Lending restrictions in wake of conflict have slashed development activity
The faltering development industry in Georgia is facing collapse as a result of its conflict with Russia, according to a new report.
Research firm PMR says that real estate transactions have fallen to 800 a day, compared with 1,900 before the crisis.
The difficulties are partly due to commercial banks' drastic restrictions in lending since the war, with debt financing unavailable to developers. These restrictions follow direct damage to the civilian economy of an estimated £1bn as a result of the conflict.
Unavailability of mortgage loans has also hit the sector hard. Residential development comprises up to 88% of total construction in Georgia, with offices accounting for 5.5% and commercial 6.5%.
In its summary, PMR says: “For many developers, defaulting on current and planned projects will be the optimal way out of the situation. However, this will lead to complete erosion of consumer confidence.”
Construction had been one of the most rapidly developing sectors of the Georgian economy before the war, with output growing 36% a year on average between 2001 and 2007.