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Smart investors enter in periods of decline, so now is the time to get involved in real estate
With the economic boom over, now is the time to step back and plan confidently for the future. Reacting properly to current challenges will put us in the correct position for the future development of Ukraine. Even in times of global crisis, the high potential of Ukraines real estate market is clear.

In terms of real estate, Ukraine is the most under-supplied in Europe. Most analysts do not expect supply to meet demand before 2013, at the earliest. Accordingly, there are widespread opportunities for developers and investors.

One of the indicators used to measure the potential of a market is the amount of office space per 1,000 people. This figure for Ukraine is 0.36 square meters much less than in Russia or the European average. There are 300,000 square meters of A-class office space in Kyiv. By comparison, Warsaw with half of Kyivs population has 3 million square meters.

The market for residential real estate is even more attractive. Kyiv has 97 square meters of residential real estate for every 1,000 residents, almost half that of Moscow and a quarter of that in Budapest.

The warehouse sector also possesses quite good potential. In Kyiv there are 0.18 square meters of warehouse premises per 1,000 people, while in Budapest this figure is one square meter.

At present, it appears that the development of medium-term office and commercial projects in Kyiv is the sector of least risk. Despite the slowdown of retail expansion outside Kyiv, those developers who have access to financing can realize short-term returns on their projects. The credit crunch is putting a squeeze on developers who are not cash-rich. Therefore, as the number of newly completed properties falls, high rental rates become possible.

It is evident that today in the residential segment there is heavy deferred demand. To meet this demand, we need to build 1 million square meters of new space annually over the next 15 years. Also it is necessary to replace a lot of old housing with more modern buildings.

Experts at Roland Berger forecast that, after market stagnation in 2009, prices for residential property will grow moderately in 2010-2012. Capitalization rates in Ukrainian real estate have slightly risen but, at the same time, they still remain on a more profitable level than in Western Europe.

As a rule, smart long-term investors enter a market precisely in periods of decline. Therefore now is the best time to start investing in Ukrainian property. Having met with foreign partners, I can see the increase of their interest in the Ukrainian real estate market. For example, in the opinion of Baker & McKenzie, German pension funds specializing in the European property market should firstly be taking a look at Ukraine. Abris Capital Partners, a Polish investment company specializing in real estate investments, has already taken the opportunity of entering the market by the acquisition of a portfolio of shares of in the Barvynok retail chain. Trust Management Services and BAKA Investment have also expressed interest in the local market.

Mergers and friendly acquisitions are now beginning to happen a process that will allow companies to activate their developments. I think that the optimal way for investors to enter the market is in partnership with local players who know local peculiarities and have the experience of project development in Ukraine.

As a leader of the Ukrainian Building Association, t-he public union of more than 200 construction and development companies, I can see how it is important to have a community of interests in order to pool experience and groundwork. Only by consolidating efforts of business, non-governmental organizations and authorities can we improve the situation both in the market and in the economy in general. Players in the real estate market should unite. The doors of the Ukrainian Business Association are open to new members.

But in order to maximize the market potential and to keep it strong, it is necessary to resolve the most pressing issues. The first of these, as agreed by most experts, is the necessity to pass an anti-recessionary law. At the moment there are two nearly identical bills waiting for consideration.

However, we consider that these bills lack several important items. In particular they should simplify licensing procedures and create conditions in which people can afford to purchase residential housing. This means the renewal of credit for buyers and builders, a gradual decrease of percentage rates, the possibility of delay in payment in case of layoffs, and the adoption of a state program on completion of residential houses already built more than 70 percent; favorable conditions for the development of major projects, or government orders for such projects.

These steps will help stabilize the situation. Ukraines real estate market will recover faster than European markets as we have less competition and greater demand.
Lev Partskhaladze is board chairman, co-founder and majority owner of XXI Century, a leading Ukrainian real estate development and investment company.

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As at 01-10-2013