Having secured a deal with the International Monetary fund to shore up its faltering economy one of the worst hit sectors in Ukraine is residential property.
There are few buyers who can qualify for mortgages at current interest rates and loans from banks are scarce. As a result, developers are scrambling to raise financing for their construction projects, particularly residential, and halting work.
`The state of residential development in Ukraine is very bad. Some 75% of Ukrainians cannot qualify for bank loans and, at the same time, developers cannot secure loans on favorable terms to continue construction,` said Sergiy Maksimov, president of VAB Bank.
One struggling developer, Kiev based XXI Century which traded on the London Stock Exchange`s Alternative Investment Market, has lost more than 80% of its value since July. It has tried to sell some of its projects in the pipeline to raise cash, but thus far few buyers can be found.
The current slump ends seven years of dramatic growth for the property sector in Ukraine, during which more than one million square meters of fresh residential space were constructed annually and yearly prices surged by double digits.
The Mirax Group, a Russian developer, has halted work on its $500 million project to build Ukraine`s tallest building. Construction could resume next spring if the world financial crisis passes, a company spokesman said.
Industry experts expect falling prices. `We expect a drop of nearly 20% in the secondary and mid-class housing markets by the end of the year. Some are even predicting a 25 percent correction,` said Terry Pickard, chairman of NAI Pickard.
Experts predict the commercial property sector to do better. The amount of office, retail and warehouse space in Kiev is among the lowest per capita in Europe. As a consequence, rental rates for commercial real estate in Ukraine far exceed the European average.
`Due to the intrinsic supply and demand disequilibrium in Ukraine`s office and retail space segments, commercial real estate will weather the world-wide liquidity storm relatively well compared to the residential market,` said Sergiy Sergiyenko of CB Richard Ellis.
Gerald Bowers, general director EFG Property Services, a property investment, development and management group active in Eastern Europe, believes developers will increasingly move away from the capital city to regional cities where it is cheaper to build and there is growing demand.
`The residential market has calmed. Prices are not increasing. But prices have not deteriorated because the demand is still there. We are not going to see, as people say, the bubble burst,` he added.
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