- Accents #
- Pulse of Week #
- Art of Living #
Two weeks ago private businessman Mykhailo Mukhin, whose company specializes in corporate software, bought 4-bedroom apartment with 258 square meters in a luxury condominium in a prestigious residential area of downtown Kyiv. He made a 20% down payment in cash. After the building is commissioned in the second quarter of 2010, he must pay an additional 50% of the total value. He will pay the remaining 30% in quarterly instalments over two years.
“My apartment would have cost me US $3,200 per square meter if I paid the full 100% up front. Instead, I chose to not pull money out of my business’ turnover and took the place in instalments, which turns out to be US $3,300 per square meter. Before the crisis hit a square meter in this part of town cost more than US $10,000,” said Mukhin
When choosing an apartment Mykhailo was looking for a new development, because in this real estate segment it is possible to get a loan to pay back in instalments and doing renovations is easier. He had an option to purchase an apartment for 30% cheaper than in any other residential complex, but the building there was only 50% ready. After monitoring the construction of new buildings for a month, Mykhailo concluded that construction is at a standstill.
Shadows of the Elita Centre
loom over the ditches
In late 2008 a law was passed banning private investors from breaking contracts with developers in the event the commissioning of a building is delayed for less than 18 months.
This June these 18 months are up, meaning that private investors will begin demanding their money back. This in turn means real estate developers will either go bankrupt or pretend to not owe anybody anything.
Naturally, this will affect the prices of apartments in newly commissioned buildings and new buyers will only look for a deal in which they are not at risk of losing their money. For this reason the gap in the prices of foundations and almost 100% finished apartment buildings will grow. The first will drop in price, while the latter will go through the roof.
“There are around 200 property construction sites in the nation’s capital. Half of them are at a standstill. At a third of them construction work continues, though a a slow pace or with breaks in,” says Director of the Marketing and Sales Department of Ukrainian Development Partners Olesya Romanenko.
This is not surprising, given that buyers on the prime real estate market are a rarity. Instalments and promotional prices are almost a prerequisite for sales. Ukrainian Development Partners, the developer of the Novopecherski Lypky residential complex, developed a very original promo campaign. Indeed, on the evening before St. Valentine´s Day, anybody that performed a love serenade under the windows of the company’s sales office received a 15% discount on real estate. There were 17 lucky winners, all of whom are quite well-to-do.
Twice a month the UZTS company puts one apartment and one suburban cottage up for auction at a starting price 30% lower than the usual price and at a minimum bid of UAH 50 for the apartment or home, not per square meter.
Other developers recall the pre-crisis motto “Tomorrow we will jack up the price." Given this, the Kyiv-based NBK construction company gave fair warning that it will raise prices to the market average in connection with the commissioning of the Park Place residential complex scheduled for March 30. Those who are willing and able to buy an apartment at the full price today will only pay UAH 8,550 per square meter.
Price depends on the buyer
Even experts of the real estate market are hard pressed to say whether the prices of new property developments will continue to fall or will take an upswing. For example, Oleksiy Hovorun, Assistant General Director of the TMM real estate development and construction company, says prices of new property developments in Kyiv have been growing for almost a year starting back in March 2009 and have risen by 10-15% since then. “But compared to 2008 they are still half the price on average,” says Hovorun.
He says today an apartment in a new building in Kyiv that is completed by 70% or higher can be bought for US $1,500 per square meter in the economy class, US $2,000-2,500/sq. m. in the business class and US $3,000/sq. m. in the premium class. Finished buildings are on average 15-20% higher in price. Director of Marketing at the Arsenal real estate agency Olha Svyrydenko says real estate prices continue to fall.
Today, property in the business segment sells for UAH 5,000-7,000/sq. m., while ‘business class plus’ real estate goes for UAH 5,000-9,000/sq. m. In Donetsk, according to the Hertz group of companies, real estate prices are also down. In Kharkiv, Director of the First Capital strategic consulting and marketing department Natalia Dolhova says only luxury housing will fall in price, seeing as it fell to an average of UAH 10,500/ sq. m. in January.
Business and economy class real estate has remained at the same price level compared to January last year: economy class real estate cost US $680/sq. m., while business class was at US $1,100. “It seems the most convincing argument today is cash. The higher the amount the buyer of real estate is prepared yto pay upfront, the lower the price,” says Oleksandr Podolyanko, Director of the Dialog Plus analysis department.