In 2019, the income from investments in residential property declined by almost half. The risks increased significantly. But Ukrainians still consider it the best tool of saving and accumulation of funds.
Real estate investment will remain one of the most popular tools on the main or additional income Ukrainians. Over the last 5-7 years the price of new buildings in Kiev from the beginning of construction to completion has increased by an average of 30-40% in the hryvnia equivalent. Even considering the average investment period of 2-2. 5 years,the average yield on these investments ranged from 12 to 18% per year.
Over the past year the situation has changed significantly. Through the devaluation of the dollar return on investment for those who invested in 2017-2018 has fallen to 5-6% per annum.
Why and what for?
Why Ukrainians are so prone to risky investments in the construction of the meter, although construction scandals occur at regular intervals, and the number of new "questions" only in Kiev is 70 units? This is partly to low public confidence in banks that offer different Deposit schemes and the lack of developed alternative investment instruments, such as different mutual funds or securities. The other side of the problems is low awareness of ordinary Ukrainians regarding the availability and riskiness of investment instruments on the background of large-scale advertising of residential buildings. In addition, the attraction of Ukrainians to invest "in bricks" to minimize the taxation of investment, in the case of deposits or investments in the funds are eliminated.
Analysis of the practice of investing in new buildings shows that with the start of sales of apartments in new building to 30-40% of all transactions account for speculative investments. The peak of the speculative resale of apartments falls on the last 6 months before the introduction of the house in operation, at the same time, speculative investors bring not any trouble to the developer, because they can offer buyers sufficient liquid apartments (often small) that the developer had already left and the lower price in sales. Specialized real estate portals offered for sale 10 to 20% of the apartments in new buildings approaching the commissioning. Changed the picture in terms of profitability and earnings on new buildings over the past year?
I think so, and significantly. Real estate investments are not always profitable from a financial point of view. The average yield of 30-40% stated in the beginning of the article, is extremely average, with a run from a few % to 60-70%. Someone got lucky and someone got experience.
How not to lose money?
First, you need to understand in which places to invest, and the principle of "buy low, sell high" can result in actually losing money, because the current legislative framework does not protect the interests of private investors, and distressed buildings to actively continue their advertising campaign, offering apartments priced at 15-30% below competitors.
Secondly, different buildings have different investment potential — if one of the houses increase in prices is fairly stable time and apartments are in demand, not the fact that in the neighboring house, where the apartments are cheaper, the price dynamics will be the same. Today, location does not always determine price. A buyer, especially one who comes in the later stages of construction, can be assessed not only from the point of view of location and budget, but also pays attention to the quality of construction, infrastructure, exterior of the house etc. Apartment, which has a really good investment potential find not so easy. You need to constantly monitor and analyze the market. And experts that offer such return of investment in housing in the past 4-5 years should be avoided.
The third factor is macroeconomic factors that also affect the price situation in the industry. All are so accustomed to the constant devaluation of the national currency, which took place in recent years, the revaluation of the hryvnia in 2019, almost 20% was an unpleasant surprise for all the speculative investors. In fact, those buildings that are close to commissioning today, started selling apartments in 2017, when the rate was 26-26,5 UAH/USD. In 2020, the revaluation of the hryvnia, political factors, and high price competition caused enough steel hryvnia prices for new buildings, and in some cases saw a decline in national currency prices (mainly through promotional offers) to support demand. If you take the average price of a residential complex of comfort class in early 2017 at $700/sq m, today these flats are available from Builder, and from investors at a price of $800–$820/sq. m. So, someone has earned or earns money on the resale of such objects, but it will be around 5-6% per annum, which is far from the coveted 4-5 years of payback. Once again, I stress that there are exceptions to the General trend, but given the number of new buildings in Kiev, for most of the yield calculation is relevant.
Will it grow the profitability of investment in housing in the future and have the potential for speculation for investors who only today are contemplating investment opportunities? Probably, Yes. Interesting investment offers on the market are, but they need to identify and properly evaluate. The development of the real estate market and its price trends have a cyclical nature, so the long-term real estate investment will bring a small but steady income. You can also use plan B which must always be the investor in case of falling prices, for example, rent, property to rent and wait for the beginning of the growth of prices in the industry, but that's another strategy that deserves a separate discussion.