Residential

GENERAL OVERVIEW

Being one of largest Ukrainian cities Kharkiv steadily maintains among the country’s price and construction volumes leaders of the residential real estate market. Profitability of residential estate segment and thus tremendous attractiveness for local investors and developers explains why the city continues its persistent construction in attempts to meet the existing unsatisfied demand. However the city development in 2008 is observed at a slower pace comparing to the previous years.

The decrease of developers’ activity was the main trend on real estate market in the beginning of 2008. Lengthy spring holidays, mortgage loans freeze, high inflation rates and political instability have created favorable conditions for shortage of market transactions. The last drop for arousing stagnation in the residential segment was considerable fall in exchange of USD and Euro. Market players preferred to stay motionless in order to avoid risks of receiving fewer profits due to currency fluctuation.

However decrease in amount of transactions on the market did not become the obstacle for the further slight price increase of residential premises. The prices are rising being under the pressure and influence of the ongoing inflation and situation with foreign currencies as well as with increase in construction costs. The fall of USD forces the sellers to raise nominal prices in order to equal them with real ones. Moreover the instability of foreign currencies makes the payments in hryvnas the issue of current importance. Several developers operating on the Kharkiv market are following the trend of setting prices for residential apartments in national currency. Still the real estate market is rather conservative and inert so the changes are not likely to become a widely spread tendency.
 

DEMAND

The demand evolution with dominating concernment of solvent population in purchasing new apartments and elite premises is a common trend for Kharkiv while the significant part of the residential premises representing the total Kharkiv stock are in the condition of heavy moral and physical depreciation. It arouses a well grounded and understandable desire to better the existing living conditions.

The two main components that form the demand on the primary Kharkiv market, as well as on the secondary one, are consumption demand and speculative demand. It is important to note that market speculative demand is common for countries with transitional economy, in which number of alternative investment instruments is limited and available instruments have low level of citizens’ confidence. That’s why purchase of residential real estate with opportunity of further resale considered being very profitable investment in our country.

One of the main reasons supporting the consumption demand is the attempt to avoid the influence of inflation and risks of banking crisis by investing money into real estate. On the other hand, the adherents of the belief in further rough price decrease are growing in amount. This tendency restrains the market activity and postpones many sales/purchase transactions until the situation is clarified.

Currently there is a deficit of residential premises in Kharkiv. According to official statistic data current residential stock amounts to 30,081.3 thousand sqm, and population of Kharkov is about 1,452 thousand people. Thus, the provision of residential space per person is about 20.7 sqm. This index is slightly lower than Ukrainian standards but much lower than those in the developed European countries. We should also consider that such normative is outdated and should be reviewed regarding to the fact that the most of residential stock is decrepit. Moreover, technical state of the city’s residential stock is characterized by the high level of both moral and physical deterioration. It should be also mentioned that number of people, living in large cities like Kharkiv may vary from official statistics and constitute larger amount that can also correct real figure of the abovementioned index.

SUPPLY

Kharkiv residential real estate stock is represented by all classes and various types of residential buildings with different level of comfort. The most considerable part of the city housing stock is represented by residential buildings constructed during the 1950s-1990s and concentrated in peripheral and middle parts of the city. Kharkiv city center is rich in diverse types of buildings: old type (constructed before 1915s), residential real estate from the period of industrial construction (1940s-1950s) and newly-constructed modern residential buildings and complexes.

As for the beginning of the 2007, common stock of residential premises amounted to
29,744 thousand sqm. During 2007 additional 337,300 was commissioned. Henc, cumulative stock equals to 30,081.3 thousand sqm as of beginning of 2008.

Quality characteristics of supply are troublesome while there is no officialclassification of residential real estate generally adopted in Ukraine. At the same time, in 2006, the Ukrainian Building Association (UBA) was the first to draft a comprehensive classification of new residential housing which is currently generally accepted on the market.

The classification divides the primary housing market into five classes:

• social;
• economy;
• business;
• premium;
• de-luxe.

Kharkiv residential estate classification is somewhat simplified and distinguishes three dominating on the local primary market classes: economy, business and elite (both premium and de-luxe).

Basing on the abovementioned classification we should mention a shift in the structure of Kharkiv primary real estate market as an effect of the increased amount of newly built housing. Given the increasing competition and more demanding customers, developers in the residential sector are forced to respond to the changing market conditions. As a result, the number of high-class projects increased significantly in the last years. Business and premium class apartments occupy a persistently increasing segment in the total structure of supply.

Apparently, the supply on primary market is represented mostly by the business class apartments.

The primary residential market is characterized by the following tendencies:

• The persistent increase of supply.
• The increasing weight of business class and elite premises in the total structure of supply.
• Absence of supply excess over the demand.
• Transition from the detached buildings development to the residential complexes and “City in the city” format.
• Enlargement of new projects both by size of buildings and by the number of storeys in the buildings.

An intensive development of new residential premises takes place in the central part of the city but due to the scarcity of vacant land plots developers advance construction to more remote districts of the city.

PRICES AND RENTS

The average price increase per sqm of residential space origins from the general inflation level and foreign currency exchange rate fall. Therefore the increase is considered to be predominately nominal and thus current slight real price increase on the market occurs due to unsatisfied solvent demand.

The average prices per sqm on the Kharkiv primary as of June 2008 depending on the class of the residential real estate is shown in the table below: