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Apartments in Ukraine may cease to be sold before construction work completion

Ukrainian developers may refuse to sell apartments until the construction of the house is completed due to financial problems and the inability to make up an objective price per square meter and the level of profit for developers.

Volodymyr Sementsov, co-founder and managing partner of INSPI Development, stated this in the comments to The Page.

According to the expert, the consequences of the war will actually force developers to gradually stop selling apartments during the construction phase. And companies will have to make every effort to raise sufficient funding to meet construction deadlines and to implement new forms of investment. They can be, for example, Real Estate Investment Funds (REIF).

According to the specialist, today even with the relative resumption of construction work at the sites of the country, it is still impossible to determine the main economic parameters of the projects.

Quote"Currently, we can say that the primary market is in the stage of a "surgical" reboot. The "old" primary market no longer exists," he stressed.

According to Sementsov, the following factors were among those that that led to fundamental changes in the primary market as a result of three months of war:

  • the lack of investor buyers who are ready to invest in an unfinished facilities (limited financial opportunities of the potential investors due to difficulties in doing business and the need to live outside the country or hometown);
  • the shortage of building materials and lack of new smooth-running logistics chains for their supply;
  • the lack of sufficient own funds of developers for the full-fledged construction of the residential complex, the impossibility of obtaining bank loans, and the complicated search for co-investors for facilities with a readiness of more than 40%, in which more than 40-50% of apartments have already been sold;
  • the installment mechanism was destroyed, with the help of which, for example, more than 55% of all apartments were sold in 2021,
  • the shortage of qualified builders and a general labor shortage,
  • the unpredictability of the war — the lack of 100% security guarantees and the prospects for the cessation of not only active hostilities, but also missile attacks,
  • difficult economic situation in the country and core inflation.

With these factors, it is now almost impossible to make up an objective price per square meter and the level of developers’ profit, the expert believes.

Prices for building materials, according to developers, increased by an average of 15-20% from March to May. It is possible that in the coming months they may increase by at least another 10%. An increase in the prime cost of building materials by 15-20% theoretically adds to the cost per square meter, depending on the volume and complexity of construction, on average from 5% to 10%, Sementsov explained.

Quote"Given that the average construction of a residential complex lasts up to two years and the profit is usually calculated at the complex planning stage, in fact, most developers found themselves in an "uncertainty trap", which makes investing at the construction stage quite risky," the expert believes.

Previously, most of the facilities being built in Ukraine were intended to gradually raise financing from sales, and the main construction was carried out at the expense of developers' own funds in the amount of up to 50% of the total project cost.

Quote"Now Ukrainian development companies will have to change their own business processes, involving co-investors in the implementation of projects, change the concept of residential complexes, and diversify their own risks, developing other formats of real estate as part of residential complexes," Volodymyr Sementsov summed up.
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