As it seems, nowadays, Georgian consumers do not care of real estate. Reasons of this are abnormal prices on real estate and non-granting of bank loans.
As a result, construction sector doesn’t manage to recover from crisis. If it continues this way, it might not even happen at all. At present, 80% of liabilities of construction companies are not fulfilled, while projects planned for 2-3 years are actually stopped.
The great number of unused commercial areas proves the abovementioned. Despite low prices, offices are not rented. The demand has significantly decreased. The boom of commercial offices started in 2006 and lasted until summer of previous year. The prices of offices for rent and for sale were increased catastrophically. Quite often construction companies or private individuals were setting $3500-2500 per square meter. Despite such high prices, nobody was claiming lack of clients. The situation has changed sharply. Today there are plenty of offices either for rent or for sale, but there are no buyers. Experts reckon that if economy doesn’t revive, even 70% discount might be anticipated. Not only Georgian, but also Azerbaijani construction business has huge problems. Local Real Estate Association declares of big slump in Azerbaijani construction business. According to the data given by the organization, in the first quarter of 2009 turnover at Baku real estate market has decreased by 40% compared with the same period of previous year. In 2008, the number of closed deals in a month was 4.6-4.7 thousand, while at present the number has decreased to 3.5 thousand. Annual data shows that the prices are reduced by 20-23%. Last year 25-30 development projects were being delivered monthly, while only few projects are turned over for operation this year.
Construction business was one of the driving engines of Georgian economy. Therefore, its recovery is especially important. Not only construction companies but also governmental or non-governmental, donor organizations are trying to find the way out of crisis. On initiative of Chamber of Commerce a plan has been drew up. Tbilisi Mayor’s office should establish special fund that helps developers to complete projects. Developer companies are requesting 300 million GEL for project accomplishment. On their hand, developers will make the completed projects over to Tbilisi residence fund. Thus, Mayor’s office will have opportunity to provide with apartments those citizens who live in damaged houses and use the territory for investment attraction. In case if Mayor’s office approves the project banks will issue loans. However, the program is in the process of elaboration and the details will be published lately. The program implies tight long-term cooperation between developers, banks and Mayors’ office.
Foreign donors are accentuating importance of real estate market for Georgia. They will assign bailout for Georgian developers. On 8th of May construction company Iberia and OPIC signed the bailout document. OPIC representative Kenneth Angel declared: “USA government on behalf of agency OPIC continues to support Georgian economy. Georgia is considered as the country of high-priority. Several fields are of special interest for OPIC: financial sector, tourism, mining industry and real estate sector. We reckon that real estate sector will play major role in stabilization of economy. This business sector creates multitude working places; therefore helping this sector in some way means to solve social problems”.
Ten million US dollars will be spent for accomplishment of four projects of the company. These are: apartment buildings – at 73 Abashidze St, 13 Radiani St, 7 Kipshidze St and dwelling complex in Bagebi – Iberia Hills. The mentioned 10 millions represent separate financial resource especially for Iberia and they are not connected with the $176 million assigned after August war by OPIC. Part of developers seeks different ways out of crisis. For instance, Centre-point management plans to follow Singapore’s example and put into practice barter exchange. This means that the company is bartering armoured concrete for the rest of areas; the sum gained from consumers is spent for payroll payments. The company declares that Singapore practice shows that 20% of companies are making barter exchange and their business is running successfully. Part of the experts and construction companies do not agree with this opinion. Some of the experts reckon that if barter widely spreads this will be disastrous for the economy. It just prolongs the process.
Prices sharply fell on country cottages and steadings. The price reduced by 50% and yet consumer activity is not observed. Everybody prefers to wait for even more price reduction. However, experts reckon that if one desires to purchase real estate it is just the right time for doing this. Experts do not anticipate price reduction in the future. I wonder who would buy real estate in times of hard economic situation in the country. Many people are jobless and some of them do not even have subsistence minimum, nothing to say of buying country cottage or land.
Minister of Economic development of Georgia Lasha Jvania spoke at the opening of 14th international exhibition of interior and construction materials held at Expo Georgia exhibition centre. Lasha Jvania called representatives of small and average businesses and citizens for purchasing cheap construction materials and developing new projects. Minister emphasized that prices on construction materials are reducing due to economic crisis.
The slump will be followed by ascension, so the prices will increase at least by 30% in the same period of the next year. – said the Minister.
“To my mind we should use crisis in our favor and purchase construction materials now when the prices are so reduced” – declared Lasha Jvania.
More than 120 companies from 14 countries were presented at the exhibition held on 20-23 of May. Together with the companies from Georgia, there were presented various firms from USA,Germany, Great Britain, Estonia, Turkey, Israel, Italy, Lithuania, Poland, Ukraine, Finland, Sweden and Switzerland. The companies were offering broad spectrum of construction materials and accessories to the consumers.
We interviewed representatives of several companies. Inquired how far current global financial crisis influences construction materials business and what are the methods of fighting against it.
Manager of the company GRC Lasha Labadze: GRC is completely Georgian company. We operate on market since 1999. Our company is a dealer of such companies as Rusian Technonikol, Danish concern Nikopan that owns factories all over the world, German Basv, Finnish Velkman and leading steel producing company Arselormital. Main direction of our production is roof insulation materials, thermal insulation systems etc.
– How current financial crisis influences your sales?
– Naturally, due to economic crisis, sales have decreased in every company, especially in recent months. However, our management achieved to minimize losses approximately to 5%.
Marketing manager of the company Interplast Aleksey Stroganov spoke with us.
– Our company was established in 2007. We can declare without hesitation that our factory produces most wide assortment in Southern Caucasus. We are producing any type of construction materials, started from plastic pipes, and finished with doors and windows. It should be noted that the company is founded with Georgian capital.
– Do you export you products?
– Of course, we started to export in 2007. We are exporting polyethylene pipes to Armenia. We also are working to enter Ukraine market. Some negotiations are in the process and soon I hope we manage it.
– Have the sales decreased due to global financial crisis?
– Naturally, crisis influences every business. However, the condition that state is actively financing water supply system replacement projects is playing major role. Therefore, there is good demand on our production. The companies that conduct repairing works are satisfied with the price and quality of our production. We have a competitor factory in Armenia. However, to my mind we exceeded them with the quality and price of our production. Anyway, we can easily compete with imported products in Georgia.
– Broad spectrum of timber materials and timber processing technologies were presented at fourteenth exhibition of interior and construction materials in Expo Georgia.
Marketing manager of the company Wood Service Archil Papava:
– LTD Wood Service was founded in 1999 in Tbilisi. The company is operating in timber processing field. The company’s foundation was preceded by long-term work of initiative group. We studied local sales market and timber producing/processing modern technologies. Our company was one of the firsts which implemented producing of wooden window and parquet in accordance with European standards. Our company is exclusive representative in Georgia and in Caucasus of many world leaders such as Diotrol (exterior oils, Switzerland), Laegler (Parquet facing devices, Germany). Besides, Wood Service has become exclusive distributor in Caucasus region of British corporation Arch Timber protection. The company is a world leader in the field of cortex long-term conservation. Wood Service is excusiev representative of Mitek in Caucasus region. Several projects have been accomplished with the use of Mitek framework construction projecting, producing and mounting technologies.
– We import foreign raw materials that are processed and finalized in Georgia.
– Do you use Georgian materials?
– No we don’t. Georgian raw materials are of low quality if compared with the ones that we import from abroad. In addition, we always have to check the quality of used materials by means of special devices. Unfortunately, it is impossible to do this in Georgia, as there are no such devices.
– What can you say about global financial crisis and its influence on your company?
– Our company is working in two directions. First, we sell the products that might afford only the part of the society with high-income rate. As the crisis had less negative impact on them, we continue operating in this direction. Second, these are mass construction products of big importance. Of course, the processes are slowed down. Many projects are stopped. However, it is very important that the funds assigned by donor organizations ensure increase of sales for us. For instance construction of 300 houses for IDPs. We are making roofs for these constructions. The project is financed by German government. There are other similar projects. Thus, despite economic crisis, our sales have increased this year.
Giorgi Sikharulidze, founder of Viva Plastic: We represent two companies at the exhibition. These are Viva Plastic and Kaori Group. Viva Plastic is mainly oriented on the production of metal-based laminate doors and windows and its accessories. Kaori Group is a construction company that mainly builds hotel type houses in resort zones. We use imported materials for production of metal-based laminate products. Our providers are from Germany, Austria, Ukraine, Poland and Turkey. For instance Austrian company MAKO is one of the leading producers of metal based laminate products. The company is our partner and participates in the exhibition. We also represent German company Salamander and Komeli. These companies are producing metal-based laminate profiles of doors and windows.
– How far has economic crisis influenced company’s sales and prices?
– Obviously, the sales have decreased. Construction business is experiencing hard times. Thus, sales in construction company are more reduced than in the company producing metal-based laminate. We are acting more aggressively in the times of crisis. We try to offer flexible payment system. As the banks have fully stopped installments, our company has implemented the system of inner installments selling. We try to study consumers’ credit history ourselves and define their solvency. Furthermore, we are carrying out advertising campaign even more aggressively than before crisis. The price reduction is more connected with oil prices decrease rather than with crisis. Metal-based laminate is mainly produced after oil product processing. Consequently, oil price reduction caused reduction of metal-based laminate products. In addition, we have 15% discount due to crisis.
Sales manager of Knauf Levan Jafaridze: “Our main product is gypsum plasterboards and related systems, profiles, crack fillers both for inner facings and facades. Knauf is a German company, but it has factories in various countries. We are supplied from Ukraine and Turkey, but Knauf has already purchased factory in Tbilisi and at the end of this year gypsum plasterboards production will be started in Georgia. At the initial stage, we will import materials from Azerbaijan, as there is not enough number of gypsum of high quality. As regards economic crisis, naturally it influences our business also. Whole construction business is in crisis and almost every big project is stopped. This is in direct connection with the production of construction materials. To my mind, price reduction is not the way out. We try to improve our service quality and as everybody else we are waiting completion of crisis period”.
Communication manager of Heidelberg Cement Caucasus, Nino Subeliani: “This is well-known international company among construction materials producers in the world. The main produced product is cement, but also produces concrete. Company entered Georgian market in 2006. The cement production in Georgia began in 2007. Company modernized Saqcement’s two factories. These factories meet world standards especially from ecological point. Company also manages Rustavi cement factory. These three factories produce 2 million tons of cement annually. The crisis had its impact on our company also. We had to reduce prices by 20%. Sales are reduced either, due to world economic crisis. Reduction is significant, but not alarming.
This is the brief picture of Georgian real estate and construction materials markets. Representatives of many companies noted that influence of crisis is not so major. However, it is hard to believe. Obvious proof of this was the lack of construction companies at the exhibition. They are the main consumers of construction materials. None of major developers was attending the exhibition. This once again proves that real estate in Georgia is experiencing hard times.