Welcome to the fourth Real Estate article by Legal Columnist Daniel Klein. We’ve received numerous inquiries from readers regarding the viability of purchasing an investment property for returns. Notably, Georgia offers higher returns on apartment investments compared to many Western European destinations. However, it’s important to acknowledge the elevated country risk associated with such investments.
Regarding the impressive returns, Tbilisi boasts an investment yield of over 10%, with returns exceeding 12% outside the city center. In stark contrast, Paris yields just above 2%, and Barcelona falls short of 5%. An intriguing option, Wyndham Grand Residences Batumi Gonio (wyndhamgrandbatumigonio.com), appears to promise up to 24% returns for residential investments in Batumi. It’s worth noting that the high risk perception of Georgia is arguably offset by the alluring rewards it offers.
No Transfer Taxes
Unlike many countries where transfer taxes exceed 5% in places like Paris and a minimum of 10% in Barcelona, Georgia has yet to adopt the concept of transfer taxes. Typically, these taxes are implemented to temper housing markets fueled by foreign investments, which can inflate prices to the detriment of local affordability and rental rates.
Capital Gains Tax: 5% or 0%
In Georgia, if a property is sold within two years, a 5% capital gains tax is applicable; however, if the property is held for over two years, this tax drops to 0%. In comparison, France and Spain impose capital gains taxes ranging from 19% to 24%.
Property taxes in Georgia max out at 0.8% depending on income bracket. Barcelona is higher with 1.1% taxes. By contrast Paris taxes property at 0.2% making Georgia expensive, at least compared to Paris.
Being a Landlord in Georgia & Airbnb
Considering our prior discussion on Georgia’s tenant-friendly environment (See Legal Insights with Klein Law: Georgia for Digital Nomads – Ease of Renting a Flat and Opening a Bank Account), it’s important to note that Georgia might not be the most favorable place to be a landlord. However, if the intention is to utilize the apartment for Airbnb purposes, Georgia’s lenient regulations come into play. These regulations are attributed partly to the abundance of hotels and the relatively lesser demand for short-term rentals compared to popular Western destinations. It’s worth mentioning that certain cities tightly regulate Airbnb, imposing limitations, such as a cap on the number of days an apartment can be rented per year (e.g., 120 days). Furthermore, excessive regulations and associated costs can diminish the economic attractiveness of short-term rentals in some locations. Due to its seasonal nature, short-term rentals might not provide consistent year-round income in Georgia.
Finding a Property
When working through a broker, investors should consider the possibility of the broker receiving commissions from sellers, potentially leading them to favor projects or apartments that offer higher commissions. This introduces a conflict of interest, making it important for buyers to exercise caution if a broker seems excessively focused on certain offerings. Seeking a second opinion from another real estate professional might be prudent.
For more insight, refer to our articles: Legal Insights with Klein Law: Buying a Secondhand Flat in Georgia and Legal Insights with Klein Law: Buying a Flat in an Unfinished Residential Development in Georgia.
Whether engaging a broker or conducting an independent search, it’s advisable to conduct both a swift legal review and a thorough market reputation assessment.
In most cases, property owners without an income in Georgia won’t have access to mortgages. This sets Georgia apart and might be considered a drawback, as this is not the norm in many other countries.
Georgia’s Business and Personal Safety
Georgia’s business landscape and personal safety have evolved significantly. While the 1990s and subsequent years were marked by some chaos and a less-than-favorable reputation for Georgian businessmen, a new generation has emerged, characterized by high integrity. The real estate market appears to be relatively free from scams, a crucial aspect when considering investment opportunities. Furthermore, both expats and locals widely agree that Georgia is exceptionally safe, allowing individuals to navigate virtually any neighborhood at any time without concerns of muggings or security threats.