The most notorious armed conflict of 2022 still continues and is the subject of today’s article is Russian invasion of Ukraine and its consequences over Georgian Market. As you know, world political and economic situations has changed after 24th of February, 2022 and many important changes are expecting too. Without a question, this changes affected Georgia. Real Estate business is main area which was expecting a general rotation, especially rise of prices. Let’s consider everything step by step.
What stipulates changes on Georgian real estate market?
More than 30,000 Russians have arrived in Georgia since Russia invaded Ukraine. Russians are fleeing not war, but their own government. And they say they can’t go back.[RE1] As they claim, they fled their country and ruler. Worries have [RE2] been mounting among Georgians over the reports that thousands of Russian citizens moved to Georgia as Russia was restricted by heavy international sanctions over attacking Ukraine. Alarms were raised in social media after scores of Russian citizens actually moved to Georgia and inquired about real estate and business opportunities in the country.
“Netgazeti” [RE3] (one of Georgian online newspapers) interviewed to several Russian respondents and it is notable that most of whom do not consider Georgia as the last stop. The first peson says that he wants to stay here for a while, to understand what happened, to become economically stronger and then to take the path to any country in the West, which he had already planned. The same was said by another person, who intends to stay in Georgia for at least 1 year. They also mention the visa-free regime, which allows Russian citizens to live in Georgia without a visa for 1 year, then leave the country for 1 day and after returning, get a residence permit for another year. “I want to rest in Georgia from everything that is happening. I have been taking antidepressants again in recent weeks. I had insomnia. It’s very stressful to be here… I want to wake up so that I am not afraid of what Mel or me or my partner will do, ”says the third. Overall, big number of income Russians have caused changes on Georgian market and we will explain in more details.
Chronology of events
For easy analysis of the whole chain of actions and its consequences, it would be better to consider small chronological data.
- Russia has officially declared war to Ukraine on 24th February, 2022. It has been almost four months since the war is still going on in the heart of Europe and no one knows exactly when it will end.
- The war has shaken economic development and created a food crisis in some countries. This situation has caused a number of problems, including suspension economic relations between the countries. Because of border crossing situation has hardened, not many supplies and products can be exported or imported worldwide now.
- Because Ukraine was exporter of many international market supplies and now it has closed borders, the chain whole world was using, is now changing. Even in many countries such market supplies were transferred thought territory of Ukraine. This is why price market changes during the war.
- Building materials is main subjects of import in Georgia and while the world prices is changing, everything here is changing with it. As import is getting hard to get, prices are getting higher as well.
- There is an important thing to consider as well. Georgia as neighbor of Russia. While countries have made restrictions to Russia, many Russian citizens are coming to Georgia for living purposes. The demand on living places is already risen for 300%.
How COVID-19 affected Tbilisi real estate prices
The latest Real Estate Price Index, which tracks the change in prices of Tbilisi’s apartments and houses, has shown that the country has experienced a rapid increase in real estate prices over the past year. When the rate of interest rates is on the decline in Georgia, this is a welcome sign. The demand for rental spaces has driven the increase in prices, but the returns on rental activities are still below average.
After all, this Pandemic has hit dozens of countries, including Georgia.
The Georgian-Chinese relationship remains dynamic. In May 2017, the two countries signed the country’s first free trade agreement since the former Soviet Union. The FTA is Georgia’s eleventh and largest. China has made a significant investment in Georgia, with Georgian exports outnumbering Chinese imports. Several Chinese companies have also invested heavily in Tbilisi real estate.
The current COVID-19 Pandemic presents enormous humanitarian, economic, and social challenges. While COVID-19 has sparked concern in the real estate market, it also offers an opportunity for Tbilisi to build relationships with other nations. Read more: Tbilisi real estate market predictions post the pandemic
Low-income households drive demand on the residential market
Small developers dominate the residential real estate market in Tbilisi. However, many prominent market players are developing condominium-like residential units. These properties feature sports facilities, relaxation areas, and green spaces. These residential buildings are relatively new to the Tbilisi housing market, and they are bringing a higher standard of living and luxury to the city.
Tbilisi’s price per square meter for residential real estate is below the average in neighboring Russia, Azerbaijan, and Armenia. Compared to these countries, Georgian property prices are more affordable and in demand than other real estate types. Furthermore, the Georgian government is trying to create favorable conditions for foreign investors and reduce the burden of formalities.
The Impact of War in Numbers on Georgia’s Housing Market
The Russia-Ukraine war and international sanctions on Russia have had a major impact on Georgia’s economy, and greater economic are expecting too. What caused this war and what will it cause? The answer is not simple.
Impact on Oil prices
The war was followed by an instant rise in prices, and the price of crude oil reached [RE4] its highest level since 2014. In recent days, the price of a barrel of oil has exceeded $ 100, while at the beginning of the year the price of a barrel of oil fluctuated within $ 80. The reason for such a sharp increase in the pandemic is the widening gap between global demand and supply, which has already added geopolitical threats, as Russia is the world’s third largest oil producer and currently accounts for one-tenth of world oil consumption and almost half of Europe’s gas consumption.
Impact on product prices
Russia and Ukraine are also the leading global exporters of major agricultural products. As of 2020, Russia and Ukraine together accounted for 26% of [RE5] global wheat exports, with Ukraine accounting for 8% of total exports. Both countries account for 24% of world barley exports. 57% of the world exports of sunflower seeds, irises and cotton oil come from these two countries. Only Ukraine accounts for 13% of world corn exports. Prices are still rising sharply around the world today.
Since 2021, the pandemic has put heavy pressure on global production and supply chains, as food prices rose by 28% [RE6] in 2021 alone (FAO report). The war is exacerbating the situation. 90% of the wheat consumed in Georgia is imported (and most of it comes from Russia), so the rise in global prices is instantly reflected in the country. Unfortunately, this is felt by the poorest part of the population the most.
Impact on Real Estate prices in Georgia
A large part of the society thinks that the increase in rent or purchase prices in Georgia was caused by the Russia-Ukraine war. Some of them also think that the number of citizens coming from Russia has increased dramatically and their goal is not to buy temporary shelter, but to buy apartments in Georgia. Officials from different real estate agencies have differing views on this. Consequently, the answer to the question of what goals Russian citizens have is complex. However, the fact that the price of apartments has risen sharply is really due to the Russia-Ukraine war – there was a great demand, which in return led to an increase in prices[RE7] .
According to real estate agents, the price of apartment rent in the capital has risen by a record 48%[RE8] , due to the large influx of people coming from Russia, Ukraine and Belarus. According to an updated report by the National Statistics Office, in the first quarter of 2022, the residential real estate price index increased by 4.2 percent [RE9] compared to the previous quarter, while the annual growth of the index was 3.4 percent.
Irakli Rostomashvili, head of the Builders’ Association, thinks that the spike in prices for real estate for rent due to the entry of Russian and Belarusian citizens into Georgia strengthens the unstable environment in the sector. [RE10] In the development business, price increases was definitely expected. The first reason was that the citizens have fled Russia, we have a small market on which it affects, and the second and most important, all the constituent factors that make up the real estate for rent, everything has become more expensive. At whatever price developers were selling, today that price turns out to be costly.
The experts are expecting for rise of prices more and more, as Ukraine fails to be the one of the biggest export country for Georgia. Prices for building and renovation materials are rising for 30-50% and it will effect on real estate prices for each square meter. This is one more reason why you should buy apartments right now in Georgia! Because of the fact, that demand on living in Georgia is extremely risen up, also indicates the attractiveness of the Georgian real estate market in today’s reality. This is for 100% sure profitable now!
We hope you liked the article and it will influence you to make your decision about Georgia until prices are still lower. If you have a further questions, please, don’t hesitate to ask us in the comments! We will try to make another article regarding the main problematic topics you asked for.