Unfavorable perspectives are forecast for the real estate market in 2016. If the GEL exchange rate is affixed to the 2.5 point, the demand for apartments will decline and the housing sector will have to further lower apartment prices.
The current developments in the Georgian economy have badly affected the real estate market. The currency crisis has brought stagnation into the development sector, development companies assert. If the process goes on, apartment prices will decline again, Zviad Darakhvelidze, the founder of Monolith Group, noted.
„If the USD exchange rate against GEL is affixed to the 2.5 point, the price contraction process will continue. If we want to sell our products, prices should be lowered, there is no other solution.
For the past months the real estate prices have manifestly declined and these prices are expected to decline in the future too. If the USD exchange rate maintains the existing positions or strengthens further, the stagnation will increase in the economy. Even more so, 75-80% of the population buys apartments thanks to mortgage loans. The GEL exchange rate depreciation has increased expenditures of developers.
Only 10% of the customers can buy apartments by direct purchase. The remaining part depends on commercial banks. If the USD remains at the 2.5 point, the housing sector will have to lower apartment prices further”, Darakhvelidze said.
The Orbi Group’s PR office says that the USD strengthening has not affected their apartment prices yet. Apartment prices have not declined, but the quantity of sold apartments has diminished compared to previous years.
Part of the real estate agencies declare that in 2015 the sales plunged because of increased supply and lower demand. Moreover, the global crisis has also undermined the sales volume.
“The demand has declined. There are so many construction projects. The quantity of apartments exceeds the quantity of clients. Consequently, the sales volume has decreased.
The number of clients is less compared to the number of apartments under construction. The GEL depreciation has nothing common with the sales contraction. Crisis is everywhere. Financial resources were retransferred from abroad too, plus bank loans. Credits are difficult to take because of LARI or because of salary amount. This is other side”, Irina Chekavina, a representative of the real estate agency of Galaga, noted.
Free money was mainly coming from abroad. Part of the consumers used to buy apartments through bank loans, she noted.
“There is a global crisis and the problem derives from not only Georgia. Many people used to come to us from Europe, the USA, and Russia. Even now Russians have come. In 2016 the sales volume will decrease. The apartment prices will also diminish, because the demand contraction results in the price slowdown. I think the earlier prices were even exaggerated”, Chekavina noted.
IGA Group financial manager Shota Gujabidze also points to stagnation signs in the development sector.
“Stagnation is evident and the GEL exchange rate depreciation has largely driven this process. In general, stability to similar shocks is characteristic to the development market. For example: In 2014 the GEL exchange rate collapsed from about 1.72 point to 1.86 point, but in this period the real estate market growth lasted anyway.
In 2015 the GEL exchange rate depreciated from 1.88 point to 2.45. The market could not withstand such press and the USD rate strengthening resulted in downturn in prices. At this stage, prices have collapsed and we do not expect the situation may change in the near future.
“Even more so, this year parliamentary elections will be held and the economic situation and the real estate market will not be balanced before announcement of the election results”, Gujabidze noted.
Archil Gachechiladze, the chairman of the Galt & Taggart supervisory board confirmed that the supply to the development market has decreased and the process may go on further. Today, a major part of developers own their own capital. Therefore, it is less expected that the development companies start trying to get rid of their apartments.