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How to Safely Invest in Georgia through Real Estate

By

Georgy Tsaguria

Posted

February 05, 2022

at

06:52 AM

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Georgia is one of the most attractive post-Soviet countries where foreigners buy real estate: land plots, private houses/villas, apartments, commercial spaces, townhouses.

Investing in Georgia through real estate is becoming more and more popular over time, with a lot of our clients.

How to Safely Invest in Georgia through Real Estate (Tbilisi/Batumi)

Mainly, investments are being made in Tbilisi homes, Batumi apart-hotels and hotels located all over Georgia.

In this article, we discuss the reasons for profitability of such investment and the procedures needed to buy a property in Georgia.

The first question arising is, can a foreigner even buy real estate in Georgia? the answer is yes, an alien does have a right to buy and own real estate in Georgia, but at the same time, Georgian rural (agricultural) land can not be bought by the person who does not have Georgian citizenship and this restriction applies even when a foreigner intends to own such land through a legal entity. You will find this issue discussed in detail below.

Advantages of buying Real Estate in Georgia:

First Reason to Invest in Georgian Real Estate: Georgia is a touristic country

Real estate’s prices in touristic countries is highly depending on tourists and Georgia for its small population has reached enormous results. In 2018 (before covid-19) Georgia hosted more than 8,5mln tourists, when Georgia’s population is around 3,7mln people.

Thus, during the peak numbers in tourism sector - the real estate’s prices were booming. Later - Georgian touristic economy had a major impact due to covid-19 restrictions. As the result there are many square killometeres of real estate built for hosting, but only 700,000 tourists visited Georgia in the first half of 2021. This means that the supply of the real estate currently exceeds demand and this creates an opportunity.

As in 2021 touristic industry is still down - demand on real estate is low. Lower demand - higher bargaining power for the buyers. Therefore, today’s Georgian real estate market creates a perfect opportunity to buy. Tourism will eventually recover over time - the real estate prices wil go up again and hopefully the numbers in next years will be higher than 2018’s statistics.

Low prices

The average cost of one square meter of living space, in big cities like Tbilisi and Batumi amounts to USD800. The price ranges between 500 and 1,500 USD. The price varies depending on location, the view from the property and condition of the living space. Some special apartments / villas may cost as much as USD2,500 per sq.m. and more.

Georgia’s average price per sq.m. for residential real estate is even lower than that of neighbouring Armenia’s, Azerbaijan’s and Russia’s.

Real estate of other types is also affordable, but is in less demand than the residential properties.

Second most important Reason to Invest in Georgia: Investment Climate

The Georgian government is making every effort to create comfortable conditions for foreign investors, simplifying the procedures for starting a business and buying real estate, reducing taxes and duties, as well as the burden of formalities in transactions.

All of these have influenced the prices of property overtime. Therefore, the cost of real estate grows gradually. However, during preparation of this article, Covid-19 pandemic still has a huge impact on the tourism industry which is crucial for the Georgian economy. Therefore, prices of rental properties are in the dip because of Covid-19.

Georgian apartments are rented out for short-term rentals for tourists and long-term rentals for locals.

Short-term rentals were making a whopping 10-15% return on investments for their owners. Today the rental market doesn’t have that number due to the lack of tourists, but long-term rentals were not that impacted. Still, we are positive that in the near future the tourists will be back which means that the prices and ROI will increase dramatically.

You may pay little taxes on real estate bought in Georgia

For the real estate in Georgia you have to consider following taxes that may be applicable:

  • Income tax (personal or corporate);
  • Value-added Tax;
  • Property Tax;
  • Tax on capital gain;
  • Dividend Tax (applies for corporations).
  • Notwithstanding the fact that there are many taxes applicable on holding a title, renting out and sale of Georgian property - our law firm can optimize and plan the tax burden in a way that either fully exempts you from all sorts of taxes and / or minimizes it.

The Georgian tax code suggests numerous exemptions and ways to minimize the tax burden, and therefore, to increase the ROI.

One of the ways to obtain residency is to invest in Georgia. Particularly, real estate in Georgia.

Purchasing real estate (except agricultural land) is one of the basis to obtain Georgian short-term residence (normally issued for one year) for an individual (subject to the possibility of expanding every year up to 12 years).

Such Short-term residence permit is issued to a foreigner who, on the territory of Georgia,, owns a real estate (except agricultural land) whose market value exceeds USD100,000.

An investment residence permit (which is issued for up to five years) can also be issued to a foreigner and his/her family members on the basis of property ownership with the value of at least USD300,000. After five years of holding such real estate, the alien will have the right to request permanent residency.

Where to invest in Georgia: Variety of choices

Tbilisi

Tbilisi has an international airport, it is the capital of Georgia, it has many malls, 1,5mln residents, comfortable weather all year round with a lot of sun, many universities, modern hospitals and infrastructure. Normally the first destination of tourists is Tbilisi. After all, Tbilisi is the touristic centre of Georgia. Tbilisi homes are the most in-demand real estate investment option between our clients.

Tbilisi is a destination for tourists 365 days a year, however the top season is summer.

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Tbilisi is a destination for tourists 365 days a year, however the top season is summer.

Kakheti

Two hours driving east from Tbilisi you are in the region of Kakheti. Cradle of wine-making. Thousands of hectares of vineyards, hundreds of wine factories / chateaus. City of love - Signagi; place of birth of wine - Alazani Valley.

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Kakheti is a destination for tourists 365 days a year, however the top season is also summer.

Gudauri

Two hours driving north from Tbilisi you are in Gudauri. Gudauri is most popular for its skiing tracks. It attracts hundreds of thousands of tourists from all over the world who are in love with skiing. Tourists are able to have high-class skiing trails, comfortable and cozy stay, glintwein out of Georgian wine and all these for affordable prices, compared to other similar places in neighbouring countries..

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Gudauri is a destination for tourists mostly during winter.

Bakuriani

Bakuriani is a Georgian touristic place mostly for locals. Georgians take their families to Bakuriani every year. Sometimes twice a year. It is a perfect place for skiing and snowboarding in winter. It is much more affordable than Gudauri, but it's skiing trails are more for amateurs.

Bakuriani is also attractive during spring and summer. Conifers are blooming in May. This process is good for health, especially for infants. Families bring their babies to breathe Bakuriani mountain air for weeks or even months.

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Therefore, Bakuriani is in-demand in Spring, Summer and Winter.

Batumi

Batumi is the most in-demand beach-resort in Georgia. More than 2 million people visited Batumi pre-pandemic.

Many people dream of having a house on the beach and Batumi gives the possibility to investors to buy apartments for a very low price. Buildings in Batumi become higher and cheaper. However, the supply of real estate in Batumi is far higher than the demand. Also, Batumi is in demand mostly in Summer only (May - September). Thus, some apartments in Batumihave never even been visited by a single tourist.

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Batumi is in-demand in Summer.

Other places

Georgia also has many other places which are just in the process of development / reconstruction. Real estate costs in these places are quite low, but all of them have great potential: Kutaisi, Zugdidi, Martvili, Gonio, Tskaltubo and many others.

Georgia has tons of health resorts (mineral, aerial, mud and other) that were very well developed during the Soviet-era, but were destroyed eventually due to the collapse of the country. However, as the economy of Georgia is growing up - over time, all of these resorts are reconstructed and attracting more and more tourists.

Therefore, separate interest of investors in Georgian property triggers hotels in these areas. Georgia is a touristic country, but many Georgian old resorts are left without attention. Over time all these resorts are taken care of. However for the moment, the most in-demand places for hotel management are two major Georgian cities: Tbilisi and Batumi.

Ease of registration for foreign citizens

The Government of Georgia has made the process of real estate purchase and ownership registration as convenient as possible. You do not even need to visit Georgia physically. All can be done by the properly issued power of attorney. Even a passport copy is not required.

As for timing - the property can be registered (if paid a bit increased governmental fee) the same day when the properly registered sales agreement and other relevant documentation is submitted to the authorities.

Additional fact about Georgia: it keeps taking the top 10 places in Doing Business for many years (7th in 2020).

Primary and Secondary Real Estate in Georgia

Georgian real estate consists of primary real estate that is sold directly by the developer and the secondary market (resellers) which dominates.

There are many construction companies and developers in Georgia. Some of them gained trust, some of them ruined the lives of hundreds of buyers. The secondary market might also either create for you an interesting opportunity for investment / nice place of residence, or leave you with no benefit at all. Below we discuss both options.

Risks of Buying Georgian Real Estate that is under development

Buying real estate from a developer most often means that you’re buying a brand new property, but also, the one that has not been built or finalized/completed yet.

Being a great option in order to buy a brand new apartment/house, where no one lived before, also you might get a great deal if you buy the apartments in bulk.

In addition you can control and agree in advance on what type of renovation should be done, how and where will the wires/pipes be located. You can choose which color of tiles you want and make many other decisions in advance depending on your tastes.

However, keep in mind the risk - not finishing construction is an unfortunate situation that may happen anywhere, including Georgia. Hopefully this sort of scams were conducted in the old days, but in the last decade it is a very rare and unusual outcome. There are many reputable developers currently on the market.

At the same time, the developers are often not fulfilling their other obligations: they almost never finalize construction and formalities on time (they may late finalization by 1-2 years), the quality of works often fails to be in compliance with what was agreed (or not precisely agreed) between the parties, they might construct a building in a very little distance between the buildings.

Ways for minimizing risk of purchase of the property that is under development

In order to minimize risks related to such purchases, our law firm makes preliminary checks / due diligence of the developer itself: checking the history of the developer, lawsuits, scandals, legal structure, guarantees, licences and other details. Once we have a greenlight - we start working on checking the clearness of title of the property, while reviewing the contract suggested by the developer (or we provide our law firm’s own version of it). Contract with its terms and conditions is the main document that should be carefully drafted, signed and registered.

However, even if such due diligence and proper registration is conducted - there is no 100% risk-free investment in undeveloped projects. The final coverage would be to insure the property from such a scenario, however supply of such insurance on the market is very low. Therefore, such investment might still bear risk but it might be very low.

Risks of Buying Georgian Real Estate on a Secondary Market

Real estate’s secondary market is a perfect place for opportunities. There are many individuals that are in a rush, selling their estate - seeking cash. In such cases one might find a great deal and buy the real estate under its market value.

However, the secondary market has its own pitfalls. Below you may find common problems that arise:

  • Ownership problems - title is not clean;
  • The property is in mortgage / seizure;
  • Special obligations / easement;
  • The object may have a neighbour problem or it is already occupied illegally;
  • Utility bills of previous owner has not been paid (+ penalties);
  • Previous owner took out from the apartment the furniture that had to stay in the apartment based on your oral negotiations;
  • Property has many different owners.
  • Ways for minimizing risk of purchase of the property on the secondary market

In order to minimize risks of purchase from the individuals on the secondary market we advise you to approach the Georgian lawyers. Our law firm makes proper checks of the clearness of title on the property, which covers checks on mortgage / seizure / any other obligation and easement.

We check the seller in different registries in order to be sure that s/he doesn’t have any debt that may be transferred to the new owner. The location should be physically checked, and the neighbors shall be interviewed. Also our law firm requests and checks all the utility bill debts and makes sure that everything is clear with the utility providers.

As always - the main part of the proper insurance is properly drafted, signed and registered contract, which should not leave space for any ambiguities. Our law firm uses escrow accounts and notary’s actions when needed in order to protect the best interests of the buyer.

Payment for the Real Estate

The buyer shall pay for Georgian real estate (as for any other Georgian goods) in Georgian Lari, when paid locally. Local payment in other currency for the real estate is illegal and might trigger penalties. However, you can transfer payment in other currencies if you make it internationally.

Payment in local currency might increase your expenses due to differences in currency exchange. However, it will be transferred to the seller in minutes, which saves time. At the same time, international payment takes at least a couple of days.

You can approach us for remote opening of a Georgian private bank account for conducting the payment for the real estate and or having your funds in safe harbour.

Payment for real estate in cryptocurrency

Payment in cryptocurrency has become one of the new options for purchasing real estate.

The transaction will not be regarded as a payment itself, but as barter - exchange of the real estate on the crypto currency ownership.

Advantage of it is of course the speed of transfer. However, in order to protect the buyer from any illegal actions from the side of the seller, proper contract(-s) shall be done and registered.

Purchase of Georgian property via mortgage

There is high demand for acquisition of the Georgian property via mortgage. The cause of it is to increase ROI and use less of investor’s money. The loan / mortgage can be done with the developer directly (sometimes even interest-free) or with the bank.

In case the mortgage is done with the bank - normally it requires 20-30% down payment. Interest percentage depends on the currency used and is in the range between 5 and 12 percent. The foreigner can also apply for the mortgage with nuances.

Summary

To sum up, there are variety of projects / places for investment in Georgia - depending on the preference of the investor.

Seasonality, purpose of the place (touristics / recreational / residing) and budget are all of the same importance.

One might reside in Tbilisi, drive 2 hrs north for snow and skiing, go on train 5 hrs west for swimming in the sea, fly 30 mins to visit Svaneti - a fairytale in the mountains, or get wild with Tusheti in the north. All possible within the territory of Georgia.

However, as you may have noticed from the article - there are legal and tax issues needing proper tax, legal structuring and due diligence.

Learn More about Investing in Georgia and other ways to Establish Tax Residency

LTA is a boutique firm assisting clients worldwide with their tax/estate planning strategies. Their main field of focus is helping non-residents to enjoy the Georgian legal and tax system, including help with legal/tax and accounting aspects.

Georgy is a tax lawyer specialized in helping people and businesses to implement tax planning strategies. Connect with Georgy today to discuss immigration and/or investment matters linked to Georgia.

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