Market review of residential real estate
Year of trials
This year will be not easy and at the same time responsible for developers. During 2018 twice more buildings will be put into operation in Kyiv in comparison with 2017 according to the plans of developers, and this can be considered as the main factor that will influence on market of house building. If 133 buildings in 67 residential estates were put into operation in 2017, so, 235 buildings in 129 estates shall be put into operation during 2018 (according to the declarations of developers).
361 buildings in 172 estates were actively constructing in total in Kyiv in January, 2018. The leaders in market can be seen on chart 1.
Leaders in market. Residential real estate, being constructed in Kyiv
(investment stage in sales of apartments).
Chart 1 – source: Marketing Department of Group of Companies “Olimp”.
In 2017, according to official statistics, the number of housing, put into operation, has grown by more than 20% (in comparison with 2016) and many specialists have already declared that the offer significantly exceeds the real demand. What shall we wait from 2018? As housing shall be put into operation approximately by 50% more than in 2017. There appear a series of questions… Will the developers be able to sell such amount of apartments? Will all estates be put into operation in time? Finally, will 2018 become a year of market collapse? At present moment there are already at least 20 problematic projects (there is no documentary confirmation for putting into operation; the construction or sales are frozen, etc.). To a certain extent 2018 year for most developers will become “a test for proficiency”. At least, in order to survive in such highly competitive environment many of them will have to optimize their activity.
The basis for optimization of developers’ activity is the understanding of market trends. The statistics demonstrates the new and interesting trend – increase in the share of housing construction projects with “comfort” class. The share of housing construction projects with “elite” class is also gradually reduced.
Was put / is planning to put into operation (as of January, 2018).
Chart 2 – source: Marketing Department of Group of Companies “Olimp”.
Of course, the numbers of 2019 are not final. The start for sale of some more residential estates is expected, the part of them will be constructed in 2019. However, the general tendency will obviously be kept – the share of housing with “business” and “elite” class will be reduced. Among 100% of buildings that are planned to be put into operation in 2019, there are only 6% of “elite” class and 23% of “business” class.
Housing, put into operation, 2017.
Housing, which is planned to be put into operation, 2018.
Chart 3 and 4 – source: Marketing Department of Group of Companies “Olimp”.
Sales of apartments
Till now we spoke about formal putting into operation. But in terms of developer, it is not sufficient to construct an estate, it is necessary to sell all apartments yet. At present moment the apartment in estates, which were put into operation in 2010-2014, are still being sold. As of January, 2018, the apartments in 74 estates, which were put into operation until beginning of 2018, are being sold yet. Including in 37 residential estates of “business” and “elite” class. Taking into consideration that during recent 4-5 years the buildings of “economy” and “comfort” class were built much more than buildings of “premium” class, we can make the conclusion that “business” and “elite” classes are sold badly. The period of sales for such housing is very long. Especially, at the stage when a residential estate has already been put into operation. This surely is not a great discovery but in general explains the trends in the market. The main drivers of market gradually become the consumers, who would like to buy the housing of “comfort” class.
Number of residential estates, where the apartments are sold.
| being constructed||Residential estates are still being constructed (sold – only investment stage)|
| being constructed / put into operation||The part of buildings in residential estate is put into operation the part is still being constructed|
| being constructed (sold)||A residential estate is still being constructed but the apartments have already been sold|
| put into operation (sold)||A residential estate is put into operation (the sales of apartments is going on)|
Chart 5 – source: Marketing Department of Group of Companies “Olimp”.
However, it should be mentioned that the situation when all apartments in the residential estate are sold at the investment stage (before putting into operation) takes place not often. In 2017 we have some such examples. Still before putting the buildings into operation all apartments have been sold in Residential Estate “Osvity” (“Kyivmiskbud”), Residential Estate “Verkhovyna” and Residential Estate “Aristokrat” (“Ukrbud”), Residential Estate “Kvartet” (Stolitsa Group), Residential Estate in Teremkivska str., 3 (ME “Spetszhytlofond”). They are mainly the residential estates of “comfort” and “economy” class.
It is rather obvious that the competition for Investor’s money will grow. Factor No 1 for investor is the price for constructed housing. All the more in segments of comfort and economy class. One of the most important competitive advantages for developer is the possibility to optimize the tax load in order to reduce the general expenses for project, and, as a result, to have the possibility to compete with price.
In fact only CII have the effective and efficient instruments of tax planning among all mechanisms for involvement of investments into construction projects, allowed by legislation, according to Art. 4 in Law of Ukraine “About investment activity”. Especially after SFS in September, 2017 promulgated the explanations about construction financing funds (CFF) and real estate operations funds (REOF). According to explanations the developer that uses these investment mechanisms has the tax obligations as to VAT due to transactions in delivery of services for construction of housing pursuant to general grounds due to the rules of the “first event”, established by S. 187.1 in Tax Code of Ukraine. See more details about advantages of CII in tax planning in material: “Tax privileges for collective investment institutes”.
The developers already actively use CII. The model with investment contracts is the most popular model for use of CII in construction project among developers. The leaders in the market, Corporation “Ukrbud”, “Kyivmiskbud”, etc., widely use the model in their activity. The model with forward contract is used only by few developers. The developer “Stolitsa Group” is working with such investment mechanisms in projects for construction of residential estates “LYPYNKA” and “Halaktika”. The targeted obligations were used by such developers as GEOS (Residential Estate “Gloria Park”) and “POZNIAKYZHYLBUD” (Residential Estate in Revutskyi str.).
In our opinion, the most progressive and optimal model now is the forward contracts. See the following material about advantages of this model: “CII in projects of real estate construction – forward contracts”.
We would like to pay your attention to the following peculiarity – the contract between the parties is concluded at commodity exchange. Accordingly, all permitting documents of developer shall be in good order. Thus, the investor will have the assurance that the building will be finished and timely put into operation.