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.”
Print
Other Stories
Everything of comfortable life in one space – Second part of construction of one of the largest apartment complexes finished in Tbilisi
Apartment in ecologically clean environment, thousands of square meters of green yard, swimming pools, places for various sports activities, treks for walking and running, commercial spaces – all these available in one space is not a fantasy.
Batumi awarded Europe's Leading Emerging Tourism Destination 2019
World Travel Awards Europe Gala Ceremony 2019 took place on the 8th of June in Madeira, Portugal.
Coca Cola to open new factory in Georgia, will hire female drivers
Coca Cola is opening new factory in Georgia in December.
World's best party supply company now on the Georgian market
The largest party supply store in Georgia - MyDay is launching as the official distributor of AMSCAN from 2019.
Live as a marketing tool and an unprecedented live stream launched by Livetag
Sharing information has become smoother and more versatile in today’s technological world. Recently, live streaming, an online streaming media has become especially popular.
Theme and program of Caspian Energy Forum Tbilisi – 2019 changed
“The 8th International Caspian Energy Forum Tbilisi – 2019, scheduled for June 21, will focus on the development of the Azerbaijan-Georgia relations in the field of economy and energy”,
Misunderstanding over Poti deep sea ports
There was misunderstanding around deep sea ports in Georgia – in Poti.
High demand for dollars or the investment decline – Why Georgian Lari depreciates
$1 equals GEL 2,7470 in the official rate set by the National Bank of Georgia (NBG).
PSP Group confirms negotiations regarding purchasing of GEO Hospitals
PSP Group confirms negotiations regarding purchasing of GEO Hospitals.
New life to be given to Dashbashi Canyon
Georgia’s Agency of Protected Areas is planning to give new life to Dashbashi Canyon in Tsalka (southeastern Georgia).
Who is constructing “Khadori 3” Hydropower Plant in Pankisi Gorge?
Clashes broke out in Pankisi Gorge, Georgia’s northeastern region between special forces and residents
Business Positive – Successful radio program from Radio Positive
Starting point of radio program Business Positive is to meet interesting people, communicate with them and deliver information that is interesting for the audience.
A factory of electric vehicles to be built in Kutaisi
Prime Minister Mamuka Bakhtadze stated that a factory of electric vehicles will be built in Kutaisi at the presentation of the Aigroup business group.
Qvevri-shaped hotel complex to be built in Telavi
A Qvevri-shaped hotel complex is scheduled to be built in the village of Shalauri in Telavi, Kakheti (east part of Georgia).
Georgian designers presented at Fashion World Tokyo 2019
The products of 11 Georgian designers are showcased at Fashion World Tokyo 2019,
Silknet raises $200 million in Eurobond issue
27 March 2019 - JSC Silknet (“Silknet”), one of Georgia’s leading telecommunications operators, has successfully priced a debut $200 million 5-year 11% senior unsecured bonds issue (the “Notes”).
Pistachio trees will be planted in Georgia
Dozens of hectares of Pistachio are planned to be planted in Georgia this year.
Toyota Safety Sense and Hybrid Technology
Toyota Caucasus, has presented two new models the 5th generation RAV4 and the 12th generation Corolla at Rustavi International Motorpark, several days ago.
Bidzina Ivanishvili “became number one oppressor of businesses in Georgia” - ICC Georgia chairman Fady Asly
Mr. Ivanishvili promised the business community to protect them from harassment and pressure, unfortunately his words died with the sunset of that day
The best brands of Belarus will be exhibited on a large-scale exposition in Tbilisi
"The Belarusians like to come to Georgia to relax near the sea in Batumi as well as to stay in sunny Kakhetia."
Don’t treat business like a hooker! - Georgian businessman Vasil Soprpmadze addresses politicians
Businessman Vasil Sopromadze, founder of the company "Fresco", addresses politicians
RAV4 No Compromise and Corolla Set to Impress – Two New Cars Presented by Toyota
Toyota Caucasus, the company constantly aspiring to greatness, has presented two new models the 5th generation RAV4 and the 12th generation Corolla.
Mamuka Khazaradze quits TBC bank, does not sell the TBC Bank share
I made a decision to leave TBC bank where I spent 27 years of my life
10 Reasons to buy an apartment in the suburbs
There is a tendency for Tbilisi dwellers to move from central parts of the capital to the suburbs.
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
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
15.06.2019
16.06.2019
USD
1
USD
2.7468
2.7468
EUR
1
EUR
3.0943
3.0943
GBP
1
GBP
3.4753
3.4753
RUB
100
RUB
4.2700
4.2700
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
USD
1
USD
2.7468
EUR
1
EUR
3.0943
GBP
1
GBP
3.4753
RUB
100
RUB
4.2700
June 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 29 30