Residential real estate is on the verge of war

 

The UTG company, as a leader in the Ukrainian market of consulting services, continues to study the state and latest trends in the real estate market of our country. In particular, the company’s analysts analyzed the residential real estate market of Ukraine. This segment has always been one of the important sectors of the economy. According to experts’ estimates, the supply of new housing in the country reached its peak in 2021 – 11.4 million m2 of housing was put into operation. But after the full-scale invasion, almost all developers stopped work, as a result of which in 2022 the total area of ​​commissioned housing amounted to only 7.1 million m2.

As noted by UTG experts, the reduction in the volume of the new offer took place practically throughout the territory of Ukraine, with the exception of several western regions. It is clear that the largest decline in construction was experienced in the eastern and southern regions: there the volume of commissioning of new housing fell by 70-90% compared to the previous year.

At the same time, the cost of construction increased. So, according to calculations, if in January 2021 the average cost of construction of 1 m2 of the total area of the house was 13.2 thousand UAH, then in October 2022 the price already reached more than 19 thousand UAH. There are several reasons for this. Firstly, the increase in construction costs was caused by the destruction of some factories – manufacturers of construction materials. Secondly, due to the complication of raw material supply chains. Thirdly, due to the devaluation of the hryvnia and additional costs for ensuring work during power outages. In addition, non-trivial architectural design, the introduction of modern technologies: panoramic glazing, hinged facade systems, advanced engineering systems (central air conditioning, ventilation, vacuum cleaners, etc.) cause the annual increase in the cost of construction. Also, against the background of a large offer, the requirements of real buyers for materials, public areas and infrastructures are increasing.

But, taking into account the risks of physical security, the growth of the currency exchange rate and high inflation, the purchasing power of the population has decreased significantly. And, although the cost of construction has increased, residential real estate developers have not been able to raise prices significantly. Therefore, the dynamics of changes in housing prices differed significantly in different regions of the country. In most western and northwestern regions of Ukraine, as well as in regions with a large flow of internally displaced persons, prices for apartments increased by only a few percent, or remained at approximately last year’s level. Housing became even cheaper in the rest of the country. So, in Kyiv, the average offer price on the primary residential real estate market was $1,190, which is 2% less than at the beginning of last year.

According to analysts, the negative consequences of the war can also be traced to the number of concluded contracts for the purchase and sale of apartments and the alienation of land plots in Ukraine. Previously, the forced quarantine due to the coronavirus pandemic provoked a high demand for private housing and land plots and led to an increase in developer activity in the individual and suburban housing market. Thus, according to the Ministry of Justice in Ukraine, at the end of 2021, a record 374,312 land alienation contracts were concluded by state and private notaries. But due to military actions in 2022, the dynamics changed sharply to a drop to 54.0%.

Despite the decline in the volume of housing construction in Ukraine, UTG analysts note that given the uncertainty and physical and economic risks, most potential buyers/investors have taken a wait-and-see position, regardless of the region.

Therefore, given the low purchasing power and general uncertainty in the market, significant positive changes are not predicted in the short term. But, after the end of the war and the stabilization of the economy, there will definitely be a recovery of the residential real estate market of Ukraine and the delayed demand will work.