Faced with the decrease in rental income in France, with an increasingly favourable and protective legislation for tenants, why would you advise us to purchase housing abroad, especially in Georgia?
The business climate in Georgia is extremely positive. This beautiful little country, called the pearl of the Caucasus, is a former republic of the Soviet Union. Since 2004, it has undertaken a very important reform package and is still supporting this effort as I speak. Today its very liberal economy is growing rapidly and attracting more and more investors. Real estate prices in the capital Tbilisi are extremely affordable, and investors still have great investment opportunities. The relevance of an investment is based on a strong rental demand which is currently driven by the incredible tourist enthusiasm for Georgia. Millions of tourists have been coming for four years now. And this number is constantly increasing and according to projections this number is going to quadruple in the next five years! However, the rental market is still underdeveloped in the Tbilisi sector, many hotels are under construction, but will not be able to cope with the influx of tourists. This is an excellent time to invest in stone in a city that is becoming more and more popular.
The craze around this market is real. Tbilisi enjoys a rather fertile economic environment, it is the capital, 1 300 000 people live here, that is 1/3 of the total population of the country. Its geographical location is strategic, at the gateway to Europe, but there is another argument likely to attract investors. His taxation system! Georgia is the ninth lowest taxed economy in the world. And this can be seen in the real estate sector, where taxes on rental income, property tax and plues-vlaues are extremely low. The Georgian tax system, which is very attractive, has helped to forge our conviction regarding this market and to promote it to investors.
What is the rental return?
In Tbilisi, the investor can count on a very decent return on investment, between 10 and 12%, net of charges and before taxes. Much higher than a rental investment in Western Europe.
The rental yield, however, is not the only source of appreciation in this market. In Tbilisi, there has been steady growth in property prices. Every year, investors benefit from an increase of 5%, or even 6%, in particularly popular areas that are already being saturated. In the emerging neighbourhoods, the increase would be more like....20%...in 6 months. We are therefore convinced that prices will continue to rise. We are not alone in believing in the potential of this market. More and more investors are looking to Tbilisi and can do great business if they look in the right place. In Tbilisi, we prospect on districts not yet listed like the central districts, but they are districts very well placed, and which remain historic districts with all the architectural characteristics required by our customers. The rental yields in these districts reach 15%.
Can a non-resident benefit from the leverage effect of a loan?
In the vast majority of cases, it is not possible to borrow for a non-resident. If you're a resident, it's much easier. Access to credit for resident foreign investors is fairly flexible. The banking system grants resident foreign borrowers the same conditions as Georgian residents. Getting a loan is relatively easy as long as you have at least a 30% down payment and agree to take out a mortgage. Nevertheless, interest rates are high and currently the best rates are 7%. The trend is downward, but the cost of borrowing therefore remains very significant.
What are the main risks when buying a home abroad?
The first risk is linked to the desired property, whether it is thousands of kilometres away does not change anything, the reflexes are strictly identical. The investor must ask himself what he is buying and where he is buying it by collecting as much information as possible on the local market. The rules you would apply for a property near you are valid for a property established millions of miles away. Unfortunately, too many people ignore these basic principles.
What do you recommend?
speaking shortly, you have to travel to Georgia to see what you are buying, where you are buying, etc... and above all be well surrounded by a board that knows the market well. Of course, you must make sure that the property is in good condition. In relation to distance, the intervention of an expert to establish various diagnoses and identify important problems is recommended. Otherwise, there are no particular climatic risks or floods in Tbilisi.
Rental management is also a potential source of many worries. Entrusted to inexperienced or even dishonest people, rental management can quickly become your worst nightmare. It must therefore be entrusted to a third party whose professionalism cannot be called into doubt. The quality of the manager must be one of the priorities of the foreign investor.
To avoid the many pitfalls set for investors, it is necessary to ensure the professionalism of the third parties involved. Without rigour, acquisition delays can be lengthened or worse the transaction rendered null and void. We have experienced many problems in Georgia and know what are the traps to avoid.
As a general rule, most asset managers advise investing in the property market in which their clients already own their assets. When investing abroad, in Georgia in this case, the investor relies completely on your expertise.
What do you recommend?
In a word you have to move around to see what you are buying, where you are buying, etc... and above all be well surrounded by a board that knows the market well. Of course, you must make sure that the accommodation is in good condition. In view of the distance, the intervention of an expert to establish various diagnoses and identify important problems is recommended. Otherwise, there are no particular climatic risks or floods in Tbilisi.
Rental management is also a potential source of many worries. Entrusted to inexperienced or even dishonest people, rental management can quickly become your worst nightmare. It must therefore be entrusted to a third party whose professionalism is well known. The quality of the proprerty's manager must be one of the priorities of the foreign investor.
To avoid the many pitfalls set for investors, it is necessary to ensure the professionalism of the third parties involved. Without rigour, acquisition delays can be lengthened or worse the transaction rendered null and void. We have experienced many difficulties in Georgia and know what are the traps to avoid.
As a general rule, most asset managers advise to invest in the real estate market in which their clients already own their assets. When investing abroad, in Georgia in this case, the investor relies completely on your expertise.
What services do you offer that compensate for the investor's distance and lack of knowledge of the market? Can the rental management of the property be easily delegated and for how long?
Our approach is part of a global approach to wealth diversification. Most investors resident in Europe almost exclusively own assets in euros. In our opinion, it would be wiser to follow the wise saying "don't put all your eggs in one basket". Investing abroad makes it possible to hold assets valued in a currency other than the euro (the dollar is the transaction currency in Georgia) and to reduce the risk of devaluation, in particular, which is still possible in Europe.
Our vision of real estate investment in Georgia is based on both opportunity and prudence. We clearly expose the risks to our prospects. There is no miracle product, those who claim otherwise may not be worthy of your trust. At first contact, we take the time to deliver a detailed description of the Georgian real estate market and its specificities, with its assets and defects.
As soon as an investor is convinced of the soundness of an investment, we put ourselves at his disposal throughout the real estate investment operation and guarantee him a "turnkey" investment. From the search for the property which corresponds to him to the purchase process, the renovation and the decoration of the property with the aim of optimizing the rate of rental return. It takes approximately 6 to 9 months to complete all administrative and logistical operations necessary for the smooth operation of the property rental. Then, if our client wishes, our relationship can continue. Indeed, it takes the form of a management agreement. We then continue to play our role of supervisor and to ensure to our customer the good maintenance and the good hiring of its property here in Tbilisi. Our job is to secure their acquisition, save them time, money and be efficient.
What are the tax implications? To what extent do you assist investors in their dealings with French and foreign tax authorities?
The investor must measure the tax implications of a real estate investment abroad. Our role is to inform him on all the taxation applied to real estate here in Georgia, to also give him information on these tax implications. Then we assist him in every step necessary for the declaration and payment of taxes in Georgia. We provide all necessary assistance to ensure compliance with local tax authorities.
At first, the owner of a rented apartment pays taxes on rental income in Georgia, whether he is a tax resident in Europe or a resident of Georgia: it will be 5%! After paying the tax in Georgia, the investor must defer all of his property income on his return, including that received in Georgia.
Thanks to the numerous bilateral double taxation agreements concluded between Georgia and many countries, you can avoid double taxation. In the end, the owner of a rental property in Georgia pays only the foreign tax on this property income. The same tax process applies to any capital gains on the disposal of the property. Each case is particular, depending on the nationality of our clients, we can, at their request, provide details on the specificities of their country of residence in terms of real estate taxation.
One of the ways that we recommend to our clients to optimize in the simplest and most advantageous way, is to create a company in Georgia in order to acquire the property.
In general, it is quite easy to demonstrate to our customers and prospects the advantage of paying taxes in Georgia. The result is striking: Georgia has two to four times more yield than the major European capitals.
The main fear of a property owner is facing bad tenants who do not pay their rent. Is it possible to obtain guarantees or insurance against unpaid rent and vacancy when renting a property abroad?
The answer is no. We cannot guarantee a 100% occupancy rate, nor the fact that one day, a tenant decides to no longer pay his rents. On the other hand, in Georgia, relations between property owners and tenants are not as regulated as in France for example. In Georgia, the tenant who does not pay the rent is at fault immediately. As soon as one no longer respects the contract, the owner is able to quickly recover his property to put it back on lease. The eviction procedure of the tenant ends in 6 to 8 weeks. These are extremely short deadlines. Of course this only concerns long term rentals. Our market, which is more on seasonal rental, does not encounter this kind of problem since rentals are made on daily basis, for a week or more but always paid, upstream, at the time of booking.
What is the cost of an accompaniment in a real estate investment abroad "turnkey" that you propose?
From the moment our client entrusts us with the investment mission, our rates are clear and transparent. They are included in the amount necessary for the successful realization of the entire real estate operation, from the search for the property to its rental through the renovation and decoration of the property, all the administrative aspects. Our rate is between 7 and 10% of the total "turnkey" cost. Then we propose, if the client so wishes it, a agreeement on the rental management of his property. Investors wishing to continue the relationship with us, we can sign a "Rental Management" package beyond the first year.