Georgian Developers Feel Discriminated
21 February, 2013
Georgian Developers Feel Discriminated
Georgian developer companies feel discriminated by banks and government alike. The imperfect legislation allows banks to be focused on financing their own construction companies and withhold credits to developers while government and central bank turn a blind eye to legislative black holes.
“Construction is the key job creator and one of the best investment opportunity globe over while this sector is neglected in Georgia in favor to banks,” Irakli Rostomashvili, Chairperson of Association of Georgian Developers, said in the interview
to Georgian Journal.
Developers’ key affliction is that banks no more finance the under-construction apartment projects without additional collaterals as they used to do in 2004-2007, during the period of construction boom in Georgia. The scheme brought developers and banks to the brink of bankruptcy when the crisis unlashed in 2008: construction projects were halted; developers could not sell incomplete accommodation spaces and pay-off mortgages. Banks commensurately could not get their money back as the outstanding mortgage loans were backed by the under-construction apartments largely called as “air financing.”
Rostomashvili acknowledges that before the crisis there was a management problem at some developers and banks alike but assures that situation is improved now however banks deny financing even excellent business projects if developers do not provide by alternative collaterals or guarantee almost equal to financing. The reason is that banking loans are channeled on their own construction projects.
“If we ask for USD 5 million, banks ask back for almost USD 6 million as a co-financing that is impossible for us. Business cannot be done this way. Then banks refuse to give loans to our projects under excuse that they are not reasonable but this is a lie. We, Developers’ Association present 4-5 business projects denied by banks and suggest experts of the field to sit down and peruse them at open discussion and let’s see what the unbiased opinion will be. But banks do not come on this,” Rostomashvili said.
He doubts that the real reason is the ex-power lobbied certain banks allowing them to enjoy profits on expense of developers.
“Banks enjoy taxation preferences that make banking deposits more attractive than investing in real estate while in developed countries renting house for example is almost 10% more profitable than banking deposits. In Georgia things are reversed: banking deposits are exempted from the income tax [charging by 18-20%] while you pay the income tax if you buy a house. I ask for equal taxation regime and conditions,” Rostomashvili said adding that even new government does not pay any attention to developers’ problem. He hails government to streamline legislation properly and curb bank’s appetite for non-profile businesses.
According to official statistics, more than GEL 435 million was disbursed to construction sector in 2012 however the statistics do not disclose details which companies got credits that make Rostomashvili doubtful the banks-affiliated companies were the lucky ones.
Zurab Gvasalaia, Head of Association of Georgian Banks, argues there are just three bank-affiliated construction companies with GEL 51 million in balance sheets that banks took over as collaterals of unpaid loans. Based on financial papers of Georgian commercial banks, only three Georgian banks such as Bank of Georgia (BOG), TBC Bank and Basis Bank own construction companies however their number is more than three for banks own more construction businesses indirectly through their affiliations.
BOG, the largest Georgian banks by capital volume, has 100% in SB Real Estate that in its turn has 100% in SB Immobiliare, SB Iberia and SB Iberia 2 construction companies. As to TBC Bank, the second largest Georgian bank and leader of deposit portfolio, it owns 100% at Real Estate Management Company while Mamuka Khazaradze, Chairman of Supervisory Council of TBC Bank, is a founder of Lisi Lake Development project as well as founder and partner of GRDC [Georgian Reconstruction and Development Company] both involved in large-scale construction projects. Basis Bank holds 75% in Paladi Imperial Construction Company.
Banks set up their own construction businesses in the wake of financial crisis of 2008 when they took over the incomplete construction projects from insolvent developers and had to complete them in order to get their money back. However, as Georgian legislation is quite liberal and allows banks to have non-financial assets under loose terms Georgian banks became too bewitched by non-profile business activity including construction.
Lia Eliava, an economic analyst, believes banks refuse loans to developers for they still have incompetent management however acknowledges that non-profile business activity of Georgian banks is a serious problem and creates risks to clients.
Economic analysts fear that excessive interest in non-banking businesses may stray banks off their core function to credit economy and lead to market monopolization and unfair price policy just like developers face. Therefore they think the regulation must become stronger and restrict non-banking activity of commercial banks in line with the international tendency that suggests restricting even investment activity to banks let alone non-financial businesses. But National Bank of Georgia feels at easy side as of yet.
“When the business operates successfully no bank will refuse it in loans,” she said. “But that Georgian central bank needs to address to solving the non-profile business activity of banks as soon as possible and it is obvious however it still turns a blind eye to the problem.”
Other Stories
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
February 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28