Mortgage for foreigners – developing company Redco
Mortgage for foreigners in Georgia
Georgian government allows foreigners to apply for mortgage loans with the same conditions as for the citizens. This is an excellent opportunity for foreign investors to buy into real estate around the Black Sea coast, skiing resort or in the economic centre of a significant city of Tbilisi. What are the conditions for foreigners to obtain a mortgage loan in Georgia, what is the interest rate for the mortgage and everything an investor needs to know before going to the bank.
The situation on a Georgian real estate market in the year of 2020
Galt & Taggart company posted a review on the real estate market in Tbilisi with figures that can be applied for other Georgian regions, considering local real estate prices. The analytics believe that after the lockdown announcement in April and May, the apartment sales had fallen dramatically. However, as soon as the lockdown was relieved in June, the market started gradually “coming back to life”. Government subsidies for mortgage interest rates that were introduced in July 2020 have also contributed to increasing market activeness, but let’s review in more detail.
The Georgian real estate market has rapidly grown in September 2020, alongside with the recovering world economy. The key conclusions from the report:
- Apartment sales increased in September (by +14,4%) after concluding sales contracts;
- Evidence of economic stability has led to a decrease in the interest rate in Georgian lari down to 11,2% (-2,2%), whereas interest rates for international currencies had a slight increase – up to 5,7% (+0,5%);
- The sum of new mortgage loans has grown with a sudden jump in September – up to 437 million lari (+63,9% per annum, excluding the currency fluctuation effect).
Additionally, the decrease in prices for brand new apartments had been witnessed in July (-8,6%); however it is most likely to be associated with rising demand for economy-class flats, and not with the overall adjustment in market price. This implies that government subsidies for mortgage interest rates supported the actual price for real estate in the third quarter of 2020 and has a positive effect on the Georgian real estate market in general.
A decrease in volume of issued mortgage loans has been caused by COVID-19 quarantine accompanied by a sharp increase in interest rates. It is important to note that the signs of economic stability and a system of government subsidies aroused interest to lari and, as result interest rates decreased in the third quarter of the year down to 11,2% (-2,2% compared to the second quarter).
The issue of new mortgage loans increased dramatically during September of the current year – up to 437 million of Georgian lari (+63,9 % per annum excluding the currency fluctuation effect) after a slight increase of 0,8 in August and a decrease in July. Loans issued in lari in September contributed to 62% of the total volume (+43,1 % per annum); additionally, the volume of loans issued in foreign currency increased by +121% excluding the currency fluctuation effect. The expected demand for loans for the fourth quarter of 2020 and next year, considering the government subsidising program remains unchanged, is 4%.
It is noteworthy that the share of mortgage financed apartments jumped to 44%, which is the highest index since the rules of mortgage loans came into effect on January the 19th (23% in the second quarter and 31% in third). According to experts from Galt & Taggart, this trend can be considered as a beginning of price recovery in the real estate market in Georgia.
Mortgage rates for foreigners in Georgia
Although obtaining a mortgage loan in Georgia for foreigners is tricky, however still possible if the developer takes part in the purchase transaction acting as a guarantor. The mortgage interest rate remains relatively high in comparison to CIS and Europe – around 10% annually. The best mortgage interest rate is 7,5% per annum and is offered by the Bank of Georgia, whereas the worst offer is 13% from the TBC. These are the mortgage interest rates in US dollars. Interest rates for mortgages in Georgian lari are even higher – TBC offers 14% higher. However, the above interest rates are not especially “overpriced for foreigners”, Georgian citizens pay similar rates for a mortgage.
The majority of investors know about high interest rates and realise that the obtaining of a mortgage will imply the most of their rental income to be spent on repayment of the interest rate. And as a result, some foreign investors decide to purchase more affordable real estate, where they do not have to repay interest to a bank. However, it might not always be possible, especially when talking about objects of tourism and business infrastructure. Therefore, many foreigners go forward with high interest rates and consider it to be expedient to repay the mortgage with their rental income, as there is a trend for capital gains and the prices for real estate in Georgia continue to rise.
The maximum size of a mortgage offered by the Georgian banks is usually 50% of the property cost with a term of 5 years. The banks typically do not finance the purchase of a property at early stages of development and offer to lend for properties that are complete or close to the commissioning.
How a foreigner can get a mortgage in Georgia
Until 2019, obtaining a mortgage was a lot easier. Any foreign citizen was required to confirm personal details and hold an account in a Georgian bank. In some cases, they did not even need a residence permit in Georgia. The situation changed in January 2019. Nowadays, normative acts of the National Bank require banks and other credit institutions to carry out a thorough analysis of the solvency of individuals applying for mortgage loans. Main novelty that came into place was the introduction of an initial fee of 40% of the property price, which used to be only 20%.
Thus, mandatory conditions for obtaining a mortgage loan in Georgia for foreigners are:
1. Confirmation of official income. Usually, a bank statement acts as a document confirming the income. If a buyer is earning a salary or other type of income for only a few months, a bank may request an employment contract or additional documents to ensure the consistency of loan repayments in future. If a loan is obtained from the same bank where an individual holds an account, the statement is not required.
2. Sufficient level of net profit after repayment of income tax and other mandatory payments. If a foreign citizen wishes to obtain a mortgage loan but does not have a sufficient income level, then a solvent guarantor with a confirmed income is required. The National bank of Georgia has established requirements for income and the maximum sum of loan for individuals. The difference between all loan payments and net monthly income cannot be less than the minimum monthly salary.
If the mortgage is being obtained in a foreign currency, the maximum sum of loan cannot exceed 70% of the market collateral value. For instance, if a bank has estimated the market price for a real estate property, used as a guarantee, to be 100,000 US dollars, the size of the loan will not exceed 70,000 US dollars. If a loan is obtained in lari, the maximum sum of allowance cannot exceed 85% pf the market collateral value.
The National bank of Georgia has issued a new ruling establishing constraints on the maximum mortgage term depending on a type of loan program. For example, a mortgage loan cannot be issued for the period exceeding 15 years, at the same time the sum of loan in foreign currency cannot be less than the sum equivalent to 200,000 lari.
Monthly payment and landing purposes were restricted as well. This means that the maximum amount a borrower can pay monthly for liabilities is determined by his income. In other words, if the monthly income of a foreigner applying for a mortgage is less than 1000 lari or he already holds a loan in a foreign currency, he can only use 25% of this income to repay his liabilities per month. Moreover, the amount of a monthly non-deductible payment has to exceed the cost of living. For example, if the income is less than 1,000 lari, the maximum permitted amount of mortgage loan is 20,830 lari. If a monthly income is equal to 2,000 lari, then the mortgage amount will equal to 58,325 lari and so on.
A package of documents for mortgage application
In order to apply for a mortgage in a Georgian bank, a minimum package of documents is required:
• Document confirming income;
• A statement of purchased property.
This standard set can be supplemented by other documents depending on creditor’s demands. For instance, a client has to confirm their income when accepting credit liabilities. An income is any profit, which is confirmed by a bank statement or data from Revenue Services of Georgia. If a borrower has irregular income, it will be calculated as average or median. These restrictions are not applied to individuals whose total responsibility does not exceed 2 million lari.
Georgian legislation allows foreigners to purchase a property of any type with an option for the remote conclusion of a deal. In order to confirm the property rights, every buyer has to get registered in a State register. It is possible to register property rights and conclude sales and purchase agreement through the Public Services Hall or the National Public Registry Agency. Here is the list of documents required to register property rights:
• Application form;
• Documents confirming identity;
• Certified sales and purchase contract;
• Payment of government service fee.
The payment for the purchase of a property can be made in cash, by a bank card or via bank transfer. If a foreign buyer wishes to make a bank payment, he can open an account in any Georgian bank without any constraints.
Obtaining a residence permit for real estate investments
The acquisition of property, both commercial and residential, allows foreigners to apply for a residence permit in the country and later become a citizen of Georgia. The minimum amount of investment is 100,000 US dollars. The length of stay is one year. After, a foreign citizen is obliged to present a document confirming the ownership rights for the property and its estimated value of at least 100,000 US dollars. A temporary residence permit allows applying for a Georgian passport after living in the country for ten years. The above rule is used both for temporary and permanent residence permits.
Redco company – is one of the leaders in Georgia’s developing markets and offers purchase of properties with a mortgage secured by a company on favourable terms in Tbilisi, Batumi, Gudauri and other cities.