Property investment into Georgia, regarded by the World Bank as the 18th-easiest country in which to do business is now at risk as investors worry that the conflict will have lasting consequences.
'This sounds the death knell for the real estate market in Georgia,' says David Geovanis, managing director of London & Regional's office in Russia. 'Whatever shoots it had shown are now over.'
Less than two months after hitting the equity-raising trail for his Georgian property fund, David Peill, a UK entrepreneur with close ties to the Georgian property market, is reviewing the situation.
Peill has already raised £16m for the Alliance Property Fund, a development fund targeting projects across all market sectors in the country.
The fund was expected to grow to up to £107m and Peill had planned to double the equity by next month. He had also planned to take a sabbatical from his role as partner of corporate finance house Argo Saint George to become CEO of the fund's manager. All this will be delayed now until the New Year at the earliest.
'We are reviewing where we are. We have spoken to our investors over the last few days and they remain interested,' he said. 'We are committed to the location and the future of the country. The west has seen how Russia reacts to Georgia. There will be uncertainty but in the long term this demonstrates the importance of the country as a strategic trade route,' he added.
The fund, which is jointly managed with Georgian entrepreneurial brothers Samson and Levan Pkhakadze, was aimed at wealthy individuals and small funds across Europe.
The European Bank for Reconstruction and Development has week re-affirmed its commitment to Georgia, where it has invested about £30m of debt and equity into the country's largest developer, Georgian Reconstruction & Development Company.
But it hasn't been easy. GRDC's contractor, Turkish firm Erenport, was forced to switch its usual supply route through Turkey to a more inconvenient Azerbaijani route after several key roads were closed because of the fighting.
Investors in GRDC have been offered an internal rate of return of between 30% and 40%, but now it is not clear what future returns investors can expect.