Samantha Shields in Tbilisi -

Tbilisi's mayor, Gigi Ugulava, is hoping a scheme to provide loans for property development will help preserve the city's elegant yet crumbling historic centre and breathe life into a local economy whose construction sector was badly hit by the global economic crisis.

Many Georgian construction companies started building apartment buildings they were unable to complete when the crisis bit, and the plan aims to revamp these projects by providing finance to complete them and moving willing old town residents to live in them.

Under the scheme, a company wanting to develop an apartment building in the city's old town and restart its own stalled project will come to an agreement on rehousing all the residents, present a plan to the mayor's office and borrow money to finance the whole thing from a bank. On completion of both sides of the project, City Hall will repay the bank, take possession of the old town property and auction it off to a third party. "This creates a cycle that doesn't damage the state budget, stimulates the banks, stimulates the rehabilitation process of downtown, stimulates current construction and creates jobs," Ugulava tells bne in an interview in his office in City Hall.

Crumbling façade

The development scheme is timely. In the narrow winding streets of the old town, whose buildings date from the 17th to the early 20th centuries, intricately carved wooden balconies rot and Art Nouveau buildings that would be lovingly preserved anywhere in Europe list precariously to the side, supported by clumsily fitted metal poles. Washing lines hang among the twisted vines and electrical cables are slung dangerously across mazes of courtyards, as most of the apartments are very overcrowded, in terrible repair and badly supplied with basic utilities.

Buying property in ex-Soviet states is notoriously complicated because families given rights to live in so-called "communal apartments" under communism must be individually rehoused. Ugulava claims his scheme will simplify matters by putting the onus to complete the complicated negotiations with residents on developers. It will restart the business cycle for ailing companies by giving them an incentive to complete their own half-finished apartment buildings dotting Tbilisi's suburbs, because that's where they'll rehouse the residents from the old town. "Many investors were coming to Georgia wanting to invest in the centre of Tbilisi because of its business and tourism potential, but there was a huge obstacle because they couldn't work with the apartment owners case-by-case," Ugulava says. "They'll now be able to buy a 'clean' property from the municipality in auction."

Construction companies in Moscow have come under fire from architectural preservationists in recent years for tearing down historic buildings and putting up modern, soulless replacements, but Tbilisi's mayor is adamant that only development plans that preserve the character of the old dwellings will be given approval. "We have a special architectural board that makes sure developments preserve the character of the buildings," he says, adding also that residents will not be forced to leave their homes if they do not want to.

The architectural board wants to encourage the kind of multifunctional development of the historic centre that will attract tourists, and will favour apartment blocks, boutique hotels, restaurants and art galleries. An earlier government-backed plan to turn Shardeni Street on the edges of the old town into a Parisian-style street of stylish outdoor restaurants and cafes succeeded, and the stretch is buzzing with well-heeled Georgians and tourists in the evenings.

Phase one of the new scheme is already underway, with 250 families rehoused and GEL20m ($28.6m) lent to 10 companies by banks. So far, companies who have signed up for the deal are fully Georgian or Georgian joint ventures with Israeli, Kazakh or Polish investors, Ugulava says, adding that he hopes foreign investors will buy the finished old town buildings from City Hall. "We would welcome foreign investors - there isn't enough money in the country."