Article: Purchasing Immovable Property in Georgia by Foreigners
The present note was prepared by MG Law Office to provide background information to foreign nationals interested to acquire property in Georgia about the procedure and restrictions applicable to the acquisition of an immovable property in Georgia. The note addresses the questions that are most commonly asked by foreign nationals who are interested in acquiring immovable property in Georgia.
1. What is immovable property?
According to Georgian legislation the term “immovable property” implies a land with its subsoil minerals, the plants growing on the land, buildings and other constructions firmly attached to the land.
2. Are foreign nationals allowed to acquire immovable property in Georgia?
Foreign nationals are allowed to freely acquire immovable property in Georgia with the exception of agricultural land. We have set out below the exceptional circumstances, when foreign nationals may acquire agricultural lands in Georgia.
3. When are foreign nationals allowed to acquire agricultural land in Georgia?
Foreign nationals, foreign companies and Georgian companies whose dominant shareholders are foreign nationals and/or foreign companies are restricted to acquire agricultural land in Georgia. This means that companies having minority foreign shareholding are allowed to acquire and own agricultural land in Georgia as long as the foreign shareholders remain as minority ones. Georgian legislation determines exceptional cases when the foreign nationals are allowed to own agricultural land in Georgia as follows: (i) foreign nationals are allowed to inherit agricultural land; and (ii) Georgian company whose dominant shareholder is a foreign national or foreign company is allowed to acquire the agricultural land based on the investment plan approved by the Government of Georgia.
4. How the company with majority foreign shareholding can acquire agricultural land in Georgia based on the investment plan?
One of the exceptions when Georgian company with dominant foreign shareholding is allowed to acquire an agricultural land in Georgia is when the Government of Georgia approves the investment plan submitted by such company. The investment plan shall clearly set out the need and purposes of making investment in acquiring the agricultural land. Such purposes may include: production of agricultural and/or other products, introduction of innovations, development of tourism infrastructure, implementation of the projects of international, state and/or local importance, that will facilitate social and economic development, protection of national security and creation of new workplaces.
If the company plans to acquire the agricultural land owned by a private person it shall present the investment plan to the LEPL National Agency of Sustainable Land Management and Land Use Monitoring. In case the agricultural land is owned by state authorities the company shall address its request to the administrative body responsible for privatization of the land. Such administrative body is either the National Agency of State Property or respective municipal authority. After submitting the investment plan the relevant body will present it to the Government of Georgia which approves or rejects the plan. The Company shall present the positive decision of the Government at the National Agency of the Public Registry (the Registry) for the registration of the agricultural land in its ownership.
5. What are the grounds for a lawful acquisition of immovable property?
Ownership rights over the immovable property may be acquired based on:
- Sale-purchase agreement (which may take various forms such as preliminary purchase agreement, agreement on purchase through instalments, option agreement and others);
- Gift agreement;
- Barter agreement;
- Privatization;
- Inheritance deed;
- Acknowledgement of the proprietary rights over the land by the municipal authorities when the natural person holds the land in his/her possession arbitrarily for a certain period, and etc.
6. How can a foreign national purchase immovable property?
Foreign nationals are allowed to enter into a sale-purchase agreement with the owner of immovable property. The parties enjoy freedom to negotiate the terms of the sale-purchase agreement, including, the price.
7. What is privatization and can a foreign national acquire immovable property through privatization?
Privatization is the procedure relating to the acquisition of state-owned properties. Foreign nationals are allowed to acquire state-owned properties by privatization. Privatization can take place in the form of an electronic and/or public auction, direct selling or free transfer of the property to the private party’s ownership which is selected based on the competitive selection. The responsible authority for privatization of the state-owned property is the Ministry of Economy and Sustainable Development of Georgia.
8. Are there any requirements applicable to the form of acquiring immovable property?
Georgian legislation requires any form of transfer of the title over the immovable property to be executed in writing and to be registered at the the Registry.
9. Is the registration of transfer of immovable property necessary?
In order to obtain proprietary rights over the immovable property the acquirer shall register the property in its ownership at the Registry. Registration is a guarantee that the acquirer’s ownership rights over the property will be observed and protected since it is presumed that the information available at the Registry is correct, true and complete. Furthermore, registration is necessary in order to fully and promptly exercise ownership rights over the property since only the registered owner or the authorized person based on the power of attorney issued by the registered owner may sell, transfer, mortgage or otherwise encumber the property and make amendments in the registration information.
10. Is it possible to check the seller’s entitlement on selling the property?
The acquirer can at all times check and confirm that the seller is the lawful owner of the immovable property through the Registry’s website by entering cadastral code of the property or the address or the owner’s personal number. The website is only available in Georgian language and may be accessed through this link – Link. Even if the information available on the website is not correct and the seller is mistakenly indicated as the owner of the property, the acquirer’s interests will still be protected and he/she will be regarded as a new owner since he/she relied on the information available at the Registry. Nevertheless, if the acquirer knows that the seller is not the real owner of the property and acts in a bad faith, such bad faith acquirer’s interests will not be protected even if there is a deficiency in the information available at the Registry.
11. What documents are required to be submitted to the Registry?
The seller and/or the acquirer or their authorized representatives shall apply to the Registry for the registration of the ownership over the immovable property and present the following documents:
- Application. The application is filled out at the Registry by the operator;
- Copy of the applicant’s identity document (e.g., identity card, passport, residence certificate, etc.);
- The document certifying the transfer of the ownership (e.g., sale-purchase agreement, gift agreement, barter agreement, privatization certificate, inheritance deed, etc.). The validity of signatures on such document shall be certified by the Notary. Another option is to sign the document at the Registry in which case notarization is not required;
- Cadastral drawing of the property (if prior cadastral drawings are not presented to the Registry);
- Receipt evidencing the payment of the registration fee;
- In case parties to the transaction are acting through the representatives, respective power of attorney;
- In case of privatization, the order of the Ministry of Economic and Sustainable Development of Georgia confirming the acquisition.
The documents shall be executed in Georgian language or be accompanied with the notarized translations.
The Registry, at its own discretion, may require additional documents as the case may be. If the registration documents are defective, the Registry will grant the applicant additional time, which normally amounts to 30 (thirty) calendar days, to correct the deficiency. If the applicant fails to correct the deficiency within determined deadlines the Registry will reject the application and will not register the ownership over the property. The applicant is authorized to re-apply for the registration.
As an alternative to submission of documents to the Registry, the parties have an option to register the transfer directly at the notary office. Georgian notaries have an access to the electronic database of the Registry that enables them to register the ownership over the target property. Thus, the parties are no longer required to visit the Registry for the registration as the notary will register the property on their behalf and will issue extract certifying the ownership over the acquired property. The whole purchase and subsequent registration process can be carried out without visiting Georgia by way of issuing a power of attorney to a local lawyer.
12. How long does the registration take, what are the costs of registration and who is the responsible party for the payment of registration costs?
The duration of the registration procedure depends on the fee paid by the applicant.
|
Registration Term |
Registration Fee |
|
4 (four) business days |
GEL 50 (≈USD 15) |
|
1 (one) business day |
GEL 150 (≈USD 45) |
|
On the day of filing the application |
GEL 200 (≈USD 60) |
According to Georgian legislation registration costs have to be borne by the seller. However, the parties are free to agree on different rule.
13. What are the typical costs associated with the purchase of immovable property in Georgia?
Except the registration costs, other expenses associated with the purchase of immovable property in Georgia are the costs of translation services, notary fees, due diligence costs, etc.
Estimated cost of translation of one page from English to Georgian amounts to GEL 30 (≈USD 9). Notarization of translation costs GEL 1 (≈USD 0.30) per page. Notarization fee for certifying the validity of signature amounts to GEL 2 (≈USD 0.60) per signature. Due diligence and other lawyer costs vary and depend on specific lawyers/law firms.
14. Are there any reports available that reviews Georgian immovable property market?
There are number of reliable companies which prepare annual and quarterly reports and reviews regarding the immovable property market in Georgia. The prominent reports are prepared by Colliers, Galt & Taggart and Cushman & Wakefield.
Most recent Tbilisi residential market review prepared by Colliers is available on the following link – Link.
Tbilisi market reviews prepared by Galt & Taggart can be found on the following links – Link 1, Link 2, Link 3.
Residential market reviews of Batumi and Tbilisi prepared by Cushman & Wakefield can be found on the following link – Link.
In 2017, Colliers also prepared the report reviewing whole residential market in Georgia. This report is available on the following link – Link .15. What are available financing tools for acquirer?
Georgian banks offer mortgage loans for financing acquisition of immovable property. Loans below GEL 200,000 are issued only in Georgian Laris. Term of the mortgage loan is between 6 months to 20 years (if the mortgage loan is in foreign currency then the maximum term generally amounts to 15 years). Amount of interest rates depend on the currency in which the mortgage loan is issued. Below please find an example of commercial bank interest rates currently applicable in Georgia:
|
|
GEL |
EUR |
USD |
|
Annual Interest Rate |
≈ from 8,5% |
≈ from 4% |
≈ from 5% |
|
Effective Interest Rate |
≈ from 11% |
≈ from 6% |
≈ from 8% |
Generally, commercial banks differentiate annual interest rate from effective interest rates. Compared to annual interest rate effective interest rate implies all cost and expenses associated with the loan (e.g., insurance costs, commission fees). While calculating effective interest rate monthly installments paid by the borrower is also taken into consideration. Thus, effective interest rate shows the real amount which the borrower shall pay during the loan period. If borrower takes the loan which shall be fully returned at the end of the loan period and no periodic payments are to be made the annual and effective interest rates will be identical.
The mortgage loan shall be secured by encumbering the immovable property. Generally, the banks do not fully finance acquisition of immovable property and require 15% to 30% contribution from the borrower. The amount of the borrower’s contribution depends on the borrower’s background, construction company, mortgaged property, etc.
16. How does Georgian legislation regulate lease and rent of the property?
The procedure of leasing and renting of the property is very simple. The terms and conditions of the agreement to lease or rent the property are mostly determined by the parties as they deem fit and commercially reasonable.
With respect to leasing, if one of the parties to the agreement is the legal entity and the agreement is concluded for more than 1 year, the lease is deemed to be imposed if it is registered at the Registry. Necessary documents for the registration are:
- Application (the application is filled out at the Registry by the operator);
- Copy of applicant’s identity document (e.g., identity card, passport, residence certificate, etc.);
- Duly certified lease agreement;
- Receipt certifying the payment of registration fees.
Lease registration fees are similar to the fees of registration of the ownership over the immovable property.
Georgian legislation provides tax benefits for physical person who rent immovable properties. Particularly, their income received from such renting is levied by 5% income tax instead of 20%. This benefit only applies to renting of residences and not to commercial areas or offices.
Prices of immovable property and transaction costs in Georgia are relatively low. Moreover, procedure of acquisition is very simple and easy to handle. By adopting new regulations, Georgia strives to simplify transaction process even more and reduce associated costs. Furthermore, Georgian legislation is organized in such a way that it protects the good faith acquirer. Thus, the risk of fraud is reduced to a minimum. The acquirer is able to verify information regarding the immovable property at the Registry and trust its completeness and accuracy.
Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.
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