Barry Commoner’s first law states “Everything has to do with everything.” This is a very apt statement when we talk about the economy and real estate. Let’s try to analyze what happened and where we are going now.
What changes await us in the near future?
Today, everyone is discussing fuel prices and their rapid growth. But first, the fuel shortage is linked to the war, with fuel prices rising around the world, especially in Europe, where governments are even offsetting fuel costs. That is, the war in Ukraine affects prices around the world !!! And not only for fuel – wheat prices rose to $ 400 per ton, almost 2 times in anticipation of falling grain supplies to world markets from Ukraine. However, I hope that after the war Ukraine will resume grain supplies, but fuel will never be in Ukraine for 1 dollar per 1 liter, because if we are now part of Europe, then our prices will be equal to European. And if the price of gasoline in Romania is 1.5 dollars per liter, and in the Czech Republic and Germany 2- 2.5 dollars per liter, we will not have less.
Somebody has already announced $ 5 per liter in Ukraine, but the markets do not work like that and if the price in Europe is lower, then with such a margin there will be many willing to supply fuel to Ukraine, so the price will quickly leveling off.
Is it good or bad?
Many people think this is not so bad, because price equalization will happen everywhere and it will affect wages: Europe will not use “cheap” labor from Ukraine for a long time. Those who have become refugees say there are no jobs in Bulgaria or Romania. Apparently they mean – there is no work for money acceptable to them. Of course, the equalization of wages will be gradual, but inevitable. Before the war, many people said that it was possible to find a job in Ukraine for the same money as in Poland. Wage growth in Ukraine has given a wild boost to real estate development before the war (we finally got to real estate), but this question is divided into two parts: what happens during the war and what can we expect after the war?
What is happening now?
First, the state is already preparing for the postwar period: draft laws on compensation for damaged property and relevant Cabinet Resolutions are being written, information on the owners of damaged and destroyed property is being included in the state appendix ACTION, lawsuits are being filed in international courts, and methods of assessing military damage are being developed. And what about real estate?
Of course, prices for undamaged real estate have changed significantly, but not everywhere. Somewhere prices have fallen, and somewhere they have risen. All this happened abruptly. And since the state closed the registers of real estate transactions during martial law, the only driver of real estate was rent.
In the first month of the war in Kyiv and Kharkiv, landlords allowed current tenants to pay for communal services and not pay rent. Apparently, the same was true in other cities in the north that came under bombardment. Unlike Kyiv, which became the center of the war at the beginning, prices in the western regions of Ukraine increased 2-3 times compared to pre-war times, as many Kyiv families moved to the western regions. Later, families from the eastern regions of Ukraine began to join them, especially when the aggressor was repulsed from Kyiv and declared war on the east a priority. People began to settle not only in Lviv, Ivano-Frankivsk or Ternopil, but also began to develop small towns and villages in all western regions. Of course, there were those who settled for communal services and even for free, volunteers created transshipment points where you could spend the night – eat and take a shower for free. But there were also those who, unfortunately, rented out their apartments in Ukraine, and went abroad in search of free housing and payments from those who provided us with shelter. However, I hope that the percentage of such “cunning” was small, 99% fled the war.
Of course, prices in small towns and villages in the western part of Ukraine have also risen slightly, but not as significantly as in Lviv, where the rent for a two-room apartment still reaches one and a half thousand dollars. Plus a communal. In Frankivsk and Ternopil you can find for a thousand dollars, but in small towns there are offers for 300-500. The main thing was that the migrants needed the Internet, because the majority worked remotely and high-quality Internet was important. And it even stimulated the development of the Internet in small towns.
As for commercial real estate, the situation with it has become very sad, because many businesses “fell” and could no longer pay rent. True, some are trying to secure offices by paying at least utilities. In addition, the quarantine officially ended on March 31, but was later extended, so many have long worked remotely, so no “perestroika” was needed. However, in April the authorities called on businesses to work in Kyiv after the russian troops were driven away from Kyiv. And began the gradual revival of both the economy and the real estate market.
In April, current tenants were offered to pay from 50% of the rent to 70-80% of the rent in Kyiv. There was still no sales market, as the registers closed with the start of the war, but apartments in new buildings were sold because the sale did not require registration in the official register of the Ministry of Justice, and developers had to cover at least some costs. Therefore, if the discounts were given, it was mostly “theirs” and quietly, officially, the offer prices were not reduced either in Kyiv or in Kharkiv.
Finally, on April 19, the Cabinet of Ministers Resolution No. 480 on the opening of registers registering purchase and sale agreements with real estate was adopted. At the same time, restrictions were imposed on which of the notaries could register: the Ministry of Justice created lists of such notaries, not including those who had violations and lawsuits. The Resolution also limited the possibility of re-registration of the same object to one month from the moment of the last registration, which it would probably be expedient to keep. In addition, the possibility of registration by power of attorney and actions in relation to appeals of Russian citizens was suspended, and registration was limited to the region where the notary and the object of purchase / sale are located.
A register of valuations for tax purposes and other registers required for the registration of transactions have also been opened. But realtors say that there are no buyers, and it is clear that sellers do not want to give their meters cheap: the market for the sale is still “pending”, although banks have stated their readiness to issue loans. However, sellers’ offers have not changed compared to pre-war prices in Kyiv and Kharkiv in conventional units, in dollar terms, which in itself indicates a rise in hryvnia prices due to the growth of the exchange rate. However, these “wishes” are not backed by real demand and it will not arise until the end of the war and even some time after the war, because no one knows when it will end.
However, this trend after the war will largely depend on the adoption of a bill on compensation for damaged and destroyed property, in which the state promises to pay for the restoration of real estate. And if they compensate quickly, and if with money, the market will recover very quickly, because many have lost their homes and need to live somewhere, and some will have to rebuild it, some will return from the western regions, and some from abroad. Of course, everything will depend on how quickly the war will end, so the exact dates were said to be impossible, but it is possible to predict what changes in demand and supply of real estate will be AFTER the war. And it is even possible to prepare for these changes today.
What will happen next?
The war has changed many of our perceptions of what kind of housing we want to live in, and changes in the cost of fuel, for example, are also influencing decisions about where we can now live. And if during the quarantine period many people became interested in suburban real estate, now reducing fuel costs will be important when deciding to buy real estate: buyers will look for housing near work, if it is impossible “remote”, and suburban real estate will be used as a summer cottage or for those who can work remotely.
As for the features of the houses that are in demand for the new quality, firstly, I think that now the changes in the requirements for new buildings should be made so that no apartment building is without storage built into the basement or ground floor, and such storage facilities in peacetime will be used as a car park or otherwise acceptable.
There may also be additional requirements for the design features of buildings, such as priority frame structures with the presence of additional all-reinforced concrete stairs. It is possible to abandon completely panoramic windows (oh, sorry !!!!), to make requirements for stronger windows, doors and other elements of the building, and in areas of existing buildings – to add storage located near the apartment building, which has no storage, develop infrastructure to protect us from bombing. Storage should be close, convenient and safe. It’s expensive, yes, but what is the alternative?
In the suburbs, it is also possible to build individual storage facilities, deepened to a certain depth, but such structures still need to be developed, although implementation in practice is possible very quickly: there will be demand.
And if in recent years after World War II we did not expect a new war and did not take this into account in the design and development of residential real estate, this issue will now become a priority in Ukraine.
How will demand change after the war?
Thus, the demand will now depend on the residents’ assessment of the reliability and safety of the place of residence, as already mentioned. In Kyiv and Kharkiv there are areas where “bombs did not arrive” and residents certainly analyze this when deciding to buy a new apartment, and therefore prices in such neighborhoods will be higher than where “did arrived”.
But it is also obvious that different market segments will have different expectations.
For example, given the economic downturn, declining incomes and the depletion of various “pillows” or “fats”, the buyer will be more interested in economy-class housing, which has recently occupied a small percentage in the Kyiv market. However, the demand for smart apartments is unlikely to be high, because living and working separately in these birdhouses is not so easy. But where there is a basement in the buildings of “Soviet” buildings, which can be equipped with storage, potential buyers will be more interested than in pre-war times. That is, there will be a more targeted redistribution of demand and therefore local authorities need to urgently pay attention to the development of shelter infrastructure and maintaining them in good condition with possible use for other purposes in peacetime.
Redistribution of demand for such classes as “comfort” or “premium” will also take into account the possibility of not only comfortable but also safe living and reducing the distance to work.
What will happen to prices?
As mentioned above, developers and sellers of ready-made housing are still not ready to reduce housing prices in Kyiv and Kharkiv and even in Lviv. But they will have to do so in the near future if they really want to sell housing or rent them out.
As for rent, the average prices in Kyiv now fluctuate in the range of 10-12 thousand hryvnias closer to the center and even in the surrounding areas – in Holosiivskyi and Solomyanskyi. In Kharkov, these prices are 7-8 thousand UAH per apartment per month. This is almost half than they were in pre-war times, when the corresponding prices were 20-26 thousand and 15-16 thousand UAH.
The theory of real estate markets suggests that in the event of changes in rental prices, purchase / sale prices also decrease, although not proportionally, but there is an adjustment of inflated prices where demand is declining and only underestimated objects in terms of new requirements can keep the same prices as before the war. That is, the fall in prices will be staggering in the coming postwar period, and will last for several years. Why?
First, because there will be a general decline in GDP, which will not be created by businesses that have disappeared or stopped until recovery. That is, the total amount of money that will circulate in real estate markets will be significantly smaller. In addition, despite the fact that many refugees have returned home, we will still lose some of them forever, these people will not participate in GDP, will not create demand for apartments, so the pressure of money on the real estate market will be less.
Except for the situation when it will be possible to obtain compensation from Russia for the destroyed property and this money will go to market. As soon as this money arrives the amounts that will put pressure on the real estate market, demand will recover very quickly. Whether developers will be able to keep prices and receive funds for completion between the end of the war and the money for compensation is an open question and will depend on the state’s ability to receive this compensation from Russia. The task of the state is to reduce the time to receive compensation and prevent the collapse of such an important industry as construction, to respond quickly to the challenges of time in the industry and adopt appropriate changes in legislation, provide housing for Ukrainian citizens who lost it.
If you look at the long term and 10-15 years after the end of the war, the equalization of real estate prices between Ukraine and the EU will begin, and the speed of alignment will depend on how quickly Ukraine becomes part of the European Union. Of course, we are still far from the prices in Berlin of 5-10 thousand euros per square meter, but the return to the pre-war state must go quickly, especially if people with monetary compensation enter the market and this will create demand and business will work. Therefore, people do not want to rush to give our meters for nothing in difficult times of reconstruction, they want to wait for a better