The general director of the Kovalskaya group, Sergei Pilipenko, explains why the eOsel program is slowing down, how shelling affects apartment sales, and how real estate prices will change after the victory.
The housing market in Ukraine has changed fundamentally since the full-scale Russian invasion. Professional investors who invest in construction at the initial stages and sell already built apartments have almost disappeared, developers are in no hurry to start new projects, and there are several times fewer buyers than in the pre-war period.
Why then are real estate prices rising? General Director of the Kovalskaya Group Sergey Pilipenko spoke about work in the new reality, the cost of housing and the impact of migration on construction in an interview with NV Business.
His company doesn’t just build housing. Kovalskaya is the main supplier of concrete for all Kyiv developers. Therefore, Pilipenko receives information about the entire capital’s primary real estate market. So, what prices and offers should Kiev residents and those planning to move to the capital expect?
In May, Kyiv experienced record shelling from Russia. Has this affected sales and construction? What is the situation now?
In March, after the end of a difficult winter, we recorded a revival of the market. Potential buyers actively called, visited construction sites and bought apartments. Sales increased significantly compared to even the best months of 2022.
The May shelling did have an impact on the real estate market – interest from potential buyers dropped slightly, but then recovered over the next month. There was a similar situation with the rumors about the possible explosion of the Zaporizhzhya NPP. People simply put off buying a home, which is why there was a certain pause. But overall, this year is significantly better than the previous one. If on average our four [киевских] Last year we sold three, at best five, apartments a month, but this year it’s more than 20. In some months even 30 or more. That is, sales have increased significantly.
Each developer has its own dynamics, depending on the project portfolio, stage of readiness and price. If we talk about the average situation on the market, then, compared to the pre-war period, sales are now 70% lower.
Who is buying apartments now?
End consumers who plan to live in their apartments.
No investors?
Speculative demand has always occupied a significant market share. Depending on the object and the developer, their share ranged from 30-50% of the total number of buyers. Since the beginning of the war, this segment has practically disappeared.
Apartments are mainly bought by Kiev residents who have been postponing purchase and sale transactions. That is, this is an organic demand that somehow exists on the market. The second category of buyers are migrants who, in the first year after the start of the great war, moved to Kyiv and rented housing for some time. In the process, we realized that they wanted to stay in the capital and chose a specific area with a certain infrastructure. The third are participants in the eOselya state program. Unfortunately, it doesn’t work on the scale we expected. They hoped that the program would generate more than a thousand transactions per month in Ukraine as a whole. However, since the beginning of its implementation in October last year, just over two thousand apartments have been sold with its participation. A significant amount was sold in finished properties – only a few apartments were purchased under this program at the construction stage.
We are constantly in dialogue with Ukrfinjitl (manager of the eOselya program – Ed.). We provide our suggestions on how to create a mechanism that would allow the program to work effectively for the entire market, and not just on the secondary market. And, among other things, to expand the categories of buyers who can apply for eOcel. I know that there are now more than 100 thousand applicants and this number is constantly growing. The potential is impressive, provided, of course, that Ukrfinzhitl has money.
Is Ukrfinzhitlo ready to change the rules of participation in the program and allow borrowers to buy housing in houses that are under construction?
Such facts already exist. There are few of them, because Ukrfinzhitl has specific requirements for contracts. Several developers have changed the form of contracts and, in fact, the mechanism for selling housing. We are still in the process.
Don’t have any such deal yet?
None, unfortunately. Kovalskaya has not yet sold a single apartment under the eOsel program – precisely because of the form of the contract and the sales mechanism. But, as they say, water wears away stones. We are in constant dialogue, I am optimistic. Then everything will depend only on the availability of apartment supply.
Who builds housing
The largest Kiev developer, HC Kievgorstroy, has not been building housing since December last year. What impact does this have on the real estate market?
According to my estimate, 90% of objects are being built in Kyiv. There is enough supply. We were one of the first to resume work at our sites in May 2022, when it became relatively safe in Kyiv. And then we watched as in June, July and before the massive shelling in October, most large developers resumed construction.
The logic is clear: we must fulfill our obligations to investors, preserve our team, and minimize the impact of inflation. Because, having sold an apartment for 30 thousand UAH per square in 2021, it needs to be completed at a price higher than 40 thousand UAH. These are big risks for the developer.
If the house is not completed and it is damaged due to shelling, is this the developer’s problem? And if it is put into operation, is the restoration carried out by the local authorities?
Absolutely right.
Does this motivate you to build faster?
No. For this we need two things – money and people. There are materials. Blackouts did not significantly affect work. We are already accustomed to rocket attacks; we consider them a new reality.
Representatives from various business sectors talk about a labor shortage. What specialists do you lack?
We feel a shortage of everyone – from technical specialists to workers. The staff shortage is very large.
How do you solve this?
We offer the best salaries. We try to convince that working with us does not mean that tomorrow an employee will be recruited into the ranks of the Armed Forces of Ukraine. A fairly large proportion of men and women left the country. Employees from the suburbs and other regions are trying to avoid checkpoints where they might be served with a summons. And they don’t want to leave their cities. We officially employ everyone, we have white salaries, so we are obliged to inform both the TsK and keep military records of employees and ensure their attendance at the military registration and enlistment office, if there is such a request. This scares people away. At the same time, companies that pay salaries in envelopes, without official employment, gain an advantage in the labor market.
In addition, many went to serve in the ranks of the Armed Forces of Ukraine and are now defending Ukraine.
Is it difficult to get reservations for employees now?
This is a complex and lengthy procedure that takes from several months to six months. And it is impossible to book all employees. If we talk about the Kovalskaya group, then for three thousand people we have up to 200 armor.
What are the economic consequences of staff shortages?
Since July of this year, we estimate the lost volumes of production of building materials and construction due to a lack of people at 10-15%. The more the market recovers, the sharper this gap will become.
Is it really possible to compensate for these losses at the expense of foreigners?
Really. Now there is already a whole cluster of companies that are ready to bring and legalize “turnkey” workers from Kyrgyzstan, Tajikistan and Uzbekistan.
Are they ready to work for Ukrainian salaries?
Yes. We believed that wages were parity. We want to hire from 20 to 40 workers from abroad, we will look at their professional level, the ability to work, taking into account the language barrier and cultural characteristics.
Construction costs have increased by a third since February, says Sergei Pilipenko. / Photo: Kovalskaya group
If we examine the statistics of PWID, housing prices in hryvnias have not changed over the year.
In fact, they have gone up in dollar terms. In September last year, apartments cost 46 thousand UAH at an exchange rate of 42, which was $1095 per sq. m. meter. And now, at the current exchange rate, 37 is $1,243, that is, housing has risen in price by $150 per square meter. The peg to the dollar exchange rate on the primary market is very strict, but this is fair. Because construction costs have increased by 30% since February 2022.
Will you raise prices in the fall?
This year we have already raised prices twice. On average, they grew by 15-17% in dollar equivalent.
About the real estate market in the coming years
Now developers are not starting new projects. How will business survive in the coming years?
New houses are appearing, but there are not many of them. Typically, this applies to complex developments, where a part has already been implemented and developers continue to build in stages. For example, we have the Rusanovskaya Gavan residential complex, which is already 60% completed. The complex is occupied and we continue to expand it. Construction of a new line began last year. The entire market moves according to a similar principle.
In the real estate market, demand is now significantly lower than supply. The market has now shrunk to 30% of pre-war volumes. We will wait until demand grows and there are grounds for increasing construction volumes and new projects.
It will take, I think, a year and a half until all current projects are completed. At the same time, we will monitor sales dynamics and make decisions on the launch of new projects.
How will the market change due to population migration? Will Ukrainians return and under what conditions?
Of the 6 million Ukrainians who left, according to my estimates, approximately 4.5 million people are women and children. If the men stayed here, then relatives, family, and the center of vital interests are in Ukraine. I hope for their return after the end of the war.
In addition to demographics, the market will be influenced by how the economy recovers. If GDP increases year by year by at least 10%, then we will quickly restore everything. And for this we need enough labor, investment, and the private sector must develop. Income levels will rise, and people will buy real estate, including with the help of various government programs. We don’t know how events will develop at the front, but next year we need to reach the pre-war GDP figure of $200 billion.
How is this possible?
We are counting on a Ukrainian economic miracle, through programs for economic recovery and modernization, and significant investments in the development of infrastructure and industry. There will be growth in the economy and people’s income levels, and this will be translated into the real estate market.
Analysts predict that demand for housing will increase significantly after Ukraine’s victory. And demand will exceed supply. Do you share such optimistic forecasts?
We have already lost two years of the development cycle, which will certainly affect the market. I believe that in the three to five year period there will be very limited supply with significant demand. This could lead to a doubling of prices. This is obvious to me. But over time, the situation will balance out – more projects will enter the market and it will return to normal.
2023-09-09 06:09:00
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