In 2023, the situation in the primary housing market will remain difficult.
This opinion was expressed by Vladimir Sementsov, co-founder and managing partner of INSPI Development.
According to him, the construction of housing will directly and indirectly depend on the circumstances of the war, the safety of life of citizens, the dynamics of the liberation of Ukraine from invaders and the economic situation in the country.
He noted that the risks for developers and investors are now perhaps the greatest in the last 15 years. Thus, according to his data, development companies are on the verge of bankruptcy (i.e., due to the inability to fulfill obligations to customers and business partners). At the same time, according to the specialist, in total up to 30% of investors who bought housing using installment and mortgage programs, for objective financial reasons, cannot pay off the accumulated payment arrears.
“At present, everything indicates that in 2023 the market will “live” in precisely these difficult conditions,” he said.
At the same time, Vladimir Sementsov identified the main factors that could positively affect the primary residential real estate market next year:
- predicted and controlled inflation rate, which in annual terms will not exceed 25%,
- reduction in construction costs by an average of 15% due to the competitive prices of building materials and construction and installation works (reducing costs will be an important guard against the nominal increase in price per m2 for the buyer),
- an increase in the income level of citizens by an average of 15-20%,
- the country’s effective policy to restore the economy and attract investments aimed at lending to the construction industry and in particular developers at 3-5%,
- increase in demand level; an opportunity for the general population to become homeowners with the help of preferential mortgage lending programs.
According to the expert, given the full confluence of all factors, a partial resumption of demand may occur in 2023, but compared to March-April 2022, within 10-15%.
“In the next 2-3 months, the market will continue to have minimal (spot) demand for new buildings, mainly economy and comfort class with a level of readiness of 80% and above. At the same time, more than 90% of buyers will be interested in purchasing housing only in a few cities: Kiev , Ivano-Frankivsk, Lvov, Chernivtsi, Uzhgorod and partly in Odessa,” the specialist noted.
He recalled that the cost of m2 since the beginning of the large-scale invasion has increased by an average of 25-30% in foreign currency, which has affected the rise in prices for buyers.
“Despite the fact that developers have significantly increased the cost of m2 (by an average of 40% in hryvnia equivalent), such price changes against the backdrop of zero demand can be considered purely formal. Indeed, over the past 6 months, a real buyer, with full payment of the cost of the apartment, could count on a significant discount of 10% to 20%. And with a high degree of probability, this trend will last at least the next 3 months,” said the specialist.
Vladimir Sementsov drew attention to the fact that in 2023, despite the war and the objective circumstances derived from it, tectonic changes in the construction business are quite possible in the primary housing market, which will be based on the high quality of objects and the safe purchase of housing.
Among the main possible changes, the expert noted:
- introduction of fundamentally new forms of doing business in housing development, first of all, this concerns attracting powerful investors at the start of the project, including commercial banks, which will allow accumulating up to 80-100% of the necessary costs for the construction of a particular residential complex and guarantee control over timely completion of construction work,
- new laws No. 2518 “On guaranteeing real rights to real estate that will be built in the future” and No. 2600 “On amendments to the Tax Code of Ukraine regarding the taxation of transactions with real estate that will be built in the future” gradual transition of developers to sales apartments after the facility is put into operation,
- Due to the high demand for rental housing and a significant shortage of quality supply, in 2023 the gradual development of new real estate formats, such as serviced apartments, is possible.
“After winning the war, it will take at least 3 years for a complete renewal of the primary housing market. Therefore, the coming year 2023 can only become the basis for future positive changes,” concluded Vladimir Sementsov.