Affordable housing – a matter of time or a dream that did not come true?


«The chase after affordable square meters has begun…» – is it another eye-catching advertising slogan or reality that is already close to most Ukrainians? Briefly about the situation and further investment prospects in capital residential real estate market.

Steadily growing real estate market is a mirror projection of a healthy economy of any country. For many years, real estate as an investment tool keeps palm of victory for conservative investors who prefer a relatively low but at the same time quite stable income.

Limited choice of available investment tools for saving/increasing accumulated capital and volatility of the banking system in Ukraine makes it possible for ordinary Ukrainians who have accumulated a certain amount of funds to feel as full-fledged investors.

It is true, many people buy housing due to life circumstances, but there are those who primarily consider this asset as a permanent passive investment income.

Where is the bottom line?

According to the international study by Global House Price Index, in terms of decline in 2016, Brazil took the first place in the world, while the second belongs to Ukraine.

After a relative stabilization in 2012, in 2014, the real estate market went into a steep dive: prices for apartments expressed in dollar were dropping by 2% monthly.

In 2017, there is a gradual decrease in the rate of decline of about 0.2-0.5% per month, which may indicate relative price stabilization by the beginning of 2018.

However, Ukraine continues to be one of the most expensive countries in Europe in terms of real estate mortgage cost, which is now about 20% per annum.

Negative influence is also exerted by the extremely low purchasing power of the population, since the majority of income of Ukrainians is still bound to hryvnia.

Thus, in 2013, worthy of note offers for a one-room apartment at a price below USD 55 thousand were scarce. At the rate of 8 UAH/USD it constituted UAH 440 thousand. Currently, developers offer quite satisfactory one-room apartments for USD 36 thousand, but at a rate of 26 UAH/USD this constitutes UAH 936 thousand.

Well, it is obvious that those who kept their savings in foreign currency are at advantage, as they could save average 30-35% when buying housing.

For those who kept their savings in national currency, buying an apartment became an expensive undertaking. The average Ukrainian with a salary of UAH 10,000 will have to save up for more than 10 years without spending on other needs.

Supply and demand

Prices are falling, but developers are building new facilities at a pace outrunning demand. As a result, buyers will win, but developers can get financial problems and unfinished construction projects.

A new “bubble” or expert calculation of developers – buyers of the capital’s real estate have more and more such thoughts after visiting sales department of new residential complexes.

Despite the absence of price fluctuations in the real estate market, expectations of sellers and buyers vary considerably. Sellers hope both for stabilization of prices for real estate, and for economic growth in general.

At the same time, buyers hope that prices for real estate will continue to decline, so they do not hurry investing saved money in apartments.

Moreover, large volumes of proposals alarm potential buyers. After all, many of developers invest in construction of new facilities after getting profits from those, construction of which started earlier (sometimes still unfinished – the author).

At the same time, developers are forced to reduce prices for “old” facilities to stimulate buyers and keep up with financing schedule.

Summarizing, in case of signs of a crisis in the economy, the real estate sector is one of the first to feel the consequences, and, alternatively, when reviving, real estate and construction are recovered among the latest.

The market literally reacts to all changes in the situation in Ukraine: for example, worsening of the situation in Donbas made people stop or cancel transactions with real estate, hryvnia rate fell as well as demand for apartments.

All over the world, favorable mortgage conditions give a boost to real estate market growth. For example, in the USA, real estate mortgages interest rate can fluctuate within 3-5% (depending on the amount of initial installment and the loan term). At the same time, if mortgages are given for no longer than 15 years in Ukraine, in the USA a mortgage can be paid off for 30 years.

Alexander Rud column on