Real Estate & Construction

The period from the end of 1990s until the middle of 2008 was marked by a construction boom and prosperity of the real estate sector. At that time, companies within the branch recorded 100% profitability or even more. However, the Ukrainian real estate market turned out to be the most disposed to the financial crisis, which has influenced the economy of the country since the middle of 2008. Many construction objects are frozen because of a halt in financing, a foreign capital outflow, and a decrease in consumers’ paying capacity caused by the limiting of consumer crediting by financial institutions. However, such a situation should not be considered as a failure of real estate and construction, but as a crucial moment for the industry. Thus, such a situation will eliminate the small companies, while the large companies will be forced to revise their strategy and, perhaps, close unprofitable businesses, as well as review asset portfolios.
 
This drop lowered the profitability of real estate and construction companies operating in big cities to 20-25%, while the profitability of companies working in the regions is negative at present. A further decrease of prices for real estate will lead to a loss in the investment attractiveness of the branch and, as a result, a deficit of dwellings will be observed, causing the next price increase.

According to the State Statistics Committee of Ukraine, the share of construction in the total production of goods and services comprised 5.4% in 2008 and reached UAH 113.0 bln. For January-October 2009, the volume of performed construction works was UAH 29.0 bln, having decreased by 48.5% in comparison with the same period in 2008. The dynamics of the construction sector’s development in 2006 – 2009 is shown in the diagram below (data is given as a percentage of the corresponding period of the previous year).

A strong decrease on the real estate and construction market was caused by a sharp cessation of bank crediting, an outflow of foreign investments, and a reduction of expenditures by companies that rent office and other premises, due to a worsening of financial conditions. As a result of a crediting reduction, consumers’ solvency dropped, as well as demand for real estate. As goods became less consumed, retail, trade, and entertainment centres began to slow down and optimize their activities. This caused a sharp decline in demand for residential real estate, retail, trade and entertainment centres, and office and storage real estate in terms of the availability of objects on the market.  

In 2009, the real cost of commercial real estate in USD decreased almost 3 times; the real cost of residence, by 50%. Though the cost of trade, office, and storage real estate has declined more than the cost of residences, they may recover more quickly upon signs of economic recovery and improvement of the investment climate. In general, market players anticipate movement on the market at the end of the winter of 2009/2010. EURO-2012 is also a good possibility for improving the situation on the real estate market. The process of preparing for the championship will increase the number of orders for real estate and infrastructure construction and could foster the development of the Ukrainian real estate and construction sector.