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Stabilization or bubble: What awaits real estate market in 2022?

In recent weeks, the forecasts of the world experts have assumed a bubble in the real estate market.

The main trigger for such assumptions was the news about the Chinese real estate giant Evergrande on the verge of default. This developer owns 1,300 real estate projects in 280 cities in China. The company employs 200,000 people. The amount of Evergrande’s financial obligations exceeds $305 billion.

This week, the European Central Bank officially announced the overvaluation of many assets and the vulnerability of the real estate market. "Households that have taken out a floating rate mortgage or short-term fixed rate mortgage risk facing an unexpected rise in interest rates that could negatively affect their ability to service debt," the American TV channel quotes the ECB report as saying.

In Ukraine, the rise in apartment prices broke records over the past year, but demand began to fall. What's next for the real estate market? The Page sought answers to this question from developers and market experts.

"In 2022, the rise in prices for the new buildings in Ukraine will slow to 10%. The rise in prices in 2020-2021 in the Ukrainian housing market by 15-20% was due to several factors: an increase in the cost of building materials and labor, a fall in interest rates on loans and deposits, an increase in starting prices due to the transition to project financing, an uncertainty factor related to the pandemic, and hryvnia exchange rate.

In such conditions, people are actively investing in residential property. For example, the demand for new business-class buildings has grown by 25% over the year, and for comfort-class properties—by 60%. In 2022, the impact of these factors on prices will decrease and restrain the rise of apartment prices.

In the last 2-3 months, there has been a tendency towards a slowdown in the rate of increase in prices for apartments and private houses. The main reason is that the main effective demand is almost exhausted.

Two factors that can impact it—the growth of the citizens’ incomes and the development of affordable mass mortgages (at 3-5% per annum, as in Europe)—are not yet in the cards for us.

Residential property prices have almost reached their peak. In the same economic and inflationary conditions, prices in both the primary and secondary markets will definitely go flat in 2022. This may lead to a decrease in the investment attractiveness of residential property in all regions of Ukraine.

According to my forecasts, by the middle of 2022, the cost escalation of residential property will stop, and in the second half it will decrease. Only an increase in income and the development of mortgages can restart the pricing processes."

Lev Partskhaladze

Lev Partskhaladze

Former Deputy Minister of Regional Development, President of the Confederation of Builders of Ukraine (CBU)

"As for prices: despite the expected decrease in demand and possible problems with the construction work, developers are unlikely to risk increasing the price by the end of the year. During this period, investors, subject to 100% payment, can count on discounts from 10%.

In the next two months, fluctuations in the cost of a square meter in the primary housing market in the largest cities of Ukraine will not exceed 0.5-1%, and that will be the main sign of price stabilization.

However, when paying for the full cost of the future apartments, potential investors should count on the so-called hidden reduction in the cost per square meter of up to 10-15%, depending on the construction dynamics, the property class, the apartment  area, and a number of other characteristics.

The November reduction in transactions in the largest regional centers is also unlikely to lead to a significant decrease in prices. Prices for 70% of the apartments for sale will remain stable.

In 20% of cases, an increase in the cost of apartments is possible within 3-5%, a situational decrease in prices—up to 3%—is predicted only for 10% of properties that by their characteristics do not cause significant interest among buyers.

But after the pandemic restrictions come to an end, the buyers are expected to gradually return to the secondary market.

In the secondary housing market, in contrast to the primary market, where the stabilization of supply and demand will begin in February 2022, by the end of 2021 one should expect almost complete realization of the transactions delayed delayed for the period of the quarantine restrictions.

However, there are no prerequisites for an economically justified rise in prices here as well: the cost of 90% of the properties put up for sale will remain at the level of September figures.

Until the end of the year, prices will stabilize with minor fluctuations throughout the country, and that will not significantly impact the overall price figures.

The current decrease in demand is due to the fact that the buyer is not ready for the existing prices. There is a buyer, but they are looking for a cheaper offer. Thus, the rise in prices recorded in the first half of the year has already exceeded the expectations and financial capabilities of the buyers.

Over the next three months, significant price changes are unlikely to be expected. Back in July, the ARESU experts predicted that prices in the secondary market almost reached their maximum levels corresponding to effective demand."

Yuriy Pita

Yuriy Pita

President of the Association of Real Estate Specialists (Realtors) of Ukraine

"So far, we see no reason to talk about a bubble in the domestic real estate market. Such talks are provoked by a rapid rise in prices per square meter, but such dynamics have quite reasonable economic prerequisites.

Firstly, the cost of construction has increased for the current 2021. It was quite logical that it became an incentive to increase the price of primary real estate.

Secondly, there is a high demand for housing that was not particularly affected by the quarantine factor. Interest has grown in buying apartments both for oneself and for the purpose of earning or saving money.

As for the further growth, we predict that it will continue. Of course, the dynamics of prices can be impacted by global factors, such as the stock market or financial crisis, or the intensification of the military aggression on the part of Russia.

However, if the overall situation is relatively calm, we will be able to see over the next 6 months how the cost per square meter in one of the most popular segments—the comfort class—will reach $2,000."

Anna Laievska

Anna Laievska

Commercial Director at Intergal-Bud

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