Construction business faces problems

The construction business, once the most prosperous in Georgia, now faces serious problems. We can blame the global economic crisis but analysts assure us that this problem has also been created by unprofessional errors and serious shortcomings in this industry itself.

Many construction companies set up their businesses by taking loans from the banks and selling unbuilt flats. Very often the money received was unprofessionally managed or deliberately spent for other purposes, either on starting new ventures or purchasing new land or, worst of all, diverting it to personal needs. Today those who took credit from the banks are in a dire position. 25-30% of these people cannot pay their loans back and have asked for the opportunity to restructure them.

There is a further problem. Many clients who bought flats in Georgia in newly constructed blocks lived and worked abroad, receiving good salaries, supporting their families in Georgia and buying real estate with excess money. Today due to the global crisis many of these people have lost their jobs and cannot pay their accumulated debts.

Banks are also having problems due to the quantity of unrefunded bad loans they issued. Some of the banks took on extra risk by investing a lot in the construction business but this looked a rather stable and safe option. It was never imagined that this small country’s real estate market would reach its optimal level and stop being a successful branch of industry. The banks issued loans at high interest rate but now both companies and individuals face serious problems paying them back.

The administration has not so far expressed its readiness to assist either banks or construction companies by allocating relief funds for them. Some companies, not wishing to create panic, say they have no problems. But business does not thrive on gambling, it is successful when it is realistic and the reality of the construction business is pretty distressing at the moment.