De-dollarization has been one of the main challenges for the Georgian real estate market in 2017. Following the devaluation of the Lari in 2016, the government of Georgia and the National Bank of Georgia (NBG) jointly designed a plan of ‘Larization’ of loans.
The relevant legislation came into force on 1 January 2017. It aims to reduce the dependency of the financial sector and the wider population on the US dollar. Based on the legislation, the price for each item or service sold or advertised must be stated in national currency. If it was the case earlier that customers paid for property or related services in foreign currency, they now pay in the same currency that they receive their salary in, ie. the Lari. This significantly reduces the risk of dependency on the exchange rate of the dollar. However, the pricing of real estate in local currency has also had negative assessment from some quarters, as it created the expectation of artificial price hikes due to the Lari’s instability. Property owners are creating financial cushions to insure themselves against currency fluctuations.
According to NBG’s official statistics, as of 1 September this year, ₾5.705 billion has been taken out by individuals in mortgage loans, of which ₾1.7 billion is in national currency. The Larization coefficient is 29.1% (compared to 26% in March 2017), meaning that 71% of the portfolio is dollarized (compared to 81% on 01.09.2016). The coefficient has fallen by ten percentage points year-on-year (-14%). A total of $78.7 million within the sector has been converted into the national currency within the framework of the Larization programme (17.01 – 25.03).
Based on the National Bank’s monetary policy report for November, the Lari’s exchange rate against the US dollar in the third quarter of 2017 fell by 0.1% compared to the previous quarter. During the same period, the Lari’s nominal effective exchange rate depreciated 2.4% m/m and 1.8% y/y. The real effective exchange rate in the third quarter of 2017 depreciated 3.4% m/m and 1.7% y/y.
Under the circumstances of Larization, there has been an impressive growth in real estate transactions. Based on the official data from the National Agency of Public Registry, the number of real estate registration transactions in October 2017 increased by 47.8% compared to the same period a year earlier, and amounted to 84 710 units across the country. The equivalent figure for October 2016 was 57 329 units. The number of primary registration transactions increased by 76.4% compared to the same month of the previous year, while the number of secondary registration transactions increased by 37.4%. The number of primary registration transactions in October 2017 was 26 817 units, of which 20 104 were for the registration of rights within the framework of the state project. The number of secondary registration transactions was 57 893, of which 10 062 were for registration of changes within the framework of the state project, while 5 901 were for termination of registrations within the framework of the state project.
The monthly index of primary and secondary registration transactions was 2.423 and 1.867, respectively (December 2010=100). The share of primary transactions within the total number of registration transactions increased compared to the same period a year earlier: in October 2017, 68.3% of registration transactions were secondary transactions and 31.7% were primary transactions, while the figures for October 2016 were 73.5% and 26.5%, respectively.
The number of registration transactions in October 2017 revealed the top ten of territorial units, as well as the rising/falling trends in these numbers compared to the previous month and the same month of the previous year.
Against the background of constant challenges, the hotel and restaurant sector – currently one of the most active in Georgia – has been developing dynamically. According to preliminary data from the National Statistics Office of Georgia, in the third quarter of 2017 the hotel and restaurant sector accounted for 2.6% of the country’s GDP, ranking 9th with a total of ₾273.7 million, which constitutes a 12.6% growth compared to the same period in 2016 (₾224.8 million). Real estate transactions, leases and customer service, which represent 7.1% of the GDP and rank 13th, have registered a 6.3% growth. The construction sector ranks 6th, accounting for 10% of the GDP with ₾195.0 million, which constitutes a 9.3% decrease compared to the same period in 2016 (₾208.7 million).