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Understanding the Real Estate Index

Real Estate Market Lab (REM Lab) is a joint project of TBC Bank, ISET Research Institute and JumpStart. The goal of the project is to research and analyze the Georgian Real Estate Market on a regular basis.

Three publications have already been published as part of the project three publications. The reports describe in detail the real estate index of Tbilisi districts and review the Tbilisi real estate market according to residential and commercial property. The research includes property for sale as well as for rent and lease.

Head of TBC Bank’s Collateral Management and Evaluation Department Vladimer Magnaradze provides a detailed overview of the Tbilisi real estate market in the following interview.

– What are the latest trends in Tbilisi real estate market according to the latest research?

– The latest publication describes the conditions in the commercial and residential real estate market conditions as of October 2016. I will elaborate on the main trends:

In October 2016, 3199 transactions were made on real estate market, a drop of 4% compared to the previous month. Despite the small reduction in market activity, the number of real estate transactions increased by 43.5% compared to the same period last year.

Tbilisi’s share in country-wide property sales decreased insignificantly (by 0.2%). In the capital, most transactions were made in Saburtalo (675 transactions, 21.1% of Tbilisi sales). Vake (559 transactions, 17.5%) and Samgori (352 transactions, 11%) come in second and third respectively, based on the volume of sales.

In January-October of this year, the volume of new real estate listings (number and volume of finished constructions) significantly increased in the Tbilisi real estate market. In a 10-month period the number of the new buildings increased by 53.6% compared to the same period last year, reaching 605 units (480 residential and 125 commercial property listings). In the same period, the number of new buildings increased by 74.2% compared to last year, equaling 1 202 828 m² (990 129 m² of residential property, 212 699 m² of commercial real estate).

In October sales and rentals in the residential real estate market decreased by 3.3% and 4.9% respectively compared to the same period last year. In addition, the average purchase price for 1 m² in the residential real estate market was 877 USD, the average rental price was 7.41 USD per m².

In the same month, the number of sales and rentals in the commercial property market decreased compared to last year (11.1% and 13.7% respectively). The sale price of 1 m² of commercial real estate was USD 1 133, and the rental price was 10.22 USD per m².

– Where are the highest and lowest real estate prices in Tbilisi? Did the price levels during 2016?

– We only study the average sales price in Tbilisi districts in the residential real estate sector. The price of residential property is the highest in Mtatsminda district (1 m² – 1034 USD, 10 month average), during 2016 prices in this district varied from USD 991 to USD 1069. The price on residential property is the lowest in Samgori District (1 m² – 547 USD, 10 month average). The prices in this districted varied from 520 USD to 573 USD. During the year Mtatsminda remained the most expensive district, while Gldani was occasionally less expensive than Samgori.

– As we know, this is the only study of its kind in the Tbilisi real estate market. Where did the idea come from?

– As you know, there was no regular research and analysis of the real estate market in the country. TBC Bank needed detailed statistical date about this market to effectively determine and implement its collateral management policy. For this reason the bank (as well as other banks) used to hire various companies to occasionally prepare real estate market studies.  It is absolutely necessary to feel the pulse of the market to make fast and correct business decisions, however, this needs to be done on a regular basis rather than occasionally.

This was the main reason REM Lab project was initiated. The project is based on a memorandum of cooperation between TBC Bank and ISET and focuses on regularly researching and analyzing the real estate market. In addition, TBC Bank decided that the implementation of the project could benefit not only the bank, but also anyone interested in the news and trends of Georgia real estate market.

– How important is the regular study of the real estate market for business, and in general, the economy of the country?

– The goal of the project is to increase the effectiveness of the banking sector and strengthen collateral management. However, the regular study of the real estate market serves a wider, more global objective as well. Georgian businesses and foreign investors (developers and others) require an accurate picture of the market to make business decisions. Investment in a market for which there is no statistical data or the date is scarce, creates significant business risks and can even hamper business ventures. Research, analysis and the availability of accurate data is necessary for the development of business and economy of the country in general; it also serves to encourage further growth. Accordingly, REM Lab contributes to the development of the real estate market. In this way, this is beneficial to not only business, but also to the state and any interested citizen.

– What does the real estate index mean and how is it calculated? To what extent do you use international research practices in your research of the real estate market and what sources of data do you use?

– As you are aware, the real estate market index accurately reflects changes in real estate prices. The average price (price per m2) does not show the net price change. For example, the average price increases if more expensive properties (in the best locations, with renovation) are sold in a particular month than in the previous month. However, this does not imply that real estate prices have increased in general. The real estate index measures the increased in the net price compared to the base period (April 2015), excluding the variable of the property quality.

Real estate indices include sale index and rent/lease index. To determine these indices we observe only typical real estate property in Tbilisi. The study processes the transactions for the sale, rent and lease of commercial and residential property.

Internationally, for the observation of real estate market prices, the Laspeyres, Paasche and Fisher indices are used. Our project follows this practice, and uses the Fisher index – a geometric average of Laspeyres and Paasche indices – to calculate the real estate index. More detailed information about the research methodology is included in our reports, which is available for any user.

As for the data source, data for the real estate index (about 10 000 announcements) is received monthly from one of the largest real estate web pages in the country and processed.  Additional data is taken from the National Agency of Public Registry and Architecture and Supervision Department of Tbilisi City Hall.

– Are there any new developments planned for the real estate market study in the near future?

– Currently we produce a real estate market index for Tbilisi districts based on the sale and rental of residential and commercial spaces. We publish the sales and supply statistics on real estate. However, this data is only available for the capital. In the nearest future, we plan to expand the geographical scope of our research and analysis, and add real estate market indicators that will provide a comprehensive picture of market trends.