Developers are saving, but prices will continue to rise.
Apartment sales in Kyiv have halved for the second year in a row. Under these circumstances, developers are enticing buyers with discounts and installment plans, and are also trying to keep prices down by replacing imported building materials with domestic ones.
Despite this, housing prices in the capital may rise again in 2016.
Savings first and foremost
Political instability, the war in the east, and the country's economic turmoil inevitably impacted the residential real estate market. According to Mikhail Artyukhov, Managing Director of ARPA Real Estate, the logical outcome was a decline in demand for housing to a minimum.
"In Ukraine's current reality, organic demand is driven by a significant decline in household incomes. Furthermore, mortgages are nonexistent, and investors have noticeably cooled off from the real estate market. Currently, their share is around 10%. Therefore, over the past two years, the number of transactions has halved annually—from 32 to 8," says Artyukhov.
According to him, amid such a significant drop in sales, many construction companies were forced to suspend their projects, and in some cases, even initiate their sale. Meanwhile, the remaining developers optimized their budgets by freezing employee salaries, reducing margins, and refocusing on domestic construction materials manufacturers.
"Development companies are forced to change their construction technologies and favor cheaper materials. Most have abandoned the use of imported building materials, which have become too expensive due to the hryvnia devaluation," says Alla Kutsenko, Head of Marketing at City Development Solutions (CDS).
This is also confirmed by one of the capital’s largest developers, the holding company Kyivmiskbud.
"Two years ago, the company decided to abandon Russian-made components. Domestic, Polish, and Turkish components are no worse, but are much cheaper," the holding's press service reported.
Kyivmiskbud imports up to 50% of its construction materials—from cement and rebar to exterior paints, elevators, and wiring.
80% of the shares of Kyivmiskbud Holding Company belong to the Kyiv City State Administration.
Unstoppable prices
Despite the desire to save money, the significant foreign currency component in construction, amid a three-fold devaluation of the hryvnia, has significantly impacted the final cost of housing for buyers.
According to CDS, price growth in the primary housing market in 2015 varied significantly depending on the housing class. For example, in the premium segment, the average hryvnia price increased by 24%. Prices in the economy segment increased the most, by 36%.
According to Kutsenko, this is due to high demand from buyers for economy-class housing, who are purchasing it both for living and for saving money. Meanwhile, in the secondary market, where apartment prices are traditionally fixed in dollar terms, the average hryvnia price of housing has increased by 24% over the past year.
As Kyivgorstroy notes, against the backdrop of rising prices per square meter, buyer preferences are also changing.
"While investors previously wanted a hundred square meters or more, now they're primarily choosing apartments with a smaller area, with studio apartments in high demand. People aren't just thinking about how much space they'll live in, but also how they'll pay for utilities," the company says.
Developers themselves, according to experts, are trying to meet investor expectations. Accordingly, next year, to reduce overall purchase costs, developers will continue to reduce apartment sizes, offer studio apartments, and maintain a high share of one-bedroom apartments in the overall supply, Kutsenko believes.
Kyivmiskbud acknowledges that despite declining demand, housing prices in the capital will likely continue to rise.
"The price of everything is rising—gasoline, steel, and even cement. Consequently, at some point, builders will be forced to raise prices per square meter," the holding's press service said.
According to Artyukhov, housing prices will largely depend on the country's economic situation and the national currency's exchange rate. However, the expert believes that if the national currency devaluates slightly—up to 10%—developers will not raise prices.
"Prices in hryvnia terms won't rise unless the dollar exchange rate rises beyond the 10% threshold. And even if the exchange rate were to jump, say to 35 UAH/USD, prices wouldn't jump by the same amount, but would instead adjust upwards by 15-20% in hryvnia terms," says Artyukhov.
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