Apartment buyers are lured by discounts and other tricks of the trade

Photo: Ukrainian photo

This autumn brought no relief to the capital’s real estate market. There is no traditional revival despite modest forecasts of realtors and developers. Apartment owners do not want to cut prices and buyers are not willing to go the pace. The parties try to reach a compromise by minimizing taxation on the secondary real estate market and applying a variety of marketing tools in the primary market.

Retreating into the shadows

Apartment prices on the secondary market in Kyiv are pegged to the U.S. dollar. In January — September compared with the same period in 2013, the average price of housing fell by 4.5% to US $113,600, according to the studies of www.address.ua. At the same time, since the beginning of the year devaluation has reached approximately 60%.

The intractability of sellers is not so typical for the market. «During the crisis in 2008–2009, real estate became cheaper in foreign currency and fell to the level of the devaluation of the hryvnia by almost 60%,» recalls President of the Union of Real Estate Professionals Oleksandr Rubanov.

But then the international financial crisis was the reason for the instability of the national currency, while today it is Ukraine’s internal problems. Many sellers have adopted a wait-and-see attitude, hoping for buyers from the east of the country currently afflicted with the military operations and that investors who fear problems in the banking system will invest their savings in real estate.

However, for now the expectations of apartment owners are not fully justified. For the first nine months of this year only 4,300 apartments were bought in Kyiv, which is three times less than in the corresponding period of 2013, according to the ARPA real estate company.

Occasional buyers try to minimize their costs. According to Olimp-Consulting, in the first half of 2014 the number of gift deeds increased by 19% and amounted to 34,000 all over Ukraine. «There is no data for the third quarter yet, but this trend is still relevant today,» said CEO of the company Andriy Huselnykov.

By concluding such agreements people can avoid paying taxes. Payments to the state account for 2% of the value of the apartment: 1% goes to the Pension Fund and 1% is paid as a state duty, said Vice President of the Association of Professional Property Managers Anatoliy Topal. Another UAH 2,000 has to be spent on re-registration of property rights. In case the apartment was owned for less than three years, its owner will have to pay additional fees — 5% of the appraised value of the property. For example, when buying a one-room apartment for US $50,000 such a trick allows for saving approximately US $1,200.

Experts say gift deeds help buyers avoid risks in cooperation with banks. Based on the resolution of the NBU, which entered into force this autumn, settling accounts in cash only to the maximum amount of UAH 150,000 is permissible. «One of our clients decided to transfer money for the purchase of real estate through Terra Bank. Needless to say, the amount never reached the buyer and the deal was cancelled,» says a director of a Kyiv real estate agency on condition of anonymity. As a reminder, on August 22 the Deposit Guarantee Fund of Ukraine introduced a provisional administration for this financial institution.

At present, provisional administrations have been introduced in another 26 financial institutions, according to the DGFU. Among them are Melior Bank, InterCreditBank, Prime Bank, Eurogazbank, ExpoBank, Green Bank, Porto-Franco, Aksioma, Demark, Zoloti Vorota and others. As of October, 168 banks have been holders of banking licenses in Ukraine. One of the licenses was issued to a remedial bank, according to the NBU.

New buildings are highly valued

The situation is more favorable on the primary real estate market. 6,480 apartments were sold in January—September, which is only 1.7 times less than during the same period in 2013, according to ARPA. This is due to the fact that consumers are increasingly buying apartments in new buildings. In the structure of sales for the first nine months this figure is 60%, which is 14 p.p. higher than last year. Developers attract customers with a variety of marketing programs: obtaining of loans from partner banks, payment by installments, and so on, as previously reported by Capital.

The best marketing tool nowadays is the price, says Deputy Director for Marketing Affairs at the Mіskzhytlobud development company Anhelina Derevlyova. Many developers are forced to freeze apartment prices at a reduced rate, for example UAH 11.50/USD. It bears some fruits. Reduction of the cost of housing in dollars by 20% leads to more sales, according to Derevlyova. «Now people are willing to buy real estate at the price of UAH 12,500–16,500 per square meter,» she says.

Real estate developers in Kyiv change their terms of installments, for example, by offering a 0% rate for a limited time payment and adjust the terms of purchase and the first installment, says Manager of the Sales Department at www.address.ua Svitlana Peshko. For example, owners of the Chaika residential complex provide interest-free installments for apartments under construction by the end of this year with a down payment of 50% of the purchase price.

Representatives of the Sales Department of the Comfort Town Residential Complex said the first installment for housing is up to 10 years and until the commissioning of the building the company offers interest-free installment payments. After this, the remaining amount is loaned out for 10 years at 10% per annum pegged to the exchange rate. «Certainly, some players try to contrive and offer other ways to attract customers. For example, they recommend discounts the rate of which is analogous to the company’s anniversary, and so on.» said Managing Director of ARPA Mykhailo Artyukhov.

Cheaper housing

Prices on the residential real estate market will begin to slightly fall, according to experts interviewed by Capital. But not all apartments will reach end buyers as some of them will be intercepted by illicit dealers or rent-seekers. «Customers of one of the real estate agencies in Kyiv are ready to buy a three-bedroom apartment for US $200,000. In the summer they could only buy an apartment near the Polytekhnichniy Instytut subway station and recently — in the Pechersk district,» says Topal.

At year-end, the average price on the secondary market will decrease by 7–8%, says Huselnykov. He recalled that last year the price dropped by 5%.

The lack of sufficient demand will put pressure on developers. «In order to catalyze sales, they will present a variety of special offers, for example discounts for the New Year,» predicts leading real estate expert at the SV Development Consulting company Serhiy Kostetskiy. He added that the discount could reach 10% of the original price.