Batumi has become the largest gambling centre. How has this affected real estate?

The wonderful resort town of Batumi has been famous for its hospitality and health resorts since the Soviet Union. Of course, this is well traced in numerous films and fiction. You bet! In fact, it was the southernmost city of the great country, where citrus fruits always grow, wonderful Georgian wine and unique cuisine, and certainly warm black sea. Sad as it may sound, all of this has become a thing of the past over the last 20 years, with a plethora of alternative travel destinations springing up to skim the cream off the multimillion dollar tourists, many of whom have of course become more sophisticated.

Of course, the Georgians relaxed to a greater or lesser extent, reaping the laurels of incredible subsidisation of their republic while it was in the union. And I think the reason for this is well known to everyone - practically the entire party leadership came from this sunny land. Plus, of course, our closedness, which allowed us to always get an incredible number of holidaymakers, without doing anything special for this.

What is interesting this city now?
Of course, the first is the geographical location - one of the closest foreign resorts for tourists from Russia, a large number of foreigners from neighbouring countries, and number one is of course Turkey. Yes, it is the most numerous tourist in Batumi!

What is Batumi good for?

Nature, mountains, numerous springs with mineral water, chic seafront and beaches
Unique cuisine, which is famous all over the world.
Georgia is among the top 5 safest countries in the world
Georgia is among the leaders in terms of growth of tourists
And of course the topic of this article - Batumi has become a major gambling centre with a large number of open casinos.
It is the latter point that is now the main driver of the property market in this city, and below I will tell you why.

There are only 2 main centres in the region where casinos are officially allowed to open - the unrecognised republic of Northern Cyprus and Batumi. For city planners this direction is now one of the priorities, as it attracts solvent tourists from all over the region and brings large tax revenues to the treasury. Mostly come from countries where it is forbidden, which is generally logical. These are: Israel, Turkey, Azerbaijan, Armenia, Russia, etc. At the same time, following the example of Las Vegas - of course, tourists are primarily interested in hotels and infrastructure in addition to entertainment. And what is surprising is that this type of tourism has no seasonality, unlike standard beach tourism, in the winter season hotels usually have a good load.

How does this affect the property market in this city and why might it be of interest?
Of course for one single reason - there are frankly few hotels in the city, especially high 5* level ones. In fact, in the past there was no corresponding demand. And now it has sharply appeared, which led to simultaneous introduction to the market up to 10 different new objects under the world names: Radisson, Windham, Ramada. At the same time, the selective and solvent target audience of course expects just such a high quality level of service. This is especially true for tourists from Turkey, for whom travelling to Batumi is maximally simplified - they only need to cross the border by car, which they do in the number of more than 500,000 people a year.

And here the market faced a new problem - there is a high demand for hotel construction, there are developers, but there are no strong investors who could support such investment-intensive projects. Almost everywhere a new hotel is brought to the market by a local partner, who signs a franchise agreement and transfers the object to the management of the so-called holding company, which generates the flow and occupancy of the room stock thanks to its brand and a developed network of agents and partners. Plus of course these are implemented standards that are almost impossible to replicate from scratch. In essence, this is a mutually beneficial partnership - the hotel chain adds another location to its geographical development, and the investor receives a highly profitable asset with excellent returns.

For this reason, the Batumi property market is now mainly represented by hotel complexes, where investors are invited to participate in the construction through the purchase of a hotel room. Let's take a deeper look at what it can be interesting and what are the nuances here.

So, if, simplifying - the developer offers you to buy a hotel room under one of the famous brands, which will be operated and you, as an investor, will receive a part of the income received. As a rule it is 50-60% of the gross net income of the hotel divided by the total number of rooms. At the same time, of course, it is beneficial to all parties to the transaction - the developer, for lack of the full amount of investment in the project and having a signed contract with the hotel chain all get in time and quickly launches the project, starting to return their investments, hotel chain promptly expands its geography virtually without investment, the investor in the hotel room receives a guaranteed income and liquid object, which under the contract will be ready to buy out in 3-5 years with a premium of 20-25%. Or you can sell it yourself, as such profitable property is interesting to a large number of potential buyers, now it is the so-called trend.

A bonus is the possibility to stay at any hotel in the chain or in your own room for a certain number of days a year and tangible discounts on the use of the hotel infrastructure.

Difference from buying a simple flat
Pros:

The cost of living in a good 5* hotel is always many times higher compared to standard apartment rentals. It brings significantly higher annual income.
The hotel itself takes care of the management - check-in, check-out, repairs, keeping the apartment in order, mutual settlements
The hotel in the contract will be ready to buy the room after a certain amount of time with a fixed premium. This is much more convenient compared to a standard flat, as for many people it is certainly a problem to sell later, especially with a profit. In the market, anything can happen.
It is your holiday home, however you want it to be. You can come and rest for a certain period of time, if this direction is close to you. Or pick up alternative destinations from the net.
The right and in its own way fair distribution of profitability, the so-called common pot. Even if your room was not occupied during the month, you will still get a part of the profit from the rest of the rooms that were rented out in the hotel
Since these are international chains and international practice - the reporting system is transparent, in a number of projects including via mobile application.

Cons:

Of course it's the price - compared to a flat, a hotel room is always a bit more expensive. But in the case of Georgia the difference is not huge.
The distribution of profitability in a hotel is always less interesting, if you compare it with a classical management company. In Georgia it is 50/50 or 60/40. The management company will contractually be willing to reimburse 70% of the profit earned.
It is not possible to live all year round, coming at any time.

Pricing

I deal professionally with international property, and mainly with investors. And the question of price always starts with the cost of the land plot under the object, and most of the objects in the city are located on the first coastline. In fact, it determines the price of a square metre. In this sense, Batumi has an amazing situation - land is cheap there now. It is so cheap that the same type of objects would be 5-10 times cheaper compared to the first coastline in the same Antalya. And the main disadvantage of such locations is a narrow edge of land maximum 200-300 metres along the city. In other words, this asset is very finite, and there the same extreme in the aftermath of rising prices. At the same time deeper the price by definition can not grow much, because there are kilometres and kilometres of vacant land where you can build at least minicities. Plus of course the very understanding of a hotel room implies investment in a very extensive infrastructure in it. In simple residential buildings it is simply not necessary, and all this eventually lies in the cost of sq.m. The economy must be economical. And of course a small premium for the brand to own an apartment in also Windham is prestigious.

Example: at the moment the cost of a standard room in the Radisson hotel under construction is $119,000, which is on average 2 times more expensive compared to a new complex with apartments nearby. This is such a premium for a certain guarantee of profitability, service. But here we should look at the other side - the liquidity of this property and its subsequent value on the market, I took this as an example. And we get a rather unique situation - Radisson hotels will not be built in the city anymore. There is only one and it is a top one. There will be no more land plots with direct sea view either, they are now being sold off in a frenzy, for current and future projects, the trend is already visible. And objects with guaranteed profitability on the market as a whole is not much, sooner or later hotels will be built and further residential complexes will be built, and how they will generate income, and who will do it, of course, the question.

It is worth noting that all developers have instalments for 1-2 years with a minimum, and the big advantage is that in Georgia any foreigner can take a mortgage at 12% per annum. At the same time, the profit from the rent will be higher than the monthly payment, all as Robert Kiyosaki taught us.

Profitability, how is it even considered?
Having something in the property, of course, it is ideal if this something is profitable. And it would also be great if your investment pays for itself at some point. If it is linked to a time period, it is called the payback period. For example, if your investment earns 100% return per year, then the payback period is 1 year. If the return is 20%, then the payback is 5 years. In other words, after 5 years you have recovered your initial outlay and you still have an asset left over. With real estate, things are a little trickier.

There is such a thing as ROI (return on investment)

It is made up of two indicators: what your object has brought at the expense of rent and how much it has increased in value during the year. You have to add them up. The financial model, which I always like to calculate, shows that the average return on investment for a hotel room is 7 years. Compare that to a typical flat in Moscow, where the figure rarely falls below 20 years.

At the end of the article will be my contacts where you can request more detailed calculations and information.

How to own property in Georgia for Russians
Russia is the main economic partner for the southern republic, sharing a common border with it. This is their foundation, to which they actively cling. Tourism, goods, logistic routes - all for the sake of the big brother in the north. This is the reason why there was and will be a loyal attitude towards us as a buyer and investors. At the same time, Georgia has a so-called loyal tax legislation, which has recently started to attract many relaxers. The tax on the purchase of real estate is 0%, on the profit received 5%. At the same time, if it will be necessary, when buying property from 100.000$ you can get citizenship or residence permit, which in general is not necessary, as it is fashionable to stay in the country up to 365 days a year.

Rental income in Batumi
It is always assumed that renting is profitable anywhere on the sea. This is true and logical. Batumi is taking a more interesting path - they have adopted a strategy to disconnect themselves from exclusively beach holidays. This is a seasonal type of business after all. The presence of the largest game cluster in the region allows them to work and attract tourists all year round. If we add the large centres with therapeutic water in the region, we get a very interesting case. At the same time, the average cheque of tourists who come to play in casinos is always above average.

What hotels are being built now:
Radisson

The brand needs no introduction. 50% built, with completion and launch by 2025. On the beachfront with 5* infrastructure. Price from 119,000 and a payback period of 7 years.

Rotana

One of the largest chains of premium 4 and 5 star hotels. On the first coastline with its own premium beach. Completion in 2027. Prices start at $96,000 with a payback period of 7.5 years.

Metropol

It is being built in an iconic location in the city centre, next to the largest shopping centre in the city. The maximum gentle budget - $65,000 for a standard room, which is significantly lower than network analogues, this in turn will affect the subsequent payback period. A big advantage is the distribution of profitability at the rate of 60/40 in favour of the investor. The payback period is estimated at 6 years. Already at the final stage of readiness.

What will be the result
Now is the period when there is no understanding of how events will develop. The instrument where everyone has always kept their savings in Russia, namely real estate within the country as a whole, I believe is not working now. Many thanks to the programme of preferential mortgages and sky-high pricing. At the same time, savings are growing in many people given our closed economy, at least this is the case among my circle. If we add to this the twenty-year trend of general devaluation of our national currency, then of course we need to save in currency, that's the way the world works, whether we like it or not. Look around you - cars, phones in your hands, TV set in front of you, cosmetics, holidays, almost everything is tied to international currencies. Our everyday spending is also pegged to them. Buying a flat for the sake of a flat, of course always afterwards you always want to ask the question, ‘to do what?’ I think that income property is the trend where all investors of the world with small and big budgets are going now. Even 3 million rubles will be enough to already decide in the future for themselves the question of basic income and a prosperous old age. And at the expense of what - here is one of the tools I wrote about above.