There is a shortage of housing in Kyiv and other large cities around Ukraine, which has resulted in a spike in prices. Ukrainenu spoke to a Ukrainian housing company about the future, the sector’s weaknesses, and what is the reason for the recent boom.
New buildings are popping up everywhere in Kyiv, which has been experiencing a construction boom over the last few years. Kyiv Post previously reported about how the city is experiencing a shortage of housing despite the massive construction because people are looking for newer and bigger apartments, resulting in an increase in prices.
The Ukrainian online marketplace lun.ua recently concluded that the average price per square meter for an apartment in Kyiv increased by 23 per cent last year. In 2020, the price was $922 per square meter, while it grew to $1,131 in 2021.
“There is a chronic shortage of apartments (in Kyiv)” said John Suggitt, founder, and managing director at the Kyiv Real Estate Recovery Fund, to Kyiv Post, pointing out that the average available apartment space per resident is 20, while it is around 30 to 40 globally.
Due to the shortage of housing, mainly in Kyiv, several new construction companies have emerged. One of them is Atom Design & Build. Artem Kostiuchenko is co-founder of the construction company and works with his business partner Dima Shirokiy.
“The situation is really changing now,” says Kostiuchenko, “The people, who are buying now, are a mixture of people who have saved for a very long time, young people from for example the IT sector, and people who are investing in apartments from money, they earned abroad.”
Dima Shirokiy adds that it doesn’t mean that a middle class has emerged. He says that Ukraine is still divided into two main groups – the rich and the poor – but that some people in society are starting to earn more money due to receiving Western wages.
“I am not sure that we can speak of the development of a middle class. I still do not believe that Ukraine has a middle class, but some groups such as people working in IT are earning a lot more money, and it is changing things,” says Shirokiy to Ukrainenu.
The website PG informs that the price for apartments in Kyiv greatly depends on the quality. An economy class apartment costs about $800 per square meter, while a comfort class costs from $1,000, a business class from $1,800, and a premium from $2,800.
Why is the market developing now?
Several factors drive the construction boom in Kyiv and other major cities. Among them are the desire of moving into bigger and better buildings, the urbanization in Ukraine, and the increasing incomes among some groups of citizens. The wages in Ukraine have grown by about 28 per cent over the last year from about $388 per month to $496.
Kostiuchenko explains that apartments are also often seen as a good investment.
“In Ukraine, people don’t know much about different investment possibilities. They often rely on investing in housing and it also drives the sector’s growth,” says Kostiuchenko.
Andriy Berestyan is the leader of Danfoss in Ukraine, which is a company focussing on energy-effective solutions. He also says that more Ukrainians are starting to earn money.
“(We do) not see major growth, but definitely in IT and agriculture business, which is creating more middle class. We also see that money is sent back to families from Ukrainians working abroad to be spent mainly to improve living conditions,” he says to Ukrainenu and points out that it is good for companies such as Danfoss.
Kyiv Post reports that the growth in the sector is, furthermore, driven by a change in the mentality of banks. They are much more inclined to issue mortgage loans now, but the average mortgage rates remain high at around 18 per cent, according to the paper.
Kostiuchenko says that the Ukrainian banking sector still isn’t well developed and loans are expensive. It is still preventing growth in the housing sector and for companies.
“Money is really expensive and it is a problem for companies like us,” says Kostiuchenko, “That is why many Ukrainian construction companies are looking for funding from outside Ukraine, but it is also difficult because of the lack of trust in the Ukrainian system.”
“Many foreign investors are still worried about corruption in Ukraine and the rule of law,” says Kostiuchenko, “… It is really affecting growth. It would be great to change that.”
Berestyan says that it is still difficult to borrow money unless that you are a big company.
“Bank loans are an issue due to the high-interest rates. But the main problem is that very few companies are able to prepare robust business cases to apply for loans in banks. That is related to small and medium businesses mainly. For large companies, it is easier, as banks are willing to provide as much as possible loans to strong capable, and reliable companies. However, even in this case, the interest rate is still too high,” says Berestyan.
People want new and better
Kostiuchenko says that their company is experiencing a push for better quality and better security for their investments. Several cities around Kyiv never get finished and stand empty for years. In Ukraine, it is normal to pay the full price for your apartment upfront before it is built without any guarantee for your money if the construction company goes bankrupt.
“There is no guarantee in Ukraine,” says Kostiuchenko, “They have guarantees for their money in other countries – even in Russia, but Ukraine still has problems with that.”
To better that problem, Atom Design & Build has a different financing model from other companies. First of all, they ask for payments in payment in installments and the agreed price only changes with the price for raw materials.
“We also experience that customers now want everything as a package solution. Normally, Ukrainians will get an offer on the job and have to find the materials themselves, but we do it differently. We make designs ourselves, find the materials, and are in charge of construction. It makes it cheaper and less stressful for the customers,” says Kostiuchenko.
UBN recently reported that recent numbers show that the Kyiv residential boom is taking a breather. 334,000 square meters of apartments were licensed this year, which is 64 percent less than in the same period last year. The pandemic, however, is said to play a big role in this, resulting in a decline in the investments in housing and office space in Kyiv.
Andriy Mima, the co-founder of the portal Lun.ua, recently said that there continues to be a high demand for housing despite the pandemic.
“People buy both at the start of construction and at the stage of the excavation, and are ready to wait three years before the work is completed,” said Mima.
Halina Parkhomyuk, director of real estate agency Kniazhiy Dim, told Emerging Europe that the pandemic has made even more people invest in real estate.
“The quarantine intensified the tendency to invest in property,” Parkhomyuk said, “Property came to be seen as a much safer investment, in these uncertain times when so many businesses were and still are going under… it is also a steady source of supplementary income. Most of our clients buy to rent.”
