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Higher Fees on Building Licenses Will Raise Real Estate Prices

The Georgian Parliament is preparing to discuss a legislative initiative by the ruling Georgian Dream coalition. If the parliament adopts the bill under discussion, building license fees will rise several times over.

Amendments to local fees will be made. The bill was developed by Tbilisi City Hall and the document was submitted to Parliament by MPs Zaza Gabunia, Gocha Enukidze and David Songhulashvili. The building license cost, under the new regulations, will vary.

Under the laws, the fee will not be calculated by a project’s space, but it will be based on a development intensity coefficient (k-2). As a result, the building license fee will be determined in different ways in various spaces.

For example, under the amendments, if the project does not include the development intensity coefficient (k-2), the fee for the second-category building must not exceed 50 GEL, the third category will be 200 GEL and the fourth category will be 400 GEL.

Additionally, the bill sets new fee amounts. The fee for each square meter of development intensity coefficient (k-2) should not exceed 4 GEL, while in a resort zone the fee for building industrial facilities must not exceed 5 GEL.

Under the amendments, the fee for each linear meter of a project must not exceed 1 GEL in the case of a linear building construction.

As to the bill’s effect on the budget’s revenue part, the municipal budget will accumulate an additional 10-15 million GEL from the licensing fees.

According to the bill’s authors, in 2017 revenues from the building license fees totaled 4,908,048 GEL, and in 2016 were 3,948,910 GEL.

Meanwhile, developers have questions for City Hall regarding toughened sanctions and regulations, said Tornike Abuladze, executive director of ARCI.

“Previously, the building license fee for constructing a 10-floor building was 500 GEL, while the bill raises this sum several times. I agree with City Hall that 500 GEL is an inadequate amount, but we should not fall into another extremity. According to unofficial information, this amount will grow to 10,000 GEL,” Abuladze said.

In this situation, developers are interested in the quality of services the city government will provide in exchange for the fee changes, Abuladze said.

“When two persons visit a restaurant and receive a bill for 25 GEL, they pay less attention to this bill, but if the bill amounts to 300 GEL, they are expected to examine details. The same principle works in relation to the development sector. We are interested in what services we will receive and whether quality of services will be improved. City Hall should answer these questions,” Abuladze said.

Today, protraction in issuing building licenses is a key problem in the sector, he said, and focused on system corruption at City Hall. There are two ways to receive services at the City Hall – standard and accelerated formats, according to Abuladze.

“The format of accelerated services enables a person to receive answer in two days instead of 21 days. The system has the following problem: those officials who are obliged to prepare these documents have to meet very strict hourly deadlines and they receive bonuses or any compensation for that. Consequently, any official application with accelerated procedures is a serious burden for them. They have to work till night, frequently, they cannot visit their families and they receive no bonuses. As a result, we receive low-quality services. If City Hall releases a statement that higher fees will make the system healthier and increase service quality, this would be acceptable to everybody,” Abuladze said.

Regarding these upcoming regulations, Caucasus Business Week has interviewed representatives of development companies:

Malkhaz Kunelauri, a project manager for Redco Development Company, said that the new regulations will be beneficial for the budget, but will bring additional burden to the taxpayers. “Fines have risen in various directions for violation of projects and this regulation will be a serious burden,” Kunelauri said.

Higher license fees will not raise prices, but there are many other components in the development sector that may drive a rise in prices on real estate. Many other regulations were introduced recently, and fines have increased from 4,000 GEL to 20,000 GEL.

“It should be also noted that recently the Georgian Lari has depreciated and all these factors may rise apartment prices,” Kunelauri said.

Bezhan Tsakadze, founder of GDG+ Development Company, said that these government regulations will bring very extreme outcomes. Any regulations in the development sector will raise prices, but this should happen, because Georgia has the lowest real estate prices in the region, he said.

“Quality must not decrease, and increasing prices are an ordinary event. The Tbilisi mayor has also said that the facades of all new buildings must be coated. This requirement will raise prices significantly. I agree with this decision, too. The buildings without coated facades must be repaired anew in four or five years, because of the low-quality materials used. Of course, coating facades will also raise prices,” Tsakadze said.

Taking into account all regulations, apartment prices will definitely increase in the near future, he said.