Business investment. Real estate and its prospects in 2020

Real estate investment is a tool that entrepreneurs use on a par with deposits. To preserve the income received, to provide passive income, in order to obtain a “pension” from the lease or simply for the needs of the business. Whatever the goals, you need to understand exactly when to invest, and when to wait.

Perhaps most of you are aware of the collapse of the next construction giant - the Ukrbud company, have heard about the head of government’s statements about mortgage deposits at 10% already this year, you are seeing a 10-15% increase in the value of real estate second-hand due to the strengthening of the hryvnia and maybe they know something about new building codes. This is the context for the real estate market in early 2020. Olga Pilipenko, expert, director for strategy and development of the Kovalskaya PSG, tells about the further influence of these factors and other lesser known ones.

How tangible is the influence of the above factors on the value of residential and commercial real estate in new buildings?

2019 was a hot year for the real estate market. Elections, strengthening the hryvnia, the suspension of a significant number of objects due to problems with developers led to a decrease in demand for new square meters in the whole market. Some investors took a wait and see attitude. The number of transactions in the fall decreased by more than 20%. However, the situation was not the same for all developers - reliable developers had no loss of customers. In contrast to residential, office real estate, on the contrary, felt and is feeling an increase in demand. The vacancy rate in business centers is one of the lowest in the last 10 years - less than 6%. This indicator demonstrates the potential for investing in business real estate - in 2020, new interesting projects with a total area of more than 200 thousand square meters are expected to appear.

What other factors will affect the cost of square meters in 2020?

Expectations regarding the devaluation of the hryvnia did not materialize among investors in 2019. This leads to the realization of pent-up demand - it begins to grow. Now developers have more finished housing in their portfolio than the entire annual demand in Kiev. Such a proposal will continue to restrain price increases. However, due to the increase in the cost of construction, the cost of square meters in dollars will gradually increase - up to 10% during the year. Another feature will be a later entry into the investment (not at the foundation stage, but when ready from 30-50%). Investors become more cautious, sacrificing part of the return.

Unlike Kiev and the region, the trend for rising prices and offers in the regions did not change. Oddly enough, the cost of housing in cities with a population of over one million can grow twice as fast as in the capital. Also, additional demand may appear if banks begin to restore mortgage lending programs, and loan rates will decrease sharply, as announced in the NBU.

Will construction volumes increase after the mortgage becomes a real tool? Along with demand and volumes - prices too?

It is not worth expecting a rapid growth in mortgages in 2020, but the trend towards a decrease in interest rates will have a significant impact on the real estate market in the medium term. According to our estimates, insolvent demand in Kiev is almost 5 times more than solvent. That is, the appearance of affordable financial instruments will lead to an increase in real demand. Now most developers are stimulating additional demand by installment plans from the developer. The advantage of a mortgage over an installment plan is a long time: not 24-36 months or until the object is completed, but 60+ months. The disadvantage is considerable cost. In any case, the appearance of a mortgage in 2020 will not have significant pressure on prices. But in the years 2021-2022, real estate demand may begin to grow at a faster pace. Therefore, the entire current year can be considered favorable for such investments.

Will the new GOS affect the construction industry?

New GOS give the architect the opportunity to be bolder and offer new ideas. Most Soviet standards have already lost their relevance - new technologies, new approaches to construction are emerging. Customers are already expecting a new type of housing. But we are only at the beginning of the way to simplify the GOS. Therefore, from their introduction, the entrepreneur-investor will only benefit, because he will get the opportunity to choose more interesting and progressive objects.

What are the most promising investments for profit: in secondary housing or new buildings?

Buying real estate in the secondary, the investor limits the risks. However, the profitability of such investments is much lower - the buyer can count on a general increase in prices per square meter in the market. To increase profitability, but not take on big risks, you should carefully choose a developer. Reliable developers do not have unrealized objects in their portfolio, they independently finance the start of construction work, build from high-quality materials, and do not have significant delays. And the price difference of the builder from the foundation to the finished object can be more than 30%. In such cases, investments in new buildings look more attractive. In addition, housing formats are changing, and in the future the demand for conceptual LCDs will increase.

If you take a chance and predict: growth or fall in the cost of a meter can be expected in the future 5-10 years?

In the absence of significant global or local crises in the long term, the value of real estate will increase. For example, in Europe, with mortgage rates of 2-3%, a square meter in large cities costs 5-10 thousand dollars. Ukraine is still far from such conditions, but it is still necessary to take into account the substantial outdated housing stock, which will need to be replaced in the next 10-15 years. At the current volume of construction, the renovation of Kiev will require more than 100 years, while the average life is 50-70 years. That is, the demand for new housing will continue to grow, respectively, and the cost of a meter.