What dollar exchange rate to result in increase in housing prices—expert opinion

Author

Lesia Solovchuk

For the real estate market that is sensitive to currency fluctuations, the revision point of housing prices may be reaching the exchange rate of 29-30 UAH per dollar.

Mykhailo Pidvysotskyi, Managing Partner at Concept Group, notes this in a commentary to . According to him, in the last 4 years the US dollar exchange rate has never crossed the critical point that would automatically impact the price increase in the primary housing market.

"For the real estate market, such a point is the rate of 29-30 UAH/USD. It is the "crossing" of such an exchange rate that could potentially provoke manufacturers of construction products to once again revise their price tags, which, in turn, would impact the pricing policy of the developers," Pidvysotskyi explains.

At the same time, the specialist recalls that the increase or sharp fall of the dollar in January is not something sensational. For instance, in January 2019, the exchange rate was at the level of 27.7-28 UAH/USD, in January 2020—24.2 UAH/USD, and in January 2021—28.2 UAH/USD.

"The causes of the currency fluctuations are not the same every year. In 2019, there was the "Kerch crisis" with the introduction of martial law in certain regions of Ukraine. In January 2022, the main factor behind the hryvnia weakening was the same external threat and related economic consequences. Last year, imposing a new lockdown due to the pandemic can be considered the main catalyst for the hryvnia depreciation. And at the beginning of 2020, a sharp strengthening of the hryvnia resulted in a significant decrease in the activity of the buyers who kept their savings in dollars," he stresses.

How developers will get over the stagnation period in the market

In January 2022, compared to December, the contraction of demand in the primary market is 20%. This is due not only to a decrease in business activity in January and February—these are objectively two of the least active months in construction. But this time the real estate market is impacted by factors such as the increase in the incidence of Covid-19 and geopolitical risks.

According to Pidvysotskyi, in the face of uncertainty, only 20% of development companies in Kyiv will be able to go through the period of "new challenges" that will last approximately until March not only without tangible losses related to a temporary contraction of demand but also continue construction without any pauses or halts.

"First of all, this applies to full-cycle development companies, as well as those market leaders who have sufficient financial opportunities to build conceptually new and high-quality facilities using their own finances, without concern over the sales level," he adds.

How developers will increase demand for housing

The main task of the developers is to make it to spring. Therefore, in order not to discourage the buyers, the companies will not push up prices, but on the contrary, in February 2022 they will try to increase demand in new residential complexes due to:

discounts for 100% payment of the apartment cost;
more loyal installment terms and conditions with a lower down payment;
introduction of joint mortgage programs with commercial banks.

The increase in the cost of a square meter is possible only in a small number of new buildings (about 5% of facilities) and within 5-10% in hryvnia, which will not significantly impact the average prices of the primary market.

Before the onset of the warm season and the start of the new business season, the prime cost of construction will not change significantly. Accordingly, the cost per square meter will remain stable, head of the Concept Group notes.