real estate

Another brick in the wall

01.11.2010 | Text: Andriy Chumachenko Weekly.ua

The dreams of many residents of major metropolises to buy a cheap apartment in a new high-rise building are close to coming true as never before

PH: PHL

here is no sense in waiting for the revival of mortgage lending as prices of real estate will shoot through the roof. The price of a square meter will hardly continue to fall. For example, in Moscow the prices of apartments are on the rise, both in dollars and rubles. Weekly.ua decided to find out what is worth buying now in a new high-rise in Kyiv

Whats for sale

At the moment, conditions for buying an apartment in high-rises currently under construction are advantageous like never before. During the crisis years the prices of a square meter saw a notable decline. An economy-class apartment in Poznyaky, Troyeshchyna, Osokorky and Voskresenka will cost US $1,113-1,265/sq. m. In other terms, US $48,000-63,000 will be sufficient to buy a 1-room apartment with 43-50 square meters located in a bedroom district of Kyiv.

The prices of apartments in the center of Kyiv and neighboring districts cost on average US $1,886-2,700/sq. m. For example, a 1-room apartment with 50 sq. m. in a premium class building in Lypky cost around US $135,000. The building is luxury class with a parking garage and other amenities. One must agree that a couple of years back one could only dream of such prices.

In addition to that, developers are offering payment by installments options. For example, a 30-50% down payment can be made and the residual can be paid in installments interest-free until the construction is complete. Of course, prices for financing in installments are not fixed and realtors warn in advance that they may rise. Furthermore, the maximum term of an installment program is a year to a year and a half, taking into account the term of construction.

In order to attract buyers, realtors offer discounts on apartments or the possibility of purchasing them at reduced prices on auctions. In this case, buyers can save a maximum of 10-15% on the price of an apartment.

Many builders cooperate with banks and offer mortgage loans for the purchase of an apartment at extremely low interest rates from 12.75-22% p.a. in hryvnia. For comparison, the average interest rate when buying an apartment on the secondary real estate market on loan is currently 23-25%.

Time to buy

When asking developers Weekly.ua was pleasantly surprised by the course of sales. Despite the crisis, apartments on the primary market were either already purchased (a half year or year before commissioning), or only apartments on the top floors were left for sale. Only 3-4 room apartments in luxury high-rises in the center of town were sold at the same pace. Can one speak of a revival of demand on the market? On the prime real estate market, the answer is more likely yes than no.

In August, the volume of construction works increased by UAH 297.1 mn to UAH 4.133 bn compared to July. In the opinion of Director of the Information Analysis Center of FOREX CLUB in Ukraine Mykola Ivchenko, a full-fledged revival of the workload volumes of builders can be expected in the second half of 2011, when interest rates on mortgage loans in hryvnia will drop to 15% and the volumes of loans to construction companies and individuals will increase.

Realtors forecast that the prices of real estate will directly depend on the pace of revival of mortgage lending, which is already visible to the naked eye. In 2010, the number of banks offering loans on mortgage increased, while interest rates fell by 3-5 percentage points. Accordingly, the volumes of mortgage loans are on the rise.

Despite this, banks have become more cautious in issuing loans and only approve loans to clients with a high level of income and a solid credit history. Given this, counting on mass lending or a major increase in prices on the real estate market over the next couple of years is senseless.

The prices of real estate might be slightly adjusted, but are not likely to exceed the current indicators. For the time being, it can be confidently said that the market has hit rock bottom and gradual growth is ahead of us, say Director of the Retail Business Development Department of Universal Bank Vitaliy Shastun.

Time for cautious investments

The most interesting object for investment is an apartment in the economy and middle class worth US $50,000-100,000 for an extended period of 3-5 years or more.

Prices of real estate first and foremost in the economy class will grow slowly, but surely. This is largely tied to the revaluation of the dollar. People are once again starting to buy real estate as an object of investment for the future and protection against hard currency inflation, believes President of the Ukrainian Analytical Center Oleksandr Okhrimenko.

Buying an apartment to rent it out, one must be prepared to accept a return of no more than 7-10% per annum so the property will pay for itself only in 10 years.

Commercial real estate office space, stores and other retail outlets may rise in price even more than residential space. But taking out long-term loans to buy real estate with the aim of getting a return on your investment is not a wise idea. One would be much better off taking advantage of financing by installments and get the highest discounts in purchasing a piece of property. In this case, one can count on a half decent profit in 3-5 years.

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