The impact of the Ukrainian war on the real estate market in Georgia

How much does an apartment cost in Tbilisi? The Russian-Ukrainian war has radically changed the Georgian real estate market. The arrival of thousands of citizens from Russia and Belarus, in particular, has significantly increased rental prices - compared to last year, rents have risen by 210%. Sale prices have also increased. REUTERS / David Mdzinariashvili

Dry Bridge

This is a place in Tbilisi where realtors and their potential clients have been gathering for several decades. People meet here daily to rent, sell, or buy property. Discussions about trends in the Georgian real estate market are usually actively held here. However, nowadays, most people use popular real estate websites and turn to companies for property transactions, but there is still a lack of clients on the bridge.

"Prices are rising every day."

“Prices are rising every day. Remember, someone who was an immigrant sold an apartment on Shanidze? The price went up by $10,000 in a month.”

“I called one of them and said that I had a client ready to pay $25,000, and he yelled at me and asked for $52,000. I recently sold an apartment with the same design in the same building for $38,000.”

“It’s madness, too expensive, they want unreal amounts.”

"This woman is looking for an apartment for her student son and nephews for $300, but she can't find one, poor thing."

“I don’t even remember when I rented the apartment to Georgians, all Russians, Russians,” the realtors say to each other.

Arrival of Russian citizens

A couple speaking Russian is approached by "stock brokers." Since the beginning of the war in Ukraine, 1,456,014 Russian citizens have entered Georgia. Only in September, after Putin announced mobilization, 222,274 Russians entered Georgia.

“I rented an apartment at the beginning of October. In the evening, around ten or eleven o'clock, I posted an ad, and by nine o'clock the next morning, it was taken down, and for 200 dollars more,” says Nuca, the owner of the apartment on Politkovskaya Street in Saburtalo, Tbilisi.

Russians mainly look for rental apartments, but realtors say that some are interested in buying. The newspaper "Batumelebi" published data from the National Agency of the Public Registry, which states that from March 1 to October 12, 2022, Russian citizens purchased 2,964 apartments and 37.9 hectares of land in Georgia.

Difficulties for local residents

Local residents can no longer afford to pay rent. A Russian-speaking couple, Igor and Liza, approached the realtors at the Dry Bridge. They arrived in Georgia in September. Liza, 31, is an architect, and Igor is a communications specialist currently working online for Russian companies. As long as they have the opportunity to work remotely, they plan to stay in Georgia. In September, they rented a room in a private house in the central area of Vera. It costs $1,000, although they do not have a separate kitchen, so the couple decided to look for a new apartment.

Igor says that his friend from Moscow bought an apartment in Kobuleti and moved there. "Many are already doing this. At first, he was renting too, but if you calculate the monthly expenses, it's more profitable to buy, and the buying process is also simple. He saved up some money and bought it because he plans to stay in Georgia. At this stage, we can't buy - we don't have the money, and we can't make plans for the future. We're just trying to find a better apartment," he says.

Challenges for students

A young woman approaches the stock brokers: "Who has an apartment for rent?" she asks, but the question goes unanswered. "There are no apartments," mumbles one of the brokers. "Really, there are no apartments for rent?" I ask suspiciously. "There really aren't any right now," one of the realtors replies.

After a while, three more young men approached. Their story intrigued me. Previously, all three rented apartments separately, but now they would have to share the expenses for one apartment among themselves. "We searched a lot on websites, but the prices are terrible and there are no apartments available." "We are from Kakheti. Earlier, in Tbilisi, you could find an apartment for 300-400 lari [about 110-150 dollars], but now they cost at least a thousand. An apartment that used to cost 500 lari will now cost 1,500-2,000 lari [about 550-730 dollars].

Real estate market prices

Realtors we are talking to say that while rent in the city center was rising, prices have now increased in the suburbs as well. Renting an apartment in the center has become a luxury for Georgians. "People with average incomes, who had decent jobs, vacated their apartments in the center and moved to the suburbs because landlords raised the rent. But now prices have gone up in the suburbs too," says Gia, a realtor.

How much does an apartment cost in Tbilisi? Tatia Sesadze had a small private house in Tbilisi that she sold at the beginning of the year. Her plan was to save money and buy an apartment in a building under construction by summer. Tatia has her own small business - an online store. "Since then, everything has changed so much that I just can't find anything. I can't even continue saving money. It's impossible to buy; prices are so high. There's no housing that costs less than a thousand dollars per square meter. Do you know why people are leaving the country? The first reason is that they want to buy a house but can't afford it; their income is not enough. This is due to rising prices and low salaries here. Georgians have never been able to afford to buy a house on their salary. Now it's even more so," says Tatia.

The rising trend in real estate prices has been analyzed since the beginning of the pandemic. However, the price increase has not hindered sales; on the contrary, demand and sales have increased. According to a study by the real estate company TBC Capital, the purchase price of real estate has risen by 28% compared to last year, and the upward trend continues. According to this company's research, the average selling price per square meter of real estate in Tbilisi in October increased by 7.2% compared to September and by 28% compared to last year, reaching $1,037 per square meter. Rental prices rose by 120% in October compared to the same period last year and by 24.9% compared to September, amounting to $11.2 per square meter. The authors of the study believe that the second wave of migrants influenced the sharp price increase in October. A total of 452 apartments were sold across the country in October, which is 34% more than in the same period last year. According to TBC Capital, real estate prices in October rose most significantly in the central districts of the capital - Mtatsminda and Saburtalo by 38-35%, and in Nadzaladevi by 23%. The most expensive apartments increased in price not in the center (where they were already very expensive), but in the suburbs - Didi Digomi, Gldani, and Samgori.

The rise in prices in the market is linked to several factors, says Georgy Nizharadze, a senior researcher at the real estate, research, and investment company TBC Capital: "Firstly, there is the increase in the price of construction materials. Since the beginning of the pandemic, the construction cost index has risen by 15-20%. The second factor is the strengthening of the lari against the dollar. Over the past six months, the lari has appreciated by 10-15%, and according to our research, the exchange rate affects the price by about 50%. This means that the strengthening of the lari increases the price in dollars, while the devaluation of the lari decreases the price in dollars; the price of apartments in our country is stated in dollars, so this has an impact."

Regarding migration, according to Nizharadze, Russians and Belarusians arriving in the country at this stage have had a significant impact on the rental market; high demand has made renting more expensive. "However, in terms of residential real estate, migration has not yet had a direct impact here, because the share of apartments purchased by foreigners is lower than the share of rentals."