What you need to know right now about the residential real estate market

What you need to know right now about the residential real estate market?

When supply is high and demand is falling, talking about evolving real estate market trends is quite difficult.

Undoubtedly, the real estate market in Ukraine over the past year has been “stumbled” by a banking crisis, devaluation of the hryvnia, economic decline, and also military actions in the country’s east.

The current situation in the residential real estate market

“The real estate market is a litmus test of the country’s economic and political situation. A decrease in demand and falling prices indicate uncertainty among potential buyers about the future and a general decline in living standards. Although there are no major changes in the regulation of the market itself, it is feverish along with the whole country,” says Eduard Brazas, head of the Information Systems and Analytics Committee of the Ukrainian Association of Real Estate Professionals.

At the moment, the number of deals on the market has significantly decreased. About 500 deals happen each month, whereas in the 2012-2013 years the number of deals reached 3000 thousand per month. Large deals were recorded in 2007 year, the same year deals were made on the order of 7 million per month.

In the opinion of Mikhail Artyukhov, Managing Director of ARPA Real Estate, the number of market players has significantly decreased: there are fewer real estate service operators, fewer branch networks of large companies, and so on.

Strangely, the primary residential market is the most competitive and in demand among buyers.

“We should note that the residential real estate market has several segments – Elite, Premium, Business, and Economy. There is also a social segment: it is not a market, but it exists,” comments Mikhail Artyukhov. The social market accounts for about 80% of total deals in the residential real estate market. This market is more active than others, mainly involving enterprises, banks, and government agencies.

“In the remaining 20% of the market, the picture is divided as follows: 80% -85% – deals in the economy segment, 10-15% – business segment, the remaining – premium segment,” Artyukhov said.

Head of the sales department of the Geos construction company, Andriy Savchuk, believes that the relevance of the secondary market remains unchanged, but buyers’ demand on the primary market is much higher.

“This is because the secondary market is reluctant to transition to settlements between individuals in hryvnias. Most often, settlements are in dollar equivalents. At the same time, the primary market can offer a wide selection of modern housing and settlements in hryvnias. And a number of other advantages for buyers. Some of them have already been mentioned: lending, installments. For example, this summer many developers began offering a new feature – price fixation when paying in installments. All these factors allow the primary market to dominate over the secondary,” Savchuk argues.

Where to buy apartments

The secondary market for residential real estate is diverse. The attractiveness of this market lies in the finished condition and the quality of the offered housing, as well as in price equivalence.

Expert Eduard Brazas believes that: “If you judge by the absolute cost of the object and readiness for occupancy, the secondary market is more attractive. But the primary market is more promising. Therefore the best purchase is the ‘primary secondary’ — apartments in inhabited residential buildings no older than 10 years with sensible layouts and renovations.”

According to Address.ua portal data, at the end of June 2015 there were over 63 000 offers of items in the secondary segment. At the same time, the primary market offered about 16 000 items. However, it is worth noting that the price per square meter on the primary market is significantly lower than on the secondary market.

“The primary market is cheaper than the secondary because the secondary market is ready-to-move-in housing with fewer risks. On the other hand, competition in the primary real estate market has led developers to reduce the area, i.e., they are building smaller apartments,” Artyukhov analyzes.

In price terms, the strongest demand, according to Address.ua, is for apartments up to 40 thousand dollars. More than 50% of user queries are related to finding housing in the lowest price segment. Mainly, these are 1-room apartments located in sleeping districts. A significant portion of potential buyers considers budget guest apartments priced around 25 thousand dollars.

The price factor is now the first consideration when making a purchase decision. The next most attractive price category is 60-80 thousand dollars – about 24% of queries, according to the Address.ua portal.

According to Mikhail Artyukhov, among the offers on the market for new-builds, there are not many three-room apartments. Developers often offer two-bedroom units that can be converted into three-bedroom ones. Or it’s a combination of two two-bedroom units.

We should emphasize that when buying a housing unit you should understand what the buyer specifically wants. When buying an apartment in a new building, the buyer invests not only in the property but also in future repairs. Currently, primary market offerings dominate over the secondary, and this is despite people taking considerable risks by investing in this type of housing.

About the high risk of “unfinished” primary market projects

Such risk exists, including for decent and reliable developers, says Eduard Brazas. “Falling demand and lack of external financing are felt. Therefore I recommend clients buy primary stock only with a high readiness level. It is less attractive in price, but preserving money is more important,” the expert believes.

There can be many reasons for unfinished residential buildings: some are substantial, others, as explained by ARPA Real Estate director Mikhail Artyukhov, are not entirely adequate to the real estate market.

“The risk of unfinished projects is always present,” says Andriy Savchuk, head of the sales department of GEOS construction company. “Undoubtedly, an economic downturn and a negative information field (including talks of technical default) create anxiety among potential investors. Moreover, when buying an apartment it is always better to carefully choose the method and product of investment,” he notes.

In his opinion, the most reliable way to protect yourself is to carefully choose a developer, study the project portfolio, check for long-delayed projects in the active portfolio. “City authorities have begun an active fight against unscrupulous developers. The Kyiv Real Estate Developers Registry has been created for urban construction that violates norms. This is a positive step by the authorities, which will help potential investors choose and minimize risks and not invest in projects with a high risk of long delays,” Andriy Savchuk said.

A common situation in the new-build community is when a developer halts a project without fulfilling obligations to investors who bought an apartment. You can protect yourself by checking the developers’ declaration, which states that funding will be sufficient to complete the construction of the residential complex.

Finance.UA editors spoke with people who became “victims” of unfinished residential complexes and found out that the building where residents live has not yet been put into operation, but the developer company continues construction and houses residents. Do these residents own their apartments? No, because the developer has not issued any documents confirming ownership to anyone living there.

“There are no documents,” say residents of the unfortunate building, “there are court cases, but we don’t know when there will be documents.”

During the conversation it turned out that none of the residents knows who is suing whom, or if anyone is suing at all. “We have to climb to the thirteenth floor on foot because there is no elevator. The shaft for the elevator exists, but there is no lift since we moved in,” the residents explain.

In the continuation we will tell you how lawyers advise safeguarding yourself from a dubious developer and what to do if you still find yourself in a problematic construction project

Yulija Bondar

news.finance.ua