Real Estate Market: Fall in prices will be staggering and recovery can be expected fast

21 May 2022, 20:09 | Finance and Banking
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What sellers and potential buyers of Ukrainian real estate need to know and take into account in order to profitably sell or purchase residential and non-residential "

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Real estate is at war.

In the first month of the war, for example, in Kyiv and Kharkov, landlords allowed current tenants to pay a communal apartment and not pay rent. It must have been the same in other cities in the north that were bombed.. Unlike Kyiv, which became the center of the war at its beginning, prices in the western regions of Ukraine have doubled or tripled compared to pre-war times..

As for commercial real estate, the situation with it is sad, because many businesses “fell” and could no longer pay rent. True, some people are trying to secure offices for themselves by paying at least a communal apartment, but there are no new contracts.

However, already in April, after the rashists were driven away from Kyiv, the authorities called on the capital's business to work. And a gradual revival of both the economy and the real estate market began..

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In April, metropolitan tenants were already offered to pay from 50 to 80% of the rental price.. There was still no sales market, since the registries were closed with the outbreak of the war, however, apartments in new buildings were sold, because such a sale does not require registration in the official register of the Ministry of Justice, and developers had to cover at least some costs. Therefore, if discounts were given, they were mainly “our own” and quietly, officially, the price of offers was not reduced..

Finally, on April 19, the Cabinet of Ministers adopted Resolution No. 480 on the opening of registers where real estate purchase and sale agreements are registered.. At the same time, a restriction was introduced for notaries who can carry out registration: the Ministry of Justice formed lists of such notaries without including those who had violations and court cases.

The specified resolution also limited the possibility of re-registering the same object from the moment of the last registration to one month, which, probably, would be advisable to leave in the future..

In addition, they stopped the ability to register by proxy and act in relation to the appeals of Russian citizens, and the registration was limited to the region where the notary and the object of sale.

We also opened a register of assessments and other registers necessary for the registration of contracts. True, realtors complain that there are no buyers, but it is clear that sellers do not want to give away their meters cheaply: the sale and purchase market is still waiting, although banks have announced their readiness to issue loans.

De facto, sellers' offers have not changed compared to pre-war prices in conventional units in Kyiv and Kharkov, which in itself indicates an increase in hryvnia prices due to the appreciation. However, these prices are not supported by real demand, and it will not appear until the end of the war or even for some time after it..

The lull in the market after the war will largely depend on the passage of a bill for compensation for damaged and destroyed property, in which the state promises to pay for the restoration of real estate.

And if they compensate at a pace, and even with money, then the market will recover very quickly. Of course, not a word about specific dates, because everything will depend on how quickly the war ends..

But it is possible to predict what changes in demand and supply for real estate will be after the war in order to prepare for these changes today..

What will be next?

The war has changed our ideas about what kind of housing we want to have in many ways.. For example, a change in the cost of car fuel also affects the decision on where to live.. And if during the quarantine period many people became interested in suburban real estate, now reducing fuel costs will take an important place when making a decision to purchase real estate: buyers will look for housing near work if remote work is not possible. Country real estate will be used as summer cottages or suitable for those who can work remotely.

As for the features of houses for which there will be a demand for a new quality, then the requirements for new houses should be made such changes that would not leave any apartment building without a shelter built in the basement or on the ground floor.. Of course, such shelters in peacetime will be used as parking lots or in another acceptable way..

Additional requirements for the design features of houses are also possible, such as priority frame structures with the presence of additional all-reinforced concrete stairs.. It may be necessary to abandon fully panoramic windows, introduce a requirement for more stable windows, doors and other building elements, and add shelters in areas of existing development, at least near multi-apartment buildings where they are not equipped.

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The shelter should be close, convenient and safe.. It's expensive, yes, but what's the alternative?

In suburban areas, it is also possible to build individual shelters.. Of course, such constructs still need to be developed, but the main thing is that they can be put into practice very quickly: demand will.

How will demand change after the war

Thus, demand will now depend on residents' assessment of the reliability and safety of housing. And it's not just about shelters.. In cities, there are areas where " So, prices in such areas and microdistricts will be higher than where they "

It is also clear that different market segments will have different expectations..

For example, given the decline in the economy, the decline in incomes of citizens and the exhaustion of various "

However, the demand for smart apartments is unlikely to be high, because living and working remotely in these " But where in the buildings of the " That is, there will be a more targeted redistribution of demand, so the local authorities should urgently pay attention to the development of shelter infrastructure and maintaining them in good condition, with possible use for other purposes in peacetime.

The redistribution of demand for such classes as “comfort” or “premium” will also take into account the opportunity to live not only comfortably, but also safely, as well as reduce the distance to work.

What will happen to the prices?

Although developers and sellers of finished housing are still not going to reduce prices in Kyiv and Kharkov, and even in Lviv, however, they will be forced to do so in the near future. Unless, of course, they really want to sell housing or rent it out.

As for rent, the average prices in Kyiv now fluctuate between 10-12 thousand. UAH closer to the center and even in nearby areas - in Goloseevsky and Solomensky. In Kharkiv, these prices are 7-8 thousand. UAH per apartment per month. This is almost half as much as in pre-war times, when the average rental price was 20-26 thousand rubles.. and 15-16 thousand. UAH respectively.

The theory of real estate markets shows that in the event of a change in rental prices, purchase and sale prices also change, although disproportionately, while inflated prices are corrected where demand is reduced, and only undervalued properties in the light of new requirements will be able to maintain pre-war prices..

According to our estimates, the fall in prices will be staggering in the immediate post-war period and will last for several years.. Why?

There will be a general drop in GDP, because it will not be created by businesses that disappeared or stopped before recovery. That is, the total amount of money that will circulate in the real estate markets will be significantly less..

In addition, although many refugees have already returned home, we will lose some of those who left Ukraine forever. These people will not participate in the creation of GDP, and will not create demand for apartments, so the pressure of money on the real estate market will be less..

But this is a forecast without taking into account the situation when, at the expense of Russia, it will be possible to receive compensation for destroyed property and this money will actually enter the market.. As soon as this money supply appears in volumes that will put pressure on the real estate market, demand will recover very quickly..

Whether developers will be able to keep prices and receive funds for completion for the period between the end of the war and the appearance of money for compensation is an open question and will depend on the ability of the state to still receive this compensation at the expense of Russia, because there is no money in the budget for restoration in the near future..

The task of the state is to reduce the time for receiving compensation and prevent the collapse of such an important industry as the construction industry.. Respond quickly to the challenges of the time in the industry and adopt appropriate changes to the legislation, provide housing for Ukrainian citizens who have lost it.

What next?

If we look into the distant future for 10-15 years after the end of the war, then we must take into account that the equalization of real estate prices between Ukraine and the EU countries will certainly begin to operate.. And the speed of this alignment will depend on how quickly Ukraine becomes part of the European Union..

Of course, up to prices in Berlin of 5-10 thousand. euro per sq.. We are still a long way off, but the return to pre-war conditions should happen fairly quickly, especially if people with monetary compensation enter the market and this will create demand and business will work.. Therefore, you should not rush to give away your meters cheaply in difficult recovery times, we advise you to wait for the best price.

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More articles by Lyudmila Simonova and Sergey Sledzia read the links.

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