Residential construction in Ukraine far from hard landing

More information on this topic is presented in the PMR report:

Despite the sharp economic contraction in Ukraine in 2014 and 2015, the prospects for the Ukrainian residential construction subgroup remain relatively good, particularly in the medium to long term. The total floor space of residences registered in 2014 decreased slightly year on year by 2.1% to 9.74 million m², excluding newly registered housing space in AR Crimea and Sevastopol, which was only 2.6% short of the highest figure in twenty years which was recorded in 2008.

 

The majority of developers, captivated by sky-rocketing prices and fast returns, prioritised residential projects during the boom period. Once the credit crunch struck Ukraine in 2008, many residential property developers across the country had to leave the market, with construction work suspended and clients unable to recoup their investments. As a result, potential buyers have become highly reluctant to invest in unfinished projects. At the same time, the legacy of the past poor lending to residential property developers and the uncertain economic outlook are keeping banks cautious about expanding their residential construction loan portfolios. Fewer than 10% of home sales registered in Ukraine in 2014 involved mortgage supported transactions (16,849 deals), despite the fact that 178,448 property sale transactions were registered by notaries in Ukraine in 2014. The proportion totalled 10.2% in 2013.

Nevertheless, even though the mortgage market in Ukraine has been struggling to resume growth, the recent annual housing completion results almost matched the highest figure in twenty years which was recorded in 2008. However, the recent solid performances have largely reflected the fact that many properties were registered after the government’s issuing of a Temporary Order (Government Decree No. 1,035, of 9 September 2009) which made it possible to register residential buildings completed between August 1992 and January 2008 without a building permit in place. This period was later extended until 12 March 2011.

 

 

The contraction recorded in 2014 follows a 1.8% expansion achieved a year earlier and an impressive 12.5% increase achieved in 2012. However, it should be remembered that of the total floor space commissioned in 2012, 35% was registered in accordance with the Temporary Order, which means that without the Order in force, the amount of housing floor space completed would have come only to 6.35 million m², i.e. 4% below the 2011 figure. In 2013, 24.5% of the 9.95 million m² of all floor space put into use was registered in accordance with the Temporary Order. If only new completed space in 2013 had been considered, it would have accounted for about 7.51 million m², which 13.3% more than the amount of residential space completed in 2012. The substantial increase in the number of newly completed properties recorded in 2013 largely reflected the fact that many delayed projects were finally completed in 2013, with encouraging signs of economic recovery seen in 2011 and early 2012 motivating decisively developers to speed up residential construction activity.

In 2014, only 2.1% (202,700 m²) of all newly registered housing space was based on the Temporary Order and the remaining, 9.54 million m², was accounted for by properties completed in late 2013 and 2014. The new supply in 2014 surged 27% in year-on-year terms, although the total space registered in 2014 decreased 2.1% year on year.

 

Residential construction in Ukraine is expected to decrease in 2015. During the first three quarters of 2015, the amount of newly registered housing space stood at 6.1 million m², 3.1% less than the figure achieved in the corresponding period a year earlier, with 4.3% fewer new space being completed between January and September 2015 than during the first nine months of 2014. Overall, in 2015 the amount of newly registered residential space is expected to be about 9.2 million m², falling short of the performance achieved a year earlier by 5-6%. This slowdown for the full year will largely reflect the crisis in the Donetsk and Luhansk Provinces and the consequences for the overall economy, which is likely to contract by more than 11% in 2015.

At fewer than 24 m², Ukraine’s per capita housing stock is significantly smaller than in most European countries, where this parameter exceeds 30 m². This difference supports the long-term growth potential of the residential construction market in Ukraine. Only eight of Ukraine’s twenty-five administrative regions, excluding AR Crimea and Sevastopol, had at least 25 m² of housing space per capita at the end of 2013, with the Kyiv Province, Vinnytsia Province and Sumy Province being the leading three regions in this arena. It is estimated that the list increased to nine regions in 2014, with the Ivano-Frankivsk Province also reaching the 25 m² milestone by the end of the year. Of all Ukrainian administrative regions, only the Kyiv Province has more than 30 m² of housing space per person. By the end of 2014, the figure had expanded to about 33 m² in the Kyiv Province, improving by almost 3 m² between 2009 and 2014, and surpassing the second most productive region (the Vinnytsia Province) by 4 m².

 


More information on this topic is presented in the PMR report:
Construction sector in Ukraine 2015. Development forecasts for 2016-2021