Ukrainian dream
After a serious stagnation in the 1990s, Ukrainian real-estate has revived in recent years, creating opportunities for foreign investors, including Poles. Apart from a damp 2002, the construction sector in Ukraine has enjoyed a resurgence in recent years. Last year saw 20 percent growth in the sector, with growing demand for private flats and the development of urban infrastructure, together with shopping centers and other public facilities driving the industry.
Residential property is somewhat of a sore point in Ukrainian social and economic policy. From 1991 to 1998, residential real-estate figures were dropping year after year. In 2000, the number of newly built flats was 2.5 times smaller than in 1991. But the market turned a corner in 2001, partly thanks to limits on the state's contribution to financing residential construction. In 1991 central investments constituted 22 percent of the value of released flats. Now the share is only five percent and the bulk of capital comes from individuals, enterprises and organizations.
Capital growth
The growth of residential property is joined at the hip to the economic development of the major population centers, such as Kiev. In 1995 the number of newly built flats in the city was at its lowest level since the Second World War. Then, from 1996 to 2002, the growth rate in the construction industry was 16-20 percent, and the residential surface area increased by 7.6 percent. At the moment, the average size of residential space per citizen in Kiev is 19.8 sqm, which is almost five percent less than in the rest of the country.
Within nine months of 2004, 560,000 sqm of residential property was built in Kiev, at a cost of UAH1.4 billion (about zł.959 million). The forecast for this year is to complete 1.1 million sqm at a cost of UAH4.6 (zł.3.15) billion.
Halving costs
Kiev authorities introduced a '50x50' plan, which says that both the city and the buyer contribute 50 percent to financing construction. In the last eight years 2,500 families have obtained flats as part of this system, but 16,800 families are still waiting in the queue. Kiev accounts for 25 percent of the country's construction market.
The Kiev administration has approved a General City Plan up to 2020, which says that by this year, 26 million sqm of residential area will be provided - 11 million sqm by 2010 and 15 million sqm by 2020. In 20 years' time residential assets in Kiev should be 1.5 times bigger, with 71 million sqm in the city.
The city is badly in need of new developments and renovations as the existing housing stock is in a poor state. Every third building in Kiev needs repair. Most worrying is the condition of the blocks built in the 1960s and 1970s, with a total area of 71.4 million sqm, some 23 percent of Ukrainian homes. According to the General Plan for Kiev, by 2020 4,000 residential buildings will be reconstructed. In the first stage this includes, by 2010, residential buildings in the historical districts of the city together with five other buildings, and the second phase will see nine buildings from the 1970s reconstructed by 2020.
Retail rethink
Next to residential property, a lot remains to be done to the retail sector. At the end of 2003 the total surface area of offices in Kiev was only about 250,000 sqm, whereas profitability is about 14 to 20 percent a year. So far, foreign capital in this sector has been scarce, but changes are expected. The leasing rate in Kiev is about $27 (zł.93) per sqm in the A-class, $21 (zł.72) per sqm in B-class, and $11 (zł.38) per sqm in C-class buildings.
Lviv is a promising place for commercial real-estate investment. With jumping leasing prices, investments should become profitable within five to 13 years' time. In that city there is a tendency to buy rather than lease, as leasing is simply unprofitable.
Ukraine also has a lot of development space for large and modern shopping centers. More and more commercial networks from the West are approaching the country, creating additional demand for construction services and products. One of those newcomers is one of the world's biggest commercial companies, German Metro AG, whose sales division has brands such as Metro Cash & Carry International GmbH, Real SB-Warenhaus GmbH, and Praktiker Bau- und Heimwerkermärkte AG in its portfolio. Metro AG has invested about E100 (zł.409) million in putting up eight supermarkets in Ukraine. Their first investment was a Metro Cash & Carry store in Kiev in August 2003.
Polish investors have also discovered the potential of Ukrainian real estate. Companies from Poland, such as Koło, Opoczno, Cersanit, Śnieżka, Metalplast and Fakro, have already gained a good reputation on the local market. Śnieżka, Fakro and Centrostal-Bydgoszcz have even decided to invest.
No easy money
However, life is not so easy for Polish investors in Ukraine, who have a hard road ahead due to complicated and unstable regulations and bureaucracy. For example, last year a high antidumping duty on Polish wood-based slabs was introduced, which also applies to slabs used in construction. Polish contractors are not welcome in Ukraine, as its laws say only residents can do this job. Another obstacle is connected with construction permits. To start construction of a high-rise building a firm needs more than 70 documents. Obtaining these can take up to two years.
Interestingly, the market for design services is also limited, due to a lack of understanding of architects' function. It is believed that one sqm of an apartment could be $40-50 (zł.137-171) cheaper if it were not for the bribes.
Still, despite these barriers, there are promising sections of the industry that are worth a potential investor's attention. Among these are roof coverings, dry construction mixtures, construction tools, floor materials, wallpapers, paints and lacquers.
Residential property is somewhat of a sore point in Ukrainian social and economic policy. From 1991 to 1998, residential real-estate figures were dropping year after year. In 2000, the number of newly built flats was 2.5 times smaller than in 1991. But the market turned a corner in 2001, partly thanks to limits on the state's contribution to financing residential construction. In 1991 central investments constituted 22 percent of the value of released flats. Now the share is only five percent and the bulk of capital comes from individuals, enterprises and organizations.
Capital growth
The growth of residential property is joined at the hip to the economic development of the major population centers, such as Kiev. In 1995 the number of newly built flats in the city was at its lowest level since the Second World War. Then, from 1996 to 2002, the growth rate in the construction industry was 16-20 percent, and the residential surface area increased by 7.6 percent. At the moment, the average size of residential space per citizen in Kiev is 19.8 sqm, which is almost five percent less than in the rest of the country.
Within nine months of 2004, 560,000 sqm of residential property was built in Kiev, at a cost of UAH1.4 billion (about zł.959 million). The forecast for this year is to complete 1.1 million sqm at a cost of UAH4.6 (zł.3.15) billion.
Halving costs
Kiev authorities introduced a '50x50' plan, which says that both the city and the buyer contribute 50 percent to financing construction. In the last eight years 2,500 families have obtained flats as part of this system, but 16,800 families are still waiting in the queue. Kiev accounts for 25 percent of the country's construction market.
The Kiev administration has approved a General City Plan up to 2020, which says that by this year, 26 million sqm of residential area will be provided - 11 million sqm by 2010 and 15 million sqm by 2020. In 20 years' time residential assets in Kiev should be 1.5 times bigger, with 71 million sqm in the city.
The city is badly in need of new developments and renovations as the existing housing stock is in a poor state. Every third building in Kiev needs repair. Most worrying is the condition of the blocks built in the 1960s and 1970s, with a total area of 71.4 million sqm, some 23 percent of Ukrainian homes. According to the General Plan for Kiev, by 2020 4,000 residential buildings will be reconstructed. In the first stage this includes, by 2010, residential buildings in the historical districts of the city together with five other buildings, and the second phase will see nine buildings from the 1970s reconstructed by 2020.
Retail rethink
Next to residential property, a lot remains to be done to the retail sector. At the end of 2003 the total surface area of offices in Kiev was only about 250,000 sqm, whereas profitability is about 14 to 20 percent a year. So far, foreign capital in this sector has been scarce, but changes are expected. The leasing rate in Kiev is about $27 (zł.93) per sqm in the A-class, $21 (zł.72) per sqm in B-class, and $11 (zł.38) per sqm in C-class buildings.
Lviv is a promising place for commercial real-estate investment. With jumping leasing prices, investments should become profitable within five to 13 years' time. In that city there is a tendency to buy rather than lease, as leasing is simply unprofitable.
Ukraine also has a lot of development space for large and modern shopping centers. More and more commercial networks from the West are approaching the country, creating additional demand for construction services and products. One of those newcomers is one of the world's biggest commercial companies, German Metro AG, whose sales division has brands such as Metro Cash & Carry International GmbH, Real SB-Warenhaus GmbH, and Praktiker Bau- und Heimwerkermärkte AG in its portfolio. Metro AG has invested about E100 (zł.409) million in putting up eight supermarkets in Ukraine. Their first investment was a Metro Cash & Carry store in Kiev in August 2003.
Polish investors have also discovered the potential of Ukrainian real estate. Companies from Poland, such as Koło, Opoczno, Cersanit, Śnieżka, Metalplast and Fakro, have already gained a good reputation on the local market. Śnieżka, Fakro and Centrostal-Bydgoszcz have even decided to invest.
No easy money
However, life is not so easy for Polish investors in Ukraine, who have a hard road ahead due to complicated and unstable regulations and bureaucracy. For example, last year a high antidumping duty on Polish wood-based slabs was introduced, which also applies to slabs used in construction. Polish contractors are not welcome in Ukraine, as its laws say only residents can do this job. Another obstacle is connected with construction permits. To start construction of a high-rise building a firm needs more than 70 documents. Obtaining these can take up to two years.
Interestingly, the market for design services is also limited, due to a lack of understanding of architects' function. It is believed that one sqm of an apartment could be $40-50 (zł.137-171) cheaper if it were not for the bribes.
Still, despite these barriers, there are promising sections of the industry that are worth a potential investor's attention. Among these are roof coverings, dry construction mixtures, construction tools, floor materials, wallpapers, paints and lacquers.
