After quarantine, Ukrainians began investing in primary housing at the excavation stage, but Ukrbud’s unfinished construction threatens to collapse the market
The stagnant construction market has shown signs of life for the first time since the beginning of the coronavirus crisis. Ukrainians’ investments in new housing at the initial stage of construction increased by 15%.
Experts state that the corona crisis in the primary real estate market is over, but note an extremely negative aspect that is depressing the market – the irresponsibility of state and municipal developers, as well as the unfinished construction of Ukrbud and Arkada. Without resolving this factor, the market will continue to be in a coma.
Demand has increased
Despite the mass protests of deceived investors, in June-July, demand for objects in the initial stages of construction increased by an average of 15% compared to May. This was reported by the marketing director of the multifunctional residential complex Polaris Home & Plaza Angelica Sahakyan.
According to her, as of mid-July, about 40% of all apartment purchases fall on the initial stages of construction: if only the pile field is ready or several first floors have been built. More than 25% of demand is concentrated on objects whose construction is at the “monolithic” stage — the erection of the building frame (from 6 to 12 months), about 20% falls on objects where the arrangement of engineering networks, installation of double-glazed windows, facade work, etc. is already underway (from 12 to 15 months), and demand at the final stages of construction is about 15% of the total sales volume.
Such statistics indicate that the real estate market needed 2.5 months to reach a more or less acceptable level after the strict quarantine. First of all, this concerns the growing demand, as well as the pace of construction. Experts predict that in the next two months the activity of buyers will be quite high. This will be reflected in the growth of sales at the initial stages of construction.
“Depending on the economic situation in the country, including the exchange rate of the national currency, as well as the stable cost of building materials and construction and installation works, in August-September the volume of investments in objects at the initial stages of construction on average in the market can amount to up to 45% of the total sales volume,” says Angelica Sahakyan.
What are they buying?
More than 70% of all demand at the initial stages of construction falls on new-format facilities, the construction of which began in 2020 and did not stop during the quarantine period: these are primarily multifunctional residential complexes, “city-in-city” facilities, live-work-play, etc.
On average, the market growth in the cost of 1 sq. m from the start of construction to the commissioning of the facility in economy-class facilities reaches 22-25%, in comfort-class facilities – 30%, business-class – 35%. At the same time, the increased demand for new-format facilities (comfort + and business + categories) is caused precisely by the high liquidity of investments: up to 50% for the entire construction period.
“The problems of unfinished construction facilities have become a catalyst for the buyer to take a more careful approach to the choice of a developer and an investment object. Its main requirements today are: a well-thought-out infrastructure, high liquidity of investments, whether construction was carried out during the quarantine period, etc. but the most important thing is the reputation of the developer, his experience in the market, the ability to build at the expense of his own funds, which significantly reduces the risks for the buyer, “says Sahakyan.
The buyer began to study the financial capabilities of developers more carefully, their ability to complete the project on time without delays. Since today the investor is practically not protected from any cataclysms in the market, it is the financial capacity of the developer company that is the “litmus” that significantly affects the final choice of the buyer. In other words, the availability of sufficient construction financing can become an additional argument for the buyer when choosing a specific object.
“Today, only 17-20% of construction projects have sufficient funding to complete the project on time. These are mainly partnership projects (mainly new format projects: multifunctional residential complexes, live-work-play projects, eco-projects, “city-in-a-city” projects), in which 2-3 developers participate. 25% of projects have enough funds for a period of up to 1 year. Another 40% of projects will have enough funds for construction within 6-9 months. And 15% of the residential complexes under construction will have enough funds for a period of up to 4 months,” commented Rusaniv Residence project manager Oleksandr Izarov.
Low base
However, SV Development analyst Serhiy Kostetsky believes that these statistics look decent solely due to the low base effect – the primary construction market has slumped so much since the beginning of the year that even such encouraging indicators speak not so much of market optimism as of its decline.
“As of today, half of the people who wanted to buy an apartment in the primary market last year went to the secondary market. More than 20% went to the secondary market in the last couple of months after the end of quarantine. This is a very serious trend and it will continue. And the fact that demand grew by only 15% is bad. It should have grown many times. Because today, investing in real estate is the only possible investment in Ukraine. After all, there is essentially no banking system, nor any other investment,” says Kostetsky.
According to SV Development research, people have completely lost trust in the primary real estate market and are trying not to invest in construction, but to buy housing on the secondary market in order to avoid risks, especially since the difference between apartments on the primary and secondary housing markets is small.
“We are conducting research: 90% say that they are afraid, but they are taking risks. Well, what to do if the money is lying around. Basically, either super-experienced investors who know everything come to the primary, or people who want to buy an apartment not at the excavation stage, but a little later. Previously, they came mainly at the excavation stage. And there is such a factor that between the primary and secondary there is an insignificant difference in price of 100-150 dollars per square meter, this is a small amount, ”says Kostetsky.
Unfinished constructions of Ukrbud
Unlike other sectors of the economy affected by the coronavirus crisis, the construction market is also being extremely negatively affected by the situation surrounding unfinished buildings, whose investors are blocking streets and holding rallies near state institutions.
Even despite President Volodymyr Zelenskyy’s public promise back in December last year to resolve the issue of state-owned Ukrbud facilities that were transferred to Kyivmiskbud for completion, the process has barely moved.
Out of 28 facilities, Kyivmiskbud accepted only five “start-up” projects before the New Year, which it promised to complete by the end of January, but without explaining the reasons, it only completed three of the five facilities at the end of June, which in fact were built and occupied by Ukrbud and were only fully documented.
While the paperwork for completed projects took over six months, projects that are 95% complete and require little effort are almost standing still.
“The state is somehow stupidly reacting to this situation with Arkada and Ukrbud. If Ukrbud, Arkada, Kyivmiskbud are not able to finish the construction, then how can we continue to trust the market? Previously, they monitored like this: the developer is reliable if it is a state-owned company, if it builds many objects, if it has already built a lot. All this collapsed after the unfinished construction of Logichni and Ukrbud. Were companies close to the state building? Close. Bankrupt? Bankrupt. Did they throw people away? Thrown. They handed over the objects to Kyivmiskbud, but it still doesn’t finish anything. People complain, get nervous, and this has a detrimental effect on the market,” says Kostetsky.
According to him, only the immediate activation of Kyivmiskbud in completing Ukrbud facilities will help the real revival of the construction market, and the state should also intervene in the situation around the Arkada construction sites, whose investors have been creating the strongest “anti-advertisement” of real estate investments with their shares in the last month.
“Investors should not be ignored, they are not going on strike for nothing. When this happens, people will understand that the state will help and will invest in the primary market. In essence, the bubble that was inflated has burst, the market has collapsed and is buying something by inertia,” Kostetsky summarizes.
Author: Oleksiy Yermolenko
