You're reading: Residential housing prices may have bottomed out

Hit hard by the 2009 global recession, Ukraine’s residential real estate market remains among the world’s weakest performers, but there are signs of recovery in the premium segment.

Ukraine scored among countries with the sharpest price decline, according to the latest Global Housing Price Index, which is published by Knight Frank, a London-based property consultancy.

According to the report, residential property prices continued to fall in 2010, by about 8 percent.

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That’s enough to make Ukraine the third worst-performing market out of 50 European, North American, Middle Eastern and Asian markets surveyed. The only countries “outperforming” Ukraine are Lithuania, where prices dropped by about 10 percent, and Ireland, which posted a decline of almost 11 percent.

If you are selling, don’t get depressed. Experts say residential real estate prices have likely hit bottom

Since 2009, housing prices in Ukraine have plunged by more than 40 percent. In contrast, the Index’s best performers – Hong Kong, Latvia and Israel – each showed robust price growth of more than 15 percent. Meanwhile, in neighboring Poland, prices have during this period grown by almost 9 percent. In Russia, prices are up by almost 1 percent.

But if you are selling, don’t get depressed. Experts say residential real estate prices have likely hit bottom. That means they can only go up from here. And if you’re an investor, this could be the right time to buy.

Liam Bailey, head of residential research at Knight Frank, said the market may be on the verge of a new growth cycle, trailing not far behind other Eastern European markets which are still far from peak prices of 2007-2008.

According to Knight Frank’s forecast, Ukraine’s mainstream real estate market will remain static in 2011, while the premium segment, mainly in Kyiv, will show price growth of up to 5 percent.

According to Bailey, anyone interested in investing should carefully study the lessons that are to be learned from the 2009 crisis. It’s a cyclical business. The bubble that burst in 2009 on Ukraine’s residential property market was created by a mix of inexperienced investors who tried to sweep up all they could, as well as by banks that financed the speculative frenzy.

“People wanted to invest in emerging markets to get quick yields without thinking about the exit strategy, whether their title to the property is secure and the property is easy to sell. Now they will be likely to do much more due diligence,” Bailey said.

Terry Pickard, who runs Kyiv-based real estate consultancy NAI Pickard, is upbeat on the way Ukraine’s real estate market is recovering. Prices in some segments, primarily in premium retail, have already returned to pre-crisis levels, he said. As for the residential segment, the trend is similar, he added.

The luxury segment, according to Pickard, has fully recovered from the 10-15 percent downfall at the peak of this crisis. It is “booming again” because cash-rich clients shopping for luxury property are not dependent on mortgages.

People wanted to invest in emerging markets to get quick yields without thinking about the exit strategy, whether their title to the property is secure and the property is easy to sell. Now they will be likely to do much more due diligence.

– Liam Bailey, head of residential research at Knight Frank

The middle- or business-class segment, is likely to recover by the end of this year, when supply and demand reach equilibrium, Pickard added.

Don’t expect Ukraine’s low-cost residential property market to start taking off any time soon, however.

Pickard said activity in this sector is heavily dependent on the appetite and ability of banks to finance purchases through mortgages. Many banks got burned after the 2009 crisis when homebuyers defaulted on loans. Non-performing loans run at double-digit percentage levels for many banks that are still struggling with their books.

Overall, up to 70 percent of residential real estate purchases were financed through mortgages. As much as one-third of these mortgage loans are overdue or are being restructured, according to expert estimates.

Recovery in the economy-class residential housing segment is at least two years away, Pickard said.

But Taisia Shepetko, an analyst at Kyiv-based investment bank Dragon Capital, was less optimistic about Ukraine’s residential real estate market overall. She said it could very well take banks much longer to start full-scale lending again.

“In 2010, Ukrainian banks issued $290 million worth of home loans, a tiny amount compared to the $385 million in mortgage loans they granted each month in 2008,” she said.

 


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Kyiv Post Staff Writer Vlad Lavrov can be reached at [email protected].