No buyers: Expert indicates 5 reasons for demand collapse in primary housing market

Author

Lesia Solovchuk

In January, compared to December 2021, there is a drop in demand for apartments in new buildings in Kyiv by an average of 20% in different segments.

The reduction in market activity is more than usual in January, and this is due to a set of causes, Mykhailo Pidvysotskyi, Managing Partner at the group of companies Concept Group, commented to . Typically, the market activity during the winter "holiday period" is on average 10-15% lower than in other months of the year.

According to the expert, the following reasons impacted the decrease in the activity of potential investors in January:

a long period of holidays and related vacations,
high risk of external military aggression against Ukraine,
economic consequences from external tensions,
new wave of pandemic,
contraction in effective demand.

"Clearly, the current state of uncertainty has affected the activity of potential homebuyers. It was the combination of these factors that led to a temporary increase in pent-up demand. However, there are no crisis phenomena in the primary housing market," Pidvysotskyi stress.

The expert notes that the slumping demand observed since December 2021 is partly due to too rapid growth in construction prime costs, which forced developers to increase price per square meter.

"Big companies and market leaders are aware that a purely "mathematical" increase in prices, even for the objective reason for the rise in the cost of building materials, which is not related to the level of the buyers’ activity, can have negative counterproductive effects. Therefore, the price environment in the primary housing market will continue in the coming month," the specialist believes.

Based on the results of January, the cost of housing in the primary market of the capital remains stable, Pidvysotskyi stresses.

According to him, in January, in the vast majority of projects that had begun to be built no later than December 2021, price fluctuations did not exceed 0.5-1%, depending on the area and other technical characteristics of the apartments and the quality of the residential complex itself.

In October-November last year, the developers had already formed prices with a certain margin of up to 5-7%, taking into account a possible increase in the prime cost of construction, in order to allow themselves not to depend on the prices of building materials and the cost of construction and assembly works for some time.

"January and February are two of the least active months in construction. Therefore, it should be expected that 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 price per square meter will remain fairly stable," the head of Concept Group notes.

The specialist predicts that in February the policy of most developers will focus on increasing demand—due to allowing discounts on 100% payment of the apartment cost, offering more loyal installment terms with a reduction in the down payment, and introducing joint mortgage programs with commercial banks.

Therefore, according to Pidvysotskyi, an increase in the cost of a square is possible only in a small number of new buildings, which is unlikely to impact the overall price situation in the primary market.

"In January, there were no significant changes in the price environment at Kyiv facilities. In February, a selective increase in the cost of housing in new buildings is possible, mainly due to the transition to new construction phases," he says.

However, the price changes are possible only in 5% of objects where the level of growth in the cost of a square is possible within 5-10% in hryvnia. But this will not significantly impact the overall situation on the market, the expert stresses.