartments and 37.9 hectares of land in Georgia.
Locals can no longer pay rent
A Russian-speaking couple approaches the brokers on the Dry Bridge.
Igor and Lisa arrived in Georgia in September. Lisa, 31, is an architect and Igor is a communications specialist who now works online for Russian companies. Until they have the opportunity to work remotely, they plan to stay in Georgia.
In September they rented a room in a private house in the central district of Vera. It is $1,000, although they do not have a separate kitchen, and so the couple have decided to find a new apartment.
Igor says that his friend from Moscow bought an apartment in Kobuleti and moved there.
“Many are already doing it. At first he also rented, but if you count the monthly expenses it is cheaper to buy, and the buying process is also simple. He saved up some money and bought it because he plans to stay in Georgia. At this stage we will not be able to buy — we have no money, and we cannot make plans for the future. We are just trying to get a better apartment,” he says.
A young woman comes to the exchange:
“Who has an apartment for rent?” she asks, but the question remains unanswered.
“There are no apartments,” mutters one of the brokers.
“What, there are really no apartments for rent?” I ask suspiciously.
“Right now, there really isn’t,” one of the realtors replied.
After a while, three more young people approach.
I was intrigued by their story.
Previously, all three had rented apartments separately, but now they will have to share the cost of one apartment between them.
“We searched a lot on websites, but the prices are terrible and there are no apartments.”
“We are from Kakheti. Previously an apartment in Tbilisi could be found for 300-400 lari [about $110-150], now these cost at least a thousand. An apartment that cost 500 lari will now be 1,500-2,000 lari [about $550-730]. Students can’t afford it, especially since this is not the only expense, there are also tuition fees, travel, meals.
“Two of our students are dropping out, the family can’t pay for it. We are also not sure that we can find an apartment with our budget. Not all owners will let three people into one apartment. We don’t even know if we can fit,” they tell me.
Real estate agents we talk to say that while rent only went in the center, now prices have gone up in the outskirts. Renting an apartment in the center is a luxury for Georgians.
“People with average incomes, who had normal jobs, vacated their apartments in the center and moved to the suburbs because the owners increased the rent. But now prices have risen in the suburbs,” Gia, a broker, says.
How much does an apartment in Tbilisi cost?
Tatia Sesadze had a small private house in Tbilisi,which she sold at the beginning of the year. Her plan was to save up money and by the summer buy an apartment in a building under construction. Tatia has her own small business — an online store.
“Things have changed so much since then that I just can’t find anything. I can’t even continue saving money. It is impossible to buy, the prices are so high. There is no housing that would cost less than a thousand dollars per square. Do you know why people go abroad? The first reason is that they want to buy a house and cannot afford it, they do not have enough income. This is due to rising prices and low wages here. A Georgian could never afford to buy a house with their salary. Now even more so,” Tatia says.
The upward trend in prices in the real estate market has been analyzed since the beginning of the pandemic. However, rising prices did not prevent sales; on the contrary, both demand and sales increased.
According to the brokerage research and investment company TBC Capital, the purchase price of real estate has increased by 28% compared to last year, and the upward trend continues.
According to a study by this company, the average sale price per square meter of real estate in Tbilisi in October increased by 7.2% compared to September, and by 28% compared to the previous year, and reached $1,037 per square meter.
Rent increased by 120% in October compared to the same period last year and 24.9% compared to September, amounting to $11.2 per square meter.
According to the authors of the study, the second wave of migrants influenced the sharp rise in prices in October.
In total, 4,52 apartments were sold across the country in October, which is 34% more than in the same period last year
According to TBC Capital, real estate prices rose in October most of all in the central districts of the capital — Mtatsminda and Saburtalo by 38-35%, and Nadzaladevi by 23%.
The most expensive apartments went up not in the center (where they were already very expensive), but in the suburbs — Didi Digomi, Gldani and Samgori.
The rise in prices in the market is associated with several factors, says Giorgi Nizharadze, senior researcher at the brokerage, research and investment company TBC Capital:
“First, this is a rise in the price of building materials. Since the beginning of the pandemic, the construction cost index has increased by 15-20%.
The second factor is the strengthening of the lari against the dollar.
Over the past six months the lari exchange rate has appreciated by 10-15%, and according to our research, the exchange rate affects the price by about 50%. This means that the strengthening of the lari increases the price in dollars, and the devaluation of the lari reduces the price in dollars, the price of apartments in our country is indicated in dollars, so this has an impact.”
As for migration, according to Nizharadze, Russians and Belarusians coming into the country at this stage had a significant impact on the rental market; high demand made rental prices more expensive.
“However, with regard to residential real estate, migration has not yet had a direct impact here, because the share of the number of apartments purchased by foreigners is lower than the share of rent,” he says.
According to available statistics, about 45,000 apartments have been sold in Georgia this year. If we take the state register data, according to which Russian citizens bought 2,964 apartments, it turns out that only 5% of sales are directly related to migration.
Although migrants are currently buying fewer apartments and renting more, this still has an indirect impact on property prices, Kakha Samkurashvili, senior research fellow at the investment bank Galt & Taggart, says.
“Strong demand and a 75% increase in rents have made renting profitable. Local residents who can afford it buy apartments to rent to migrants. People considered this a good period to increase their income — they can buy an already renovated apartment on the secondary market, and then rent it out to Russian migrants. With migration, real estate has become an even more interesting investment asset as rents have risen so much that more rental income can be generated.”
The situation on the market directly affects both the consumer and the country’s economy.
Buying residential property is still considered the most popular and reliable way to save money in Georgia. Accordingly, rising prices in this market lead to property owners’ optimism.
In turn, increased demand stimulates real estate spending, which also has a positive impact on the economy.
The real estate market is also important for the financial stability of the country, as the financial sector is represented by commercial banks, where loans are secured for real estate.
Real estate specialists do not expect a decrease in prices of apartments on the market, Giorgi Nizharadze says.
“The price will to some extent depend on the development of the lari exchange rate. However, as the rate is macro driven and does not appreciate or depreciate excessively, we do not expect prices to decline next year due to the exchange rate. As for rent, we expect that by the end of the year it should begin to stabilize, and in 2023-2024 it should decrease.”
As for rent prices, it is related to migration and how long Russians and Belarusians intend to stay.
How much does an apartment in Tbilisi cost?