According to preliminary estimates, during the quarantine period, Kyiv developers were unable to sell about 4,000 apartments out of the planned ones, losing more than UAH 4.5 billion.
Is the market at risk of mass bankruptcy?
4 thousand apartments is about 4.5 billion UAH of unearned funds, 2/3 of which would have been directed specifically to the construction of residential complexes. The figure is colossal, if we take into account the fact that only 30% of the residential complexes under construction more or less correspond to the increased purchasing preferences.
And the financial strength of developers, which allows them to build without being tied to the level of sales, is present only in 17-20% of the objects under construction, which are mainly carried out in partnership with 2-3 developers.
And for 25% of the objects, the construction of which directly depends on the funds of buyers, the lack of financing can become critical. That is why the pandemic can become a kind of “destroyer of fate” not only for many developers, but also for those buyers who have purchased apartments.
However, despite such a rather “terrible” construction, the market continues to live, adapting to difficult conditions in order to be able to continue construction. In addition, right now, buyers are offered apartments at the most favorable prices.
To stand still for a day, to hold out for a night
The market is very slowly, but still emerging from quarantine: the sales level is gradually showing growth. This is a good sign, first of all, for potential buyers. Thus, in the last week of May – the first decade of June, the sales level in the primary market of Kyiv, compared to the quarantine period, in economy-class objects increased by an average of 2%, in business and premium-class buildings the sales growth was recorded at about 4%, and in new-format objects – a little more than 6%.
But in order for the sales level to reach the February indicators and to “pay off” the apartments unsold during quarantine, many developers need from 4 to 6 months, and a maximum of a year.
I would also like to note that the market is quite possibly waiting for a process of segregation, first of all, according to the qualitative characteristics of a particular object under construction. After all, in the first half of 2019, more than 2/3 of all residential buildings under construction no longer met the increased purchasing preferences in terms of construction quality and living comfort.
This led to the fact that in February 2020, more than 70% of buyers were concentrated on objects of new formats, such as multifunctional residential complexes, city-in-city and live-work-play formats.
Ventilator for the market
At this stage, many market players can resort to significant changes in implemented projects. It is about re-conceptualization as one of the ways to increase the attractiveness of the housing under construction. And it is quite likely that in 40% of the objects under construction, corrections can be made in terms of both infrastructure objects of the complex (for example, objects of planned social and household infrastructure with the involvement of network operators), as well as the conceptual approach to changing the indoor space.
Many companies understand very well that in the next 2-3 months for development or, say, project changes, developers should focus on 5 important aspects that can significantly affect the increase in sales.
First of all, the quality of construction and the functionality of the future residential complex. This is about the competent creation of a multifunctional and self-sufficient infrastructure thought out to the smallest detail: with the presence of built-in shopping malls, grocery stores, kindergartens, restaurants, fitness centers, coworking, cafes, lounge areas created on the territory of the residential complex, mini-parks, squares, and more.
This is the pace and timing of construction. The buyer will be focused on the facilities of those companies that have managed to avoid significant stops in construction, on those developers who have a margin of financial strength so as not to depend on sales activity in the near future.
This, of course, is the image of the developer company, its ability to conduct an open dialogue with the public, not being afraid to call things by their proper names, not hiding from the crisis, while changing, if necessary, its strategy, which is called “on the fly”.
We should also not forget about an important component of the domestic housing construction market – the investment attractiveness of buying an apartment. At the moment, the average market growth in the cost of a square meter from the excavation to commissioning is 25-30%, but in some new-format facilities the projected profitability can reach 50%.
And finally, this is the developer’s ability to slightly reduce the expected profit with the help of various promotions, but at the same time significantly increase the level of sales. Most companies will most likely “extend” the promotional period at least until the end of June. What promotions can potentially “work”? Fixing the exchange rate at 24.8−25.5 UAH/USD – in April – at the beginning of May due to strict quarantine conditions, such promotions were not so effective as to significantly increase sales. But already in the second half of May, when quarantine, as it is commonly called, became adaptive, it was this exchange rate that gave many buyers the opportunity to purchase an apartment with an additional 10 percent discount.
Also, most likely, the buyer will react to the opportunity to purchase an apartment with interest-free installments for a period of about 2 years or the developer’s guarantee of a refund without penalties if for some reason the buyer refuses to purchase.
But for the market to emerge from the “pandemic” crisis, of course, the general economic situation in the country and the confidence of potential home buyers in the level of income will be important.
Angelica Sahakyan, Marketing Director of the Polaris Home & Plaza project
