real estate

Unpredictable realty market

20.01.2010 | Yelena Yevgrafova

Despite continuing economic crisis, the prices for real estate in the capital are not decreasing

Although many people cannot buy or simply are not planning to buy an apartment at todays prices, the interest in real estate has not waned. learned from experts how they see the market and what property can be bought in 2010

Photo: A. Gudzenko

Was it the rock bottom?

Today the opinions of real estate experts vary not only in their forecasts, but also in their assessments of changes on the market that transpired last year.

Some experts believe the price bottom that buyers were desperately counting on the entire year of 2009 was already reached back in January of that year. In short, the prices of apartments, albeit not all, are today on the rise.

Proponents of price increases are convinced that the majority of property owners that badly needed money had already sold their apartments. Today the most financially stable sellers that bought property at the peak of their value and remain on the market are not about to sell for a dime.

Director of Real Druzi real estate agency Valentyna Kharchenko says due to the confusion at the beginning of 2009 prices listed for single objects were often doubled. At the time one could find a bed-sitter for US $30,000 (today they go for a minimum of US $42,000), while a 1-bedroom apartment in a Krushchovka sold for US $40,000 (today, US $50,000). At the beginning of last year a premium class apartment sold at a dumping price of US $3,000/sq. m. The average value of a business class apartment today sells for US $3,000/sq. m., while a premium class pad goes for US $6,000/sq. m.

Artem Novikov
Managing Partner
of the Dialog-Classic
consulting company

Stabilization of the situation on the real estate market will take time. Supply even at todays level of prices is not buttressed by real sufficient and solvent demand.
It is possible to understand when the real estate market will hit rock bottom in prices only possible if a trend of price stability or even growth is observed on the market for three to four months. This is when we will see real sales for three months at stable prices for a particular category of real estate.
Only then can it be confirmed that the market accepted the price. At such prices deals are made and their number will see tangible growth. At some stage we will see that at that price level the availability of residential property has been exhausted and only then will new property might sell for slightly higher prices.
Judging from this, people interested in buying property with a long-term benefit should analyze its expediency of no less than three months. A rise in peoples real incomes and a revival of mortgage loan programs that will give people psychological confidence in tomorrow and a real opportunity to effectuate a long-term purchase already today could be representative of such a scenario.

A different group of experts is convinced that prices after the crash in 2008 and the beginning of 2009 have continued to steadily fall. In the upshot, property on the secondary market fell in price by 40-50% in dollars over a year. The growing competition among sellers and a drop in the quantity of real sales corroborate opinion. And though different apartments fall in price at different rates, the overall trend of falling prices will continue in 2010, at least until the summer.

A further drop in prices of residential property is anticipated in the future. However, for the overwhelming majority of our citizens residential property is not likely to become more affordable in the foreseeable future, as the main cause of the drop in prices of property is the decline in incomes of potential buyers, analysts of the Planeta Obolon real estate agency are convinced.

Hardly building, hardly selling

Industry experts describe 2009 as the year of broken dreams. According to forecasts made at the end of 2008, it was presupposed that up to 700,000 square meters would be built in 2009. Conversely, Director of Marketing and Sales at Ukrainian Development Partners Oles Romanenko says based on the results of 2009 the volume of new residential property will be around 500,000 sq. m. (that is no more than 5,500 apartments n.b. editorial).

They are not many builders left of those that laid foundations on their sites last year. Romanenko listed them: Seven Hills, Ukrainian Development Partners, K.A.H. Development, KyivMiskBud, NEST, T.M.M., Financial Construction Company Pagoda and others. At 30 of the 80 construction sites in Kyiv construction is going at a very slow pace and another third of them are at a complete standstill.

At the moment, the main property under construction is in the business class. According to the Ukrainian Commerce Guild (UCG), last year 7,000 new apartments in the nations capital were sold. Prices were 30-40% lower than in the previous year.

Compact dens return

An analyst at the Noviy Adres real estate agency Mykhailo Polyntsev says the lack of new construction will inevitably lead to a shortage of compact apartments, which are in greatest demand. Though dead weight residential property (that which was recalled from sale until better times n.b. editorial) may be enough to satisfy the first wave of deferred demand, it is mainly objects in the business class, the analysts specified.

The secondary market is not offering new objects and the real estate market can only function thanks to new construction. In order to revive the construction industry companies must reorient themselves towards building apartments with smaller areas, Polyntsev noted. According to experts, such new projects are already being developed.

Dont expect sharp dips

Despite the differences in prices, experts agree on one thing neither a sharp rise in prices nor a crash is anticipated in the first half of 2010. The experts predict a crash only if the overall economic situation in the country worsens and the prices of apartments drop in tandem with peoples incomes.

The reintroduction of home mortgage programs in the previous volumes and at affordable interest rates could significantly jack up the prices of apartments. However, banks believe this will happen no earlier than in two-three years. Today 15 banks offer mortgage loans at 20-40% per annum for the purchase of an apartment on the secondary market.

At the moment the real estate market is at a standstill in anticipation of changes that will only happen after the presidential elections. As always, there are two variants of the course of events: optimistic and pessimistic, Polyntsev noted.

As Director of Pagoda Claudia Bondareva noted that if there are not deep-rooted improvements in the sphere of lending for construction, in 2010 the pace of construction of residential property will decrease compared to 2009. According to forecasts, the quantity of unsold apartments in newly constructed buildings in Kyiv at different stages of completion by the end of 2010 will reach 14,000. Notwithstanding, Bondareva does not forecast radical changes in pricing policy on the primary market.

What property should you buy?

Experts believe it is only worth buying in 2010 the property which is needed today, for example your first small apartment or a more spacious one by selling currently owned property and tacking on an additional sum.

Moreover, attorney Maksym Kopeichikov said it is critical that prices of apartments or homes are acceptable and that the object not have a bad history. In 2010 buyers may thoroughly select an object and demand major discounts from the seller seeing as a hyped up demand is not foreseen regardless of whether the global economy pulls out of the recession.

Telling is the fact that since the end of 2008 there has been a notable gap between the offering price and real discounts that, although falling from month to month, still leaves a window of opportunity open for a considerable bargain. (See commentary).

Romanenko says sellers are willing to come down 5-20% of the listed price. Open adjustment of newly built apartments that includes special deals, discounts and bargaining is today around 10%.

At the same time, General Director of Real Druzi Lyudmyla Druzenko says one can only count on turning a profit from the purchase of an apartment today as an investment in 2-3 years. Here it is critical to pay attention to the property class and appraise its liquidity.

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