Who confirms the quest?

In a sphere of building the accommodations besides big profitability comparably with other segments property market there are huge risks. According to the real estate developers they reach to direct their investments in the sector of commercial property.

Investments and risks

Nearest perspectives the main segments of property market of Ukraine and their profitability are the next:

- Trade real estate – new proposals in the nearest year or two will be 14 shopping malls in Kiev and 18 in regions, square is 2,69 million sq. ft. and 17 million sq. ft. Rates of rent in Kiev and cities-millionaires – 500-1900 per 10 sq. ft. per year. It is in average in two times more than in Prague, Warsaw and in one and a half than in Budapest.
- Office property - today there are 37 office centers in Kiev, it is planning 62 more. Only in this year new offer should be not less 1,40 million sq. ft. In regions in nearest year or two – 58 business centers with the square 3,13 million sq. ft.
- Residential property - new offer in Kiev is 12-15 million sq. ft. in cities-millionaires – 1,5-4 million sq. ft., in regions centers – 200 thousand – 1 million sq. ft. Self-coast of building the accommodation - $800-900 per 10 sq. ft. besides it grows about $100 per year.

By big profitability construction of accommodation in comparison with other segments there are huge risks because of what western investors are less interested in this sector as opposite to commercial real estate. The project could be stopped on any stage. There are risks by limits, by permissive procedures, by selling squares and etc.

About price collapse on property market specialists talked not once. Even terms were named, for example, before president’s election 2004. Last time fall of activity were in spring this year when on many new building works were sopped selling of flats and placing in commission decreased, in Kiev, for example, on 22% in I quarter in comparison with the same period in 2006. “There is no flat boom in Kiev”, - informed Vladimir Vinokur, the director of the real estate center and valuation “Megakon-B”.

As for construction boon, now is building in three times less than till 1989. At this time macroeconomic rates are very favorable in last year. Stable development of the market is caused to its attraction for Ukrainian and foreign fund.

“What as perspective of the property market, they are huge but rent rates collapse is possible”, - thinks the director of representation Jones Lang La Salle Andrew Nazarenko. And if they will decrease till the level of Warsaw - $20-30 per 10 sq. ft. it could break the plans of investors. It will be in case in new projects and “players” will come to the market. Small amount of market will lead to the fast filling and price collapse.

Strategy and tactics

Companies are building basing on marketing researches. Entrance some construction companies on the world fund markets (“XXI century”, “TMM”, Dragon-Ukrainian Properties&Development PLC) let to involve essential fund for development. “Our company 90% of our own investments directs in the sector of commercial property, - said the president of Investment-project company “XXI century” Leo Partshaladse, - it is more profitable.” “Now there is no quest on the accommodation of economic class, that is why builders are switched to trade or high class real estate”, - confirmed Alex Necrasov, analytic of the company Gait and Taggart Securities.

At the same time, according to the words of managing director the company TMM Nicolay Tolmachev, now company could direct its facilities on the foundation of new segments of market, sells the property on the finishing stage of building but not at the stage of ditch of foundation. Besides, will be selling not empty walls without internal finishing where everyone uses its imagination does not know anything about it but finished project where buyer could choose from suggested range.

Statistics shows that when the flat is given turn-key, buyer does not reach to change anything. “We will be forming quest on market but not going under it, - said NIkolay Tolmachev, - will be serve our houses during 30-50 years only then buyer could be sure in its quality.”

Therefore, today’s high profitability on the property market – at the same time high risks which scares serious investors. Ukrainian market is wild. It exists in conditions of absence of experience, fall of activity. Prices increase does not have grounds for this. Leading analytics predict price increasing for 10-12% but it is 70%. There is a huge barrier of misunderstanding and mutual mistaken expectations between local government and real estate developers.