Despite record-low prices, new-build apartments are hardly being bought. Companies building housing by attracting new buyers will be the first to suffer.
"One and a half apartments for the price of one," jokes Alexey, a sales manager at a Kyiv construction company, showing off a price list. None of the capital's developers has dared to use such an advertising slogan, but the fact remains: in dollar terms, new buildings in the capital have fallen in price by an average of a third since January 2014. A one-bedroom apartment in a residential area, which cost over $60 at the beginning of the year, can now be found for $40.
However, even at these prices, real estate buyers are reluctant. In August, according to SV Development, only 621 apartments were purchased in new buildings in Kyiv—the lowest figure in the last three years.
Vain hopes
Even at the beginning of summer, developers were optimistic about the future: residents were actively withdrawing their deposits, with a significant portion of these funds being invested in real estate. This coincided with the beginning of a decline in foreign currency-denominated prices—after the hryvnia began a protracted nosedive, most developers fixed apartment prices in the national currency.
As a result, sales of apartments in new buildings showed positive dynamics: according to ARPA Real Estate, while approximately 400 properties were sold in the capital in March, the figure rose to 680 in May and 870 in July. This result fell short of last summer's figures—over 2 properties were sold in Kyiv in July 2013. However, it at least exceeded sales in 2011, when the capital's construction market was recovering from the crisis.
Developers lived in hope all summer. "We thought they'd start jailing corrupt officials, that bribes and bureaucracy would decrease," says the owner of a small construction company. Their expectations proved in vain—according to most builders, nothing has changed with bureaucracy and permits in Kyiv or the surrounding region. At least, not for the better. "In the city, 3,5 completed title deeds were deliberately withheld this summer—officials were expecting bribes," another builder tells Focus. "Well, the manager has changed, but the subordinates are still the same."
Hopes for a surge in demand from refugees from Crimea and the east also failed to materialize. On the one hand, they were genuinely interested in housing. For example, according to the Ukrainian Construction Company, in June, traffic to the Grunwald complex website from residents of the ten largest cities in the Donetsk region more than doubled—from 480 to almost 1 visits. And Kyivmiskbud President Igor Kushnir even stated that 40% of the holding's sales are now coming from residents of Crimea and the southeastern regions of the country.
However, Kushnir clarified that perhaps the issue isn't the refugees at all: "A person could be from Donetsk, live in Kyiv for 10 years, and only buy an apartment today." And with the same "Grunwald," things didn't progress beyond viewings. According to Oleg Moroz, Chairman of the Board of the Ukrainian Construction Company, in July, immigrants from the Donetsk and Luhansk regions accounted for only 5% of sales, and in August, no more than 10%. Konstantin Bravo, Commercial Director of the NEST company, provides similar figures, stating that immigrants from the southeast and the Crimean Peninsula account for no more than 5-10% of sales.
Most displaced persons lack financial resources and are counting on returning home as soon as possible. "Those buying homes are primarily interested in properties under $50, preferably with renovations, as they need to move in quickly," explains Mikhail Artyukhov, Managing Director of ARPA Real Estate, explaining the low demand for new homes. All this has led to a drop in sales: in August, they fell by 20%, to roughly the April-May level.
Falling market
The decline seems paradoxical given the record price decline. According to SV Development, since the beginning of this year, the average price of housing in new buildings in Kyiv has fallen from $1710 per square meter in January to $1135 in early September. Traditionally, the lowest prices were in Kyiv's Desnyansky and Darnytskyi districts. Over the past eight months, apartment prices there have fallen from $1370 per square meter to $914 and $932, respectively. This is far from the limit: on the outskirts of the capital and in nearby suburbs (Sofievska and Petropavlivska Borshchahivka, or Vyshneve), you can now find housing in new buildings for $750-800 per square meter. And in satellite towns like Irpin or Bucha, apartments in high-rise buildings are being offered for as little as $500-600 per square meter.
Despite prices falling to levels unimaginable just a couple of years ago, there are no queues at sales offices, and the housing supply continues to grow. Currently, according to ARPA Real Estate, there are approximately 40 apartments for sale in Kyiv, more than half of which are in new buildings. Moreover, while supply on the existing market is gradually declining (owners are renting because of what they perceive as low prices), supply from developers is, on the contrary, growing.
The imbalance between supply and demand will only be exacerbated by the largest economic downturn in Ukraine's history. This, in turn, will inevitably lead to a crisis in the construction industry. Developers themselves are trying to avoid discussing this issue, although they admit that they are focusing primarily on designing new projects rather than starting new construction. "Companies are rushing to complete the buildings in which they have already started selling apartments," notes Mikhail Artyukhov. "Work on projects where sales haven't yet begun is simply being halted."
In informal conversations, developers agree that sales will decline until the very end of the year. "They simply have no room to grow," one developer tells Focus. "Reserves in the form of deposits and funds set aside for a rainy day are exhausted, consumer sentiment has fallen to 2009 levels, so the only buyers will be those who have already sold something." Much also depends on events in the east—according to Alexander Rubanov, president of the Union of Real Estate Specialists, if the war continues, sales will "tend to zero."
But even without this, the decline in sales will hit the industry hard. The first to suffer will be companies that build housing solely by attracting new buyers. Even a gradual decline in sales will lead to a slowdown in construction. This will lead to investor dissatisfaction, a decline in interest in the project, and, as a result, a halt in construction.
Developers building exclusively with borrowed funds face similar challenges. "Most of them took out loans in dollars and now can't repay them," says Mikhail Artyukhov. Companies that actively offered clients installment plans of 1-3 years, subject to a down payment of 30-50% of the property's cost, are also at risk. Demand for this type of property purchase plan in Kyiv has recently skyrocketed, but in the near future, the number of buyers who will be unable to repay their installment plans will skyrocket. Next year, this could lead to a repeat of 2009, when new home sales in January and February fell to 55-65 apartments, reaching a year-high of 180 units in September alone.
Alexander Bardakov, Фокус
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