Strong demand and limited supply
Lalaine C. Delmendo | March 14, 2022
During the year to Q3 2022, the overall residential property price index rose strongly by 10.7%, up from year-on-year increases of 4.5% in Q2 and 3.4% in Q1, based on figures released by the National Statistics Office of Georgia (Geostat). However when adjusted for inflation, prices actually declined slightly by 0.8% over the same period.
On a quarterly basis, nationwide residential property prices increased 3.2% (2% inflation-adjusted) in Q3 2022.
By property type:
- For flats, prices rose by 10.9% (-0.6% inflation-adjusted) in Q3 2022 from a year earlier, following y-o-y increases of 8.2% in Q2 and 4.5% in Q1.
- For detached houses, prices were up 10% (-1.3% inflation-adjusted) y-o-y in Q3 2022, after falling by 3.5% in Q2 and increasing slightly by 1% in Q1.
In Tbilisi, Georgia's capital, residential property price movements vary considerably per district and property type. For flats, Mtatsminda saw the biggest y-o-y price growth in Q3 2022, at 20.6%, followed by Vake (14.3%) and Nadzaladevi (6.9%). Modest to minimal price increases were seen in Saburtalo (4.8%), Samgori (3.2%), and Isani (0.2%). In contrast, prices of flats declined in Gldani (-10%), Krtsanisi (-9.9%), Didube (-3.9%) and Chughureti (-3.2%).
For detached houses, on the other hand, Didube registered a huge price increase of 40.4% y-o-y in Q3 2022, followed by Samgori (26.1%), Krtsanisi (22.9%), Isani (13.3%), Gldani (11.1%). Single-digit price rises were recorded in Saburtalo (8.2%), Nadzaladevi (4.2%), and Mtatsminda (1.6%). House prices fell in Vake (-8.6%) and Chughureti (-1.5%).
Mtatsminda remains the most expensive district in Tbilisi, with the average price of flats and detached houses at GEL 4,931 (US$1,798) per sq. m. in Q3 2022, according to Geostat. It was followed by Vake, with an average flat price of GEL 4,129 (US$1,506) per sq. m. and detached house price of GEL 3,208 (US$1,170) per sq. m.
Overall, the residential real estate market is expected to continue growing robustly during the full year of 2022, despite the Russia-Ukraine war. Residential property prices will rise by 11% while transactions will increase by 14% this year, said Irina Kvakhadze, Head of Research at TBC Capital.
“The Russian-Ukrainian war changed our predictions. According to our current scenario, Russia is not completely sanctioned and it still manages to generate revenue, makes energy exports. Against this background, according to the research forecast, in 2022 we will have an 11% increase in prices on the real estate market. As for transactions, a 14% increase will be observed in these directions. All this will increase the real estate market by 26%,” said Kvakhadze.
During 2021, Georgia's economy grew strongly by 10.4%, fully offsetting the 6.8% contraction seen in 2020 due to the Covid-19 pandemic. The country's economic recovery continued this year, registering annual real GDP growth rate of 14.9% in Q1 and 7.1% in Q2 2022. As such, the Asian Development Bank (ADB) recently upgraded its 2022 growth forecast for Georgia to 7%, from its earlier estimate of 3.5%. It also raised its 2023 growth projections 5% to 6%.
The International Monetary Fund (IMF) is even more optimistic, projecting a 9% growth of Georgia this year.
Analysis of Georgia Residential Property Market »
Georgia’s new tax code is in effect since January 2011
Rental Income: Nonresidents leasing out residential property may be taxed at a flat rate of 5% on the gross rent.
Capital Gains: Capital gains realized from the sale of a residential apartment or house with attached land plot is taxed at a flat rate of 5%.
Inheritance: First and second degree relatives are fully exempt from inheritance taxes.
Residents: Resident individuals are taxed on their Georgian-sourced income at a flat rate of 18% for 2013. The income tax rate will be reduced to to 20%.
Georgian economy bounced back quickly
In 2021, Georgia’s economy grew strongly by 10.4% from a year earlier, fully offsetting the 6.8% contraction seen in 2020 due to the Covid-19 pandemic. The country’s economic recovery continued this year, registering annual real GDP growth rate of 14.9% in Q1 and 7.1% in Q2 2022. The slowdown in Q2 was mainly attributed to the fallout from the Russia-Ukraine war since Georgia has close economic ties with both countries.“Georgia has seen significant growth in tourism and exports which indicates that the country is overcoming the adverse effects of the pandemic,” said ADB Country Director for Georgia Shane Rosenthal. “ADB supports Georgia’s infrastructure and social development to lower market access costs and improve economic opportunities. Georgia could also benefit from ensuring a conducive business environment to attract sustained investments, and promoting technology and innovation in the business and agriculture sectors.”
Recently, the Asian Development Bank (ADB) upgraded its 2022 growth forecast for Georgia to 7%, from its earlier estimate of 3.5%. It also raised its 2023 growth projections to 6%, from 5%. The International Monetary Fund (IMF) is even more optimistic, projecting a 9% growth of Georgia this year.
Before the pandemic, the economy has been expanding by an annual average of 4.9% from 2010 to 2018.
Fiscal deficit is projected to fall to below 4% of GDP this year, down from 6.1% in 2021, thanks to solid economic growth and the easing of pandemic-related measures. Likewise, public debt has declined from about 49.5% of GDP to 47%, indicating partly reduced public borrowing, according to the ADB.
Inflationary pressures is now decelerating. In October 2022, overall inflation stood at 10.6%, down from 11.5% in the previous month and 12.8% a year earlier, according to the National Statistics Office of Georgia. From an annual average of just 2.9% in 2011-20, inflation surged to 13.9% in 2021, amidst a sharp increase in transport costs, and food and commodity prices.
Nationwide unemployment fell to 18.1% in Q2 2022, from 19.4% in the previous quarter and 22.1% a year ago, based on figures from the National Statistics Office of Georgia (Geostat). The overall jobless rate averaged more than 22% in the past decade.
The total number of unemployed also dropped by a huge 18.3% y-o-y to 281,600 people in Q2 2022.