Housing market stagnation: Experts advise not to rush with investing in apartments in 2022

Author

Lesia Solovchuk

At the end of 2021, the situation with sales and prices in the residential real estate market changed dramatically—the demand for apartments began to decline rapidly. Therefore, the experts advise against rushing into investments, at least in the first months of the year.

Yaroslav Tsukanov, the real estate expert, notes in a comment to that investing in housing is currently unprofitable. Because the price rise in 2021 was related to, among other things, with the price rise for building materials. But it is this year that has shown that purchasing power has not been able to grow so rapidly in comparison with the real estate prices.

"The market at first revived, but then came to stagnation, business attenuation of its activity. At the end of the year, this was especially noticeable in the primary market that directly depends on the prices for building materials. Many people see that real estate seems to have gone up in price. But it was the bid price that went up, not the sale price. In reality, people do not buy square meters at new prices. Therefore, in the near future, many sellers will withdraw apartments from the sale, waiting for the demand to appear and prices to rise," Tsukanov explained.

According to him, it is unprofitable to invest in both new buildings and apartments in the secondary market because profitability and demand have fallen, while prices remain high.

"If the rent increased in proportion to prices, perhaps it would be advisable to invest at least in the segment of the secondary housing. But because the incomes of the citizens did not particularly increase, the rent remained almost at the same level as at the beginning of the year. I would not consider the primary market at all because it is a time bomb. After all, materials will continue to rise in price. Working capital will disappear. And if it is not profitable to build, they simply will not build. And then the question will arise—whether to freeze the facility or not," the expert said.

Real estate expert Yuriy Ulanov does not recommend investing in housing as well. According to him, unlike the emotional and unpredictable 2021, next year will show the real situation on the market. Already today, potential investors understand that there are few worthy facilities to invest in, but the risks are increasing.

"In 2021, it was really possible to get a return of 20, and sometimes 30% from some facilities. But at the end of the year, the situation reversed almost 180 degrees—the market went quiet. The investors lurked in anticipation of what will happen next. And if they invest, they do it very carefully: firstly, in facilities where there will definitely not be any problems, where the developer has shown its reliability in recent years, and where the price is not overheated but formed at least at the level of 2020—before the period of the first lockdown," the expert stresses.

Ulanov predicts that, compared to 2021, the market will have a smoother pace in 2022, without a surge in prices and activity. The impact of political and economic factors is also possible due to the escalation of relations with Russia.

Even development companies recommend investing carefully in housing. According to Vasyl Varga, Director of the Kyiv office of LEV Development, when choosing where to invest in, one should always proceed from the purpose for investing these funds. "If, let’s say, you buy an apartment for yourself, it is better to choose one at the final stage of construction. The most important thing here is to protect yourself from risks. But in the future, even a formed product gives a 15% price increase. If an investor finances the facility in order to obtain maximum benefits, I would recommend analyzing, first of all, the reliability of the developer, the legal component of the development project, and the location where the facility is located, because it is much more efficient if it is an district that has the potential for developing," Varga stressed.

"We can make predictions about where to invest in the next year based on the results of 2021. They indicate that the greatest demand among the buyers is for the flats and apartments of comfort and business class in complexes with a high-quality concept, their own infrastructure and recreational areas," Volodymyr Danylenko, the founder of M4U, a proptech startup specializing in intelligent solutions in the sphere of the real estate development.

According to M4U, on average in Kyiv, comfort-class apartments have risen in price by 25.7% during 11 months of 2021, business-class apartments—by 24.5%, while the market average is 21%. Next year, M4U analysts expect a decrease in the rate of price growth to 12-15% per year, but, most likely, the figures of these classes of real estate will be above average.