Recently, the State Statistics Service published information: prices for primary housing in Ukraine, despite all the hardships, are growing
The first quarter of this year showed an increase of almost 9% compared to the same period in 2019. This cannot but please market participants.
At the same time, the construction output index for January-March of this year fell by 5.5% compared to the same period in 2019.
This decline has its own explanation. Since the quarantine restrictions were announced, some developers have stopped working. But, fortunately, not all.
I am convinced: construction sites are something that must remain and work. After all, the construction sector accounts for 3–4% of GDP every year.
This is the base on which the national economy is based. Especially in such realities as now – when the borders are closed for a long time.
A sharp “slump” in construction volumes (both capital and residential) will certainly be reflected in the indicators of many areas of the real sector, which will also slump.
We remember what this looks like in practice from the crises of 2009 and 2014–2015. The negative consequences are already visible this year. For example, the production of machinery and equipment for construction workers in the first three months of this year fell by almost 9% compared to January-March 2019.
The production volumes of building structures and metal products decreased by 27%, concrete and cement products by 17%, bricks and tiles by 12.2%.
Eloquent numbers, you must agree.
In order for the economy not to go into a tailspin this year, it is necessary for each sphere that is a multiplier (construction is among them) to quickly level off after quarantine and continue to keep pace.
So, about construction. What exactly, who and why will need to build after quarantine?
Housing is on the top list. Despite the crisis and uncertainty, the demand for it is and will be. This year and for many more decades. After all, it is not satisfied, but only accumulates and spreads according to the principle of geometric progression.
Let me remind you: the acute unresolved housing issue is a historical problem that we inherited from Soviet times.
And if, say, at the beginning of independence, one conventional urban family needed housing, now, after three decades, two generations have to live somewhere, and, accordingly, 5–7 families that grew out of that one are already looking for a roof over their heads.
At the same time, the number of urban population has increased significantly over this period – if 30 years ago 27% of all our fellow citizens lived in Ukrainian villages, now only about 16%. People continue to go to the city.
That is, in less than 30 years, demand has conditionally increased by at least 5–7 times.
At the same time, activity in the construction market has not only not grown (compared to the Soviet period), but has fallen several times.
We are still building half as much as in 1990. In order to catch up with at least the Soviet pace, domestic builders will need at least another ten to fifteen years.
Meanwhile, another generation will change and the conditional family we talked about will turn into 15 families who need to live somewhere.
But do the buyers have money? Another fundamental question.
I will give a few examples.
80 percent of all deals on our properties “in peacetime” are concluded with a postponement until the end of the sale – that is, the first impression is that the population has little money on hand.
But in fact, the point is not only and not so much that buyers lack the funds for a 100 percent payment right away.
Ukrainians already know how to professionally manage their resources and direct them rationally (someone finds it more profitable not to break the deposit, someone is waiting for a successful counter-sale agreement, someone is planning to purchase a car, etc.). Illustration – if the developer offers competitive favorable conditions (say, a noticeable discount with 100 percent payment) – the buyer is ready to come with the entire amount.
I will add that a qualitatively conducted promotion by the builder increases sales volumes by an average of two times.
And in case of instability (economic or political), people are much more likely to try to pay the entire amount at once.
They are freeing up funds from their bank accounts, cutting other expenses, and focusing on their main purchase.
So, in my opinion, there are enough arguments to answer the question of whether buyers have the money.
Will they buy housing right now and in what direction will the market go this year?
My own experience shows that yes, they will. Moreover, during a crisis, activity increases.
At first, in the first week or two, there is a shocking emptiness in the sales departments.
Then the volumes grow rapidly and at the end of the year may even exceed the average annual forecasts by 20-30 percent. I am sure that a similar trend should be expected this year as well.
It is more correct to formulate accurate calculations regarding the volumes of primary housing that will be sold after the quarantine is lifted, but we will definitely not see a decline in sales in the annual indicators of 2020.
At the same time, the market is being reformed in a certain way – those who will not find the resources to restart after a two-month downtime, or who will not have enough credit from investors, will leave it.
The sphere of primary residential real estate will be reformatted once again, but will remain within its usual limits – without catastrophic collapses and shocks. First of all, thanks to the stable consumer demand, which I have already mentioned.
It is obvious that during the two months of quarantine, the need for housing has not disappeared. Moreover, people who were forced to stay within four walls for this long time, felt, like never before, how important it is to have a roof over their head – more or less comfortable and protected.
Quarantine has again “turned on” the cult of their own home.
After the crisis, the demand for new housing will be concentrated around stable companies, which will in some way increase competition among buyers and only increase the level of their interest.
Today, buyers of primary residential real estate can be divided into two basic categories: 70% are those who need a solution to the housing issue. The rest are those who use housing as a savings tool and as a base for their own business.
People in the first category have one of their fundamental life goals to buy housing.
They are very sensitive to the situation in the market, in the economy, etc. A crisis is coming – and they become more active because they do not want to take risks (especially when the exchange rate begins to fluctuate sharply).
They try to accomplish the postponed goal as soon as possible. It is typical that during a crisis, deals are made more efficiently and quickly.
The process of choosing an object, considering it and making a decision is shortened to almost 1-2 days, while in “peaceful times” the client may hesitate and go to a deal for months.
Those who use square meters as a tool for accumulation generally evaluate crisis periods as the most acceptable and wait for them.
They probably use the well-known advice attributed to Rothschild: to buy “when there is blood in the streets.”
It is logical – in such conditions there is a chance to purchase as successfully as possible.
So, I am convinced: the construction industry today has every opportunity not only to remain in the bracket itself, but also to support other areas.
Provided that market participants are able to integrate into the new system of formats dictated by reality in time and learn to positively apply its new capabilities.
For example, in early spring, no one could have imagined that it would be possible to hold business, government, or even international meetings, give consultations, and conclude deals without leaving home. As it turned out, it is possible. Just like buying an apartment online.
In particular, we recently sold one of our properties online using an electronic signature – and the buyer was abroad.
Agree, recently it would have seemed like a fantasy.
Buying housing online is just one example of the new things that we have already gained from the crisis.
As it turned out: a fast, convenient, and safe option from all sides, which opens up considerable prospects for our industry, makes it possible to significantly reduce time and save human resources.
And there will be many more such discoveries, and not only in the construction sector.
So I see no reason for pessimism.
#construction #quarantine #crisis
ROSTYSLAV MELNYK, President of the Real Estate Corporation “RIEL”
