Apartment prices continue to skyrocket on high demand
Prices continue to surge on Ukraine's residential real estate market, with no rollback in sight in Kyiv or the country's other big cities, despite increasing available space.
On the commercial real estate market, growing competition among developers in the capital, coupled with a background of general economic expansion into the regions, is creating a centrifugal shift in investment opportunities.
The rise in residential real estate prices is largely due to demand exceeding supply, as Ukrainians continue to move from rural areas into big cities.
Currently, the average price for residential real estate in Kyiv is about $1,500 per square meter, with the price expected to continue rising over the next two to three years, according to market research conducted by Global Solutions and GfK Ukraine, a marketing research firm.
But according to Serhiy Tulmasov, the general director of Global Solutions, a Kyiv-based real estate investment and development company, increasing costs for fuel and construction materials, as well as complicated land allocation procedures, will continue to drive up real estate prices in the country.
"The process of approving a project's documentation and receiving all of the necessary permits is long and complicated. These time-consuming procedures increase a real estate project's risks and prices," Tulmasov said.
Tulmasov said at a price of around $2,400 per square meter, demand for residential real estate in the capital will start to drop, but this won't trigger a price decrease, as developers will simply build less space.
"A decrease in demand will lead to a decrease in supply," Tulmasov said. "We're expecting a decrease in construction volumes in Kyiv within the next several years."
He said that with prices for new apartments constantly on the rise, people will increasingly prefer renting apartments to buying them.
"Even today, housing prices in Kyiv are too high, and are almost unaffordable for the middle class," Tulmasov said.
Kyiv saw nearly 897,000 square meters of apartment space completed in the first nine months of 2006, an increase of 5.5 percent compared with the same period the year before, according to the Kyiv City Administration.
As for the entire country, the Ministry of Construction, Architecture, Housing and Communal Services plans to complete 9.4 million square meters of housing by the end of this year, about 15 percent more than the 8 million square meters completed in 2005.
However, real estate experts say this pace of construction is unlikely to alleviate expected price rises on the market, as other factors will continue to have an upward effect on residential real estate prices.
Ihor Odnopozov, the vice president of the Union of Real Estate Specialists of Ukraine, said that demand for residential real estate in Ukraine is at least 10 times greater than the supply of apartments available on the market, which will leave prices for new apartments in a state of constant growth.
According to Odnopozov, the anticipation of greater political stability in Ukraine could lead to a drop in interest rates on mortgages offered by banks, which could help make the purchase of real estate more affordable to the population, but it could also lead to a renewed increase in demand, and thus, new price increases on the market.
Odnopozov said that the continuous upward movement in apartment prices has made the residential real estate sector among the most profitable and reliable areas for people to invest in. He believes that around 70 percent of all people purchasing apartments in Ukraine do so as an alternative to saving money in a bank, or with the aim of reselling the apartments later at a higher price.
According to Kyiv Zhytlo-Invest, a Kyiv-based developer, investor and constructor, during September-October, residential real estate prices for lower-class apartments in Kyiv have risen by 8.6 percent on average compared to August. Meanwhile, prices for middle-class apartments rose by 9.5 percent during the same period.
Commercial space also tight
As new businesses are launched, older businesses expand their operations, and an increasing number of foreign investors enter Ukraine, demand for commercial real estate has also been on the rise.
Kyiv is still short on new retail real estate projects, but leading Ukrainian and global retail trade networks are already seeking expansion opportunities in the country's regions.
According to Halyna Maliborska, the retail property department director at the Ukraine office of Colliers International, an international real estate services firm, there is demand both for retail trade centers as well as independent stores in the regions. Moreover, she said, the quality of some new regional retail trade and entertainment centers is higher than in Kyiv, while demands on lessees are not as tough as in the capital.
"We can say that this is the first time that the regions are ahead of Kyiv in terms of [retail property] market growth rates," Maliborska said.
Colliers International's specialists estimate that the supply of new retail property on Ukraine's regional markets will reach 150,000 - 200,000 square meters by the end of this year, while in Kyiv, new retail space will total around 70,000 square meters.
According to Paul Niland, the director of Primeros Funds Group, a real estate consulting and investment firm, due to the Ukrainian real estate market's growth and major companies expanding in the regions, all kinds of commercial real estate has good potential for development outside Kyiv, while increasing competition on the market is forcing market players to look to regional projects for business.
"I believe that as the capital, Kyiv will always have the strongest potential," Niland said.
"However, the more mature the market is, the lower the returns you can get. For example, in Kharkiv or Odessa, implementing projects is more difficult, but there are higher returns, because the market is not as mature [as in Kyiv] and the competition is not so hard," he said.
Kyiv-based real estate developer and property manager XXI Century Investments is expanding to Ukraine's regions following its public placement on the London Stock Exchange's Alternative Investments Market (AIM) in December 2005. The 35.7 percent share of its stock that 21st place on the AIM raised $139 million, a part of which the company plans to spend on developing commercial projects in the regions.
"The regional market is starting to grow, and it is turning out to be more interesting for developers," said Dmytro Vasylyev, the head of XXI Century Investment's information department.
According to Vasylyev, the company is primarily interested in developing its activity in cities with populations of over 1 million people.
by Lena Plekhanova, Kyiv Post Staff Writer
Nov 09 2006
| 
