This is the second Real Estate article by Legal Columnist Daniel Klein. Last week’s article was about buying a second-hand flat, and the next article, Part 3, will discuss the basics of renting a flat in Georgia.
There is no shortage of very residential construction projects in Tbilisi, and especially in the Black Sea seaside resort of Batumi. On paper, some look absolutely magnificent; tempting and modern, with very enticing prices compared to other popular destinations. It is possible to find luxury offers for as little as 1000 USD per square meter.
If working through a broker, the investor needs to take into account the likelihood that the broker is receiving a commission from sellers and might steer the investor to the projects where commissions are highest. This raises a conflict of interest since, if the developer happens to have a dodgy reputation, perhaps the broker will avoid revealing such.
Whether finding a project through a broker or through their own efforts, it is always advisable to try to conduct both a quick legal review and market reputation review.
As far as the legal review is concerned, it might be a good idea for a lawyer to see if the developer has had any litigations and even check the development prospectus, the investment agreement and other issues that may not be obvious to an investor. One of the main points might be to understand what happens if there are any project delays.
The agreement executed with the developer is a pre-purchase agreement, since it is not possible to conclude a real estate purchase agreement on a property that does not yet exist. Buying an off-plan property is associated with a higher risk, since the developer might not fulfill their obligations. This breach by the developer may be intentional (perhaps they never intended to start and/or finish the construction works) or unintentional (i.e., due to poor planning and/or other reasons, the developer went bankrupt or is unable to complete the construction).
In case a developer breaches their obligations, there is not much you as a buyer can do. Therefore, it is important that you find a trustworthy developer, with a good track record and reputation.
Don’t do a bank’s work; try to avoid financing developers
Klein & Pantsulaia Special Counsel in Georgia (a former lawyer in the construction industry) says: “It is of utmost importance to engage a developer whose project completion is not contingent on the sale of premises. Opt for a developer who secures financing through a reputable banking institution, ensuring the project’s timely completion, irrespective of the pace at which premises are sold.’ In other words, don’t finance a developer’s projects if possible: It’s just too risky!
Check the developer’s reputation
This is really crucial when making these types of investment decisions, and if you are a weekend tourist spuriously making an investment, it might be difficult to know how to vet developers and projects. There are various forums on social media which might be useful when trying to understand a developer’s reputation, but the best thing to do is to find an independent real estate advisor (and an ex-pat one if possible) who knows the players and their respective track records. Generally speaking, Georgian developers are very reliable and usually deliver what is promised, although often with delays, as with most construction projects in any country. It is advisable to try to find other finished projects of a given developer (assuming this is not their first) to take a layman’s look at the quality of the finished product. Unlike in many countries, real estate development projects in Georgia are not regulated, and the last thing an investor wants is to have to bring legal action against a developer.