2023 December-January Analysis Featured

Tbilisi residential real estate market set to cool slightly in 2024

Transactions, price, and yield

Tbilisi’s residential real estate market remained hot this year after a 2022 characterized by unprecedented growth in both rental and sales prices, says TBC Capital’s latest market watch released in November. The average asking price per square meter in October came in at $1,176, up 1% MoM and 17% YoY, despite a high base effect from the previous year.

But while the size of the market was up 2% MoM in October at a value of $229 million, it was down 12% in annual terms following a 14% YoY decrease in transactions, indicating that increased demand in the face of large-scale war-related migration is waning and that the market may be set to cool off next year. TBC Capital Senior Analyst Revaz Maisuradze says that in addition to lower levels of foreign currency inflow over the last few months, signaling that the number of migrants staying in Georgia may be on a downward trend, rental prices and yields have largely held steady over the last ten months, indicating that the market has fully absorbed the increase demand.

“Rental yield has been hovering between 11% and 12% since January and the average rental price per square meter has been steady at around $12.3 per square meter,” Maisuradze notes. “We assume some migrants have bought property and some have left the country, but their rental effect at this point is largely diminished.”

Consumer Preferences

Sales of new apartments, or those sold within three years of when their building permit was granted, were up 29% in Octo-ber compared to the previous month, while sales of old apartments were down 9% MoM. This bump in sales of new apart-ments, which put sales of new apartments at 21% of total transactions, could be signaling a shift away from older properties due to the diminishing migrant effect as well as growing supply of new builds.

“When migrants first came to Tbilisi, they were looking for places that were furnished and ready to live in, which boosted the popularity of older apartments that could accommodate immediate need,” says Maisuradze. “We’ve also seen a signifi-cant boost in construction permits in response to the jump in demand last year, meaning there are more newer properties coming onto the market.”

In fact, the residential area covered by construction permits in October reached a record 1.3 million square meters, up 66% compared to the previous year. Maisuradze says that while analysts should continue to monitor the number of permits being issued, he does not see a bubble forming at this time. “There’s an optimistic expectation from developers, since they’ve seen such positive trends in sales and prices, which has motivated them to build more and accommodate growing demand,” he notes, adding that: “this rate of growth of construction permits, however, is unprecedented for the Tbilisi market, so it is certainly something to keep an eye on.”

Market forecasts

With an influx of new properties expected to boost supply and demand expected to continue slowly declining, TBC Capi-tal also expects to see downward price corrections in the market. “We expect to see transaction numbers trend upward in 2024 as new properties hit the market,” says Maisuradze. “At the same time, this increase in supply should lead to a slight downward correction in sales prices, although we don’t think it will be significant.” The analyst also notes that rental prices are expected to correct more quickly and significantly than sales prices in 2024, although “a drastic change in rental prices isn’t expected either.”

Another factor that could impact the market in the coming year is the National Bank of Georgia’s monetary policy rate, which TBC estimates could drop from its current rate of 10% to 8.5% by the start of 2025. “As we see inflation coming down and the NBG signaling that it plans to loosen its monetary policy, this will bring down mortgage interest rates, which in theory, could stimulate greater demand in the market,” adding another important dimension to watch in the coming year.