As the global financial crisis deepens, the immediate future looks bleak for the residential real estate sector – unless you’re a prospective buyer who can pay cash or get a loan.

Building sites across the country are in a state of coma and so are sales of residential real estate. “It’s going to get very bad,” said Terry Pickard, chairman of NAI Pickard. “This is just the start. It’s going to get worse in the New Year, at least until June.”

The sector has been hit by a pullout of investors that began earlier this year. “There’s no money,” Pickard said. “Investors have been hit by the credit crunch and Ukraine is not their priority.”

Banks do not have the funds to lend, and credit lines are being pulled, leading to projects being mothballed before completion. Volodymyr Yatsuba, head of the parliamentary subcommittee on building and architecture, said in televised comments that 80 percent of construction across Ukraine had come to a halt.

And as the financial crisis bites, experts predict that prices will fall dramatically as banks start repossessing homes when borrowers default and selling at lower prices to recover their money. Sokrat Investment Group predicts that prices in Kyiv could fall by up to 30 percent in a worst-case scenario.

Media reports suggest it is almost impossible to estimate property prices as no one is buying. Many market participants were reluctant to put a figure on expected price drops. “I’ve got no clue,” Pickard said. “Only a fool would make a prediction at the start of a crisis. All I can say is that it will be a mess.”

Delo newspaper reported that prices are already sliding in the regions. According to the business daily, the Zaporizhya region has been worst hit, with a fall of 40 percent this autumn alone, while Donetsk, Kharkiv and Poltava have seen a drop of 15 to 20 percent. The slide is predominantly expected to hit economy-class accommodation. Interestingly, the asking prices often remained at the pre-crisis level, and then haggled down.

Average property prices have soared in recent years on the back of rising demand, driven by a lack of space, salary increases and readily available credit from banks. But experts said demand is set to plunge as money becomes tight and credit dries up. “While many want to buy apartments, few can afford them,” said David Hunt, associate director at DTZ, a top real estate adviser. “Many predict spring next year as being where prices reach their lowest point before staying level for a while, then rising again. In truth, no one really knows, and this is a gut feeling.” The expected economic upturn in the final quarter of 2009 might bring the market back to normal by 2011, he added.

With mortgages becoming harder to obtain, some experts have predicted a rise in rental prices as demand increases. But it seems that the opposite trend is taking place. SV Development released figures this week suggesting that average rent prices in Kyiv are decreasing across the board by 20 to 30 percent against an almost threefold increase in supply since the beginning of the year.

It’s not only individuals unable to sell who are moving into the market. “Developers will start to think about renting if they cannot sell in the future,” said Dmytro Vasylev, director of corporate communications at XXI Century. “This could formalize the market, which is currently dominated by individuals.”

Some leaders in the construction industry seem to be in a state of denial about the dismal state of the market. They also give a much more positive spin on the future. Volodymyr Polyachenko, chairman of the Ukrainian Chamber of Construction and president of public construction company Kyivmiskbud, told reporters he didn’t foresee price decreases, citing strong demand. “I don’t believe it. It won’t happen.”

Developers have made big money on property in recent years on the back of high prices and wide profit margins. According to the costruction ministry, it costs $800 to build a square meter of property in Kyiv, while prices start at $2,000 per square meter. Building companies reported hyper profits for nearly a decade, and some are still doing very well regardless of the crisis. Leading Kyiv construction company TMM recently announced a profit of over Hr 190 million for the first nine months of 2008, up by a factor of 47 year-on-year, according to an SV Development report.

Critics have suggested that developers are not yet ready to see their profits slip. Oleksandr Serhiyenko, director of the City Institute, told LIGA news agency that Mayor Leonid Chernovetsky would not allow prices to drop in the capital because he effectively controls Kyivmiskbud, the main developer in Kyiv and Ukraine. “Rather than trying to reduce the price of newly built properties and influence the market so that Kyivans can buy new flats, the mayor’s team is insisting that property prices will not change,” he said.

But it appears that developers are starting to reconsider their position. Vasyl Kuibida, minister for regional development and construction, told reporters on Nov. 7 that developers had agreed to limit their profit margins to 15 percent for the duration of the crisis. He added that this move should lead to a reduction in prices.

Developers are still hoping that the state will somehow breathe life back into the industry by offering them financial help to complete building projects, as well as by encouraging buyers back onto the market by agreeing with banks to cap mortgage rates. On Nov. 11, the government submitted a draft bill to support the construction industry. Prime Minister Yulia Tymoshenko announced that the bill would significantly decrease developers’ overhead costs by cutting taxes. “We have cancelled those charges which have doubled the price of residential property,” she said.

Support for buyers is seen as crucial to reviving the real estate sector and the economy as a whole. “There should be direct budgetary support for purchasing property,” finance minister Victor Pynzenyk told reporters on Nov. 10. “It would allow the building sector, the building-materials industry and metallurgy to work normally.”

The immediate future may look difficult, but some market participants see a positive side to the turmoil. Speculators who tried to cash in on the upward trend by buying land and flats and selling them on at a profit have now been forced out of the market. “It’s going to filter things out,” Vasyliev said. “People have come back down to the ground.”

After years of growth, experts say that a dose of reality for the sector is a good thing and will lead to a consolidation. “We can’t live the way we did before,” Vasyliev added. “The market will become more logical and structured.”