Non-core assets of commercial banks still pose a problem for developers

Non-core assets of commercial banks still pose a problem for developers

access_time2020-01-17 15:00:15

As known, the construction sector was one of the sectors of the Georgian economy which strongly opposed to the introduction of credit regulations. Developers said this would reduce the number of loans that is will cause a decline in housing sales.

At the beginning of the year the regulations caused serious damage to developers, but as a year passed, it turned out that the construction industry didn’t suffer losses, but on the contrary,  according to the National Bank, at the end of the year, mortgage lending rose.

 In particular, as of October 2018, the volume of mortgage lending in Georgia amounted to GEL 5.7 billion, while in the same period of 2019 - 7 billion.

However, the developers do not trust these statistics and appeal to their data, which show a decline in mortgage lending and sales.

Apart from credit regulations, the construction sector is also unhappy about professional ones, such as the mandatory availability of underground garages in multifamily housing apartment buildings, fire escape stairs, the introduction of certain standards for the width and height of corridors, etc.

Developers agreed that the regulations were necessary, but feared they would increase construction costs as well as the price of housing.

In 2018 the volume of investments in construction was approximately at the level of 2017  and reached about $ 170 million. The 2019 data gave not been published yet. Statistics also show an increase in local investment in development that has a negative effects - foreign companies make longer-term investments and give preference to multifunctional residential complexes, which are well proven in Europe.

At the same time, local investors make shorter-term investments that  is justified as a local business has much lower access to finance than a foreign one.

Another factor that seriously hinders the development of local real estate sector is the non-core assets of commercial banks.

In reality, commercial banks are not partners for developers, as it should be, but competitors. For example, a construction company, if it wants to get a loan for a project, is forced to tell all its plans to banks that can be used to gain competitive advantage - for example, not to give a loan to developers and to carry out their projects.

Moreover, banks help subsidiary construction companies to sell apartments, offering various favorable conditions to their customers.


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