The choice and purchase of the primary real estate is not only a blue dream of many Ukrainians, but also hard, and sometimes dangerous process that requires extraordinary concentration and attention. A lot of construction companies, convenient credit and payment systems, seductive prices – all this is pretty confusing and leads to one question: how not to make mistaken choices. DUMKA has learned in what state the construction industry of Ukraine is today, should we expect a decrease in prices, how not to get at the bait of unscrupulous developers and which companies gain greater confidence, finishing construction ahead of schedule.
Volumes of construction in Ukraine: “depression” of real estate or a new residential “boom”?
The theses on the possible “subsidence” of the primary real estate market and, as a consequence, the decline in house prices occur almost every year. “Next year it will be possible to buy cheaper” – a classic advice, which everyone, who wanted to buy an apartment, heard. And how logical and truthful are these statements? Indeed, construction analysts have noted that the supply is beginning to dominate the demand for the past few years, so this imbalance can significantly shatter the stability of numerous companies.
This was announced by Andrii Guselnikov, vice-president of the Non-Governmental Organization League of Experts of Ukraine, at the end of last year. According to him, developers begin to massively reduce prices, and the level of sales leaves much to be desired. “People did not live better in recent years, so I do not see any objective reasons for the growth in sales in the primary market. The offers are now many times greater than the demand. Developers are forced to reduce prices for houses under construction or almost put into operation. They can resort to all sorts of methods to attract potential buyers, for example, repairs in apartments, various holiday discounts, the provision of several years of loans etc.. However, the market is ready to lower prices, and they will decline further, perhaps even sharply”, the expert says.
Yet, the representatives of the Ukrainian building companies think otherwise. According to Anna Layevska, the Commercial Director of Integral-Bud, last year only in her company the cost of housing increased by 5-7 %. “Most of the companies – market leaders, on the contrary, revised the prices upwards, due to demand and growth of construction readiness of objects. So, in some projects of our company, the growth in prices in the dollar equivalent for the 9 months of 2017 reached more than 5-7 %”, she said in the commentary.
However, even despite the opposition of the opinions of developers and independent experts, it should be understood that the state of the construction business should be analyzed, given the official data. Here should be noted that according to the results of the study of the Center for Public Monitoring and Control, the last significant and really big “boom” for construction in Ukraine was observed in 2011, that is, during the preparations for the Euro-2012. After that, the real estate market for a while went into the stage of “stable silence”. However, in early 2018, according to the information of the international rating of Ease of Doing Business, Ukraine significantly improved its positions, ranking 76 among 190 countries. And important for our topic is the indicator “obtaining construction permits”: our country is, completely unexpected for many analysts, in the top 40 countries, which are the first evidence of a new rise in the construction market.
On the other hand, a somewhat different picture of events is formed by the results of studies, submitted by the State Statistics Service of Ukraine (see Graph 1). Indeed, last year was more successful in the context of the volume of construction work, compared to the previous two. However, the biggest “boom” of real estate took place approximately in 2012-2013. Now we can trace a certain pattern in the growth of the volume of completed construction works, but such conclusions will be ineffective, as the results of the current year can theoretically completely change our view on the statistics provided by the state service. Therefore, it is fair to say that certain movement in the vector of increase in residential buildings really is, but to take into account only one indicator would be erroneous.
Separately, it is worth noting that on the website of the State Statistical Service, the information on the amount of work performed was provided in UAH. But, despite the unstable exchange rate and a tangible increase in the value of the dollar from 2010 to 2017, DUMKA decided to transfer the amounts, presented by the state service to the international currency. When calculating, the annual average rates from the National Bank of Ukraine were used, therefore the graph is as accurate as possible.
Graph 1. The volume of completed construction work: residential buildings
But the statistics on the adoption of residential buildings in 2010-2017 shows that the most “successful” for developers were 2015 and 2017 (see Graph 2). It should be noted that in the counting process, the State Statistical Service did not take into account the temporarily occupied territories of the Autonomous Republic of Crimea and part of the Antiterrorist Operation Zone. But despite this, the last two studies show that a certain tendency to increase the scale of construction in Ukraine is still being traced, which confirms the expert’s opinion about the potential price reduction and healthy competition in the real estate market.
Graph 2. Commissioning of residential buildings
Due to the information, published on the website of the State Statistics Service, we can draw conclusions about the regions and districts, most attractive for buying housing in the current year. We are talking about the Odesa, Transcarpathian, Kyiv, Lviv and Kharkiv regions (see Graph 3).
Graph 3. Commissioning of housing by region in January-March 2018.
What kind of problems in the real estate market noted by numerous experts – remains a mystery. State statistics show that as long as we are dealing with a new peak in construction services, therefore, when considering housing purchases, one should take into account not so much the cost (because increasing competition and the number of new buildings will provoke more loyal prices for housing), as for experience, the level of trust and terms of completion of construction works of Ukrainian companies.
Construction companies in Ukraine – who to trust?
Experts are inclined to believe that the key role in the selection of a building company should be played by indicators of experience and preliminary results, since construction is a long process, and companies-“beginners” can often be fictitious. Annually, the Ministry of Regional Development and Construction, in conjunction with the State Architectural and Construction Inspectorate of Ukraine, conduct the contest “Best houses and structures that were built and put into operation on the territory of Ukraine”. Architects, builders and industry experts select winning projects among industrial enterprises and industrial facilities, residential, administrative, office and hotel buildings, education, upbringing, socio-cultural and recreational facilities, religious buildings, agricultural facilities, engineering structures and facilities of transport infrastructure, leisure and recreation facilities, which were built and put into operation on the territory of Ukraine. According to the results of the last contest, the construction companies from the capital and Kyiv region, as well as from Odesa, Dnipro, Kharkiv, etc., received awards in various categories.
The earlier, the better?
However, only the rating, of course, is not enough. Construction analysts note that an important indicator is a speed of commissioning of objects: preference should be given to those companies that have taken the practice to complete the construction before previously agreed terms. Not all among Ukrainian developers adhere to such traditions. Since the beginning of 2018, due to the work of the Monitoring Center, several such cases have been recorded.
Among the developers, who finish the construction ahead of schedule, there are building companies in Kyiv, Odesa, Lviv and Zhytomyr. In early January, the Lviv company Eko-Dim completed the construction of two houses a year ahead of schedule. Prior to this, according to the manager of the construction company Viktoria Rusynyak, during 2017 Eko-Dim put into operation 3 residential complexes and a school-lyceum in Sykhiv.
Opening school-lyceum in Sykhiv
In the south of the country, as a rule, KADORR Group is completing construction on time. That week, July 6, the company commissioned “The 31st Pearl” – a modern residential complex in the resort area of Odessa. According to the publications of local publications, there are cases when the Odesa developer outstripped the agreed terms. Approximately one month ago, in Odesa, the company commissioned the residential complex “The 35th Pearl” earlier than the specified term. In January 2018, KADORR completed ahead of schedule two more residential complexes in different parts of the city. Based on the analyzed data, this company sets the pace and level of construction in the Southern region. At the same time, the scope of the company’s activities is not limited to the construction of residential complexes, KADORR builds both shopping and business centers, health centers, schools, etc., about 20 % of them are delivered ahead of schedule, the rest – within the agreed terms.
Opening “The 31-st Pearl” by Adnan Kiwan
“Our principle is not speaking, not empty political gestures, but concrete deeds and trusting relationships with investors. Prayer, work and patience – we always adhere to these main postulates, therefore all our “Pearls” are commissioned on time and are always of high quality. Our engineers work day and night on sites to create comfortable and cozy housing”, Adnan Kiwan, the owner and general investor of KADORR, said, who solemnly opened “The 31th Pearl” together with his wife, son and thousands of people from Odesa.
Adnan Kiwan (in the center) with wife and son
Referring to the rating of construction companies of the local edition “Dumskaya”, KADORR takes the first place among Odesa builders, commissions houses on time and ahead of schedule, and this does not affect the quality. Last year, Ministry of Regional Development recognized the company’s residential complex as the best in the country. Experts noted the strength of structures, quality ventilated facades, innovative energy-saving systems and a convenient layout. Over the past year, developers from Zhytomyr were also marked, completing the construction of a residential complex “Polissya” ahead of schedule, thus putting into operation 254 apartments. “All norms were observed during the construction, all were made of modern materials, housing is comfortable and warm, and materials were taken from local entrepreneurs, in our opinion, they are the best and worthy”, Oleg Fedash said, a representative of the general contractor.
Opening complex «Polissya» in Zhytomyr
So it becomes clear that the rating of the largest developers is not enough: from the beginning of this year, among 15 leading companies, only one managed to succeed in the early commissioning of the building. No less interesting is the geography of “early” companies: despite the large number of builders in Kyiv, the leaders in this aspect are Odesa, Zhytomyr and Lviv. However, there is still a lot of time before the end of the year.
At the same time, a logical question arises: why, simultaneously with the early commissioning of the houses, Ukrainians often have to deal with “long-term construction”? The consultant of the “construction” committee of the Verkhovna Rada, Yurii Mantsevych, singled out three reasons, given that construction can be significantly delayed. “First: the construction was built illegally, so the construction was stopped. Second: all apartments have already been sold to investors, money is spent, there is simply no resources for completion, and it is not clear, whether it will be or not. Third: at some stage, the money for construction was not enough, but, in general, all the funds have not yet been spent. In any of these cases, the prospects for completion are rather doubtful” – the expert is convinced.
How not to wait for your apartment for years and not lose money?
The construction market is not only about changes in prices and an increase in new buildings in the central cities of the country. Many Ukrainians are familiar with the story about one of the biggest fraudulent scams with the participation of the company “Elita-Center”. And although more than one year has passed since then, most of the investors are still without apartments and money. Of course, this is only one of the cases of violations in the construction industry in Ukraine, and no one gives hundred-percent guarantees of the impossibility of repeating the story of the famous company. Nevertheless, there is a way out.
According to the president of the League of Ukrainian experts Svitlana Bovsunovska, the pledge of preserving own funds and future housing in case of conflict situations is a buyer’s status of an investor. In order to know exactly your “role”, it is enough to carefully read the contract, concluded with the developer.
“According to the Art. 4 of the Law of Ukraine “On Financial and Credit Mechanisms and Property Management in Housing Construction and Real Estate Operations”, now in Ukraine there are only two legal mechanisms for investing in housing construction. The first is through participation in the construction finance fund (CFF) or in the real estate fund (REF), with the conclusion of a relevant agreement on participation in such fund and obtaining a certificate (security) issued by the manager of such fund (financial institution). The second is by purchasing target bonds of enterprises (securities) that are eligible for such issues, with the conclusion of relevant contracts and the subsequent exchange of bonds for housing.
These mechanisms were introduced by the state to protect the rights of investors. If the funds for housing construction are involved in such mechanisms, it is investments; the process of attracting such funds is an investment activity; and the person, invested in the construction of housing – is an investor to whom the state, according to the Art. 19 of the Law “On Investment Activities”, guarantees the protection of rights and legitimate interests in case of any problems with investments.
By the mechanism of participation in the CFF, the investor contributes his money to the fund (a certain bank), which transfers these funds to the developer and controls it on construction issues. In case such construction stops or other troubles occur, the fund must return the investment because the authorized capital of such a fund alone is 1 million euros. For its part, the state also guarantees the protection of such investments”, the expert said.
In case of construction stoppage or other problems, according to Svitlana Bovsunovska, the investor has the right to terminate the agreement on participation in the fund and return own money. However, according to the law, money can be returned within 90 days from the date of application. Therefore, the question, whether to take risks, applying to new developers, tempting with very pleasant conditions, becomes rhetorical. If the contracts are concluded properly, funds, of course, could be returned, but this may take several months. What is the way out? You should independently analyze the construction industry of your region, identify the main developers, pay attention to the timing of commissioning of housing and feedback from other customers. After all, who knows, perhaps, the followers of “Elita-Center” hid behind new names.
Andrii Shurmiy
