Seven Hills, part of the Scorpio Real Estate Group, has been present in Ukraine for a number of years now but has kept a low profile. Can you explain what the strategy has been behind this, what the company has learned and why it has chosen now as the time to launch?
Seven Hills has been present in Ukraine for three years. Our global strategy is to penetrate deeper into the real estate market of the countries we enter, to study the specific nature of our future clients and to learn more about the country’s business rules, standards and procedures. For example, as general manager I believe I should learn to think as a Ukrainian. We also spent this time getting all the necessary permissions, which are many in Ukraine when it comes to real estate development. We do not consider we are late with our project, but instead that we are now sure we are ready to start doing business because all the preparatory work has been done.
Scorpio’s projects in other countries have clearly been very different in terms of concept and scale to anything seen thus far in Ukraine. How similar will the Ukrainian projects be, and which aspects will have to be tailored to the local market?
While studying the market we understood that if we compare the requirements of people towards their homes here in Ukraine with the requirements of people in western Europe we see that homes which would be considered normal in Europe are considered luxury here. We know that our potential clients are modern people who are eager to see and try something new. Our first project will be realised according to modern international norms and requirements. We are proud that we not only participate in the sphere of development in Ukraine, but also build a civilised real estate market here. We promote not only our projects, buildings and constructions; we also promote a new concept in living.
On the other hand we do not want to make our project a white elephant. We want to make it interesting for our clients. It is important that a developer think not only about the building itself, but also about the public areas, infrastructure and neighbourhood. We are not going to skimp on such things. We do not want to build just another project. We want to create a place where people will want to live for a long time. At the moment we have a long list of potential buyers, and they are not speculators but people who want to live in the project and be a member of the community.
There is much talk of the residential market in Kyiv being overpriced and the mortgage market being underdeveloped. How do you see prices going over the next year and beyond and what are your views on the development of the mortgage market?
Market laws are working at all times. As long as the demand is higher than the supply, prices will increase. The forecast for the next year is that growth will not be as high as it has been over the last two to three years. Speculation in Kyiv tends to exacerbate the situation as a lot of apartments lie empty as the owners wait for prices to go up.
Things look a bit better when it comes to the mortgage market. The banks are improving their existing schemes and bringing in new ones, and the arrival of some major international banks should help. Several years ago the interest rate was sitting around 30%, but now it is much more favourable, although still rather high. The major problem to overcome is that people in Ukraine are not used to mortgages and need to know more about how it works, but they are learning fast which presents the same problem as that of the real estate market - as long as the demand for mortgages is high, there is nothing to force the rates down.
Political instability, corruption and red tape are all cited as ongoing problems by many property developers, particularly foreign ones. As a company familiar with these issues in other emerging markets, how does Seven Hills view these problems comparatively in Ukraine, and do they have a significant impact on strategy?
In every market we enter we implement our international business standards. Every country demands its own approach, but the general rules are the same. We hope the political situation in Ukraine will not prevent other investors coming to the country. Competition is good for us, for the market and the buyers.
Relatively low construction quality is common in new-build residential projects in Ukraine. What is Seven Hills’ strategy on this and how will it assure high standards of construction and finishing?
It is our plan to implement a completely new scheme of development in Ukraine that will include finishing and fitting. People here will soon be able to experience the convenience of having an apartment finished the way they want it, getting the keys and moving in without having to worry about repair and finishing works. We don’t want to go into all the details at this stage, but you can rest assured that everything from services to finishing will be of the highest standard. We will use international suppliers already well known in Ukraine such as Agromat for finishing materials, Kone for elevators and Scavolini for kitchen furniture, and by doing so we will be assured of meeting international standards.
Tell us more about the projects you have planned and the timescales involved.
Our first project is named Park Avenue, a residential complex in the Holoseevsky district of Kyiv which starts in a few days time, and after that we will break ground on a business centre in Podol in 2008. The biggest project in the pipeline is a big business park midway between Kyiv and Boryspil Airport which will also get underway next year.
Do you see the regions as being a target for development?
At the moment we are looking to Odessa and Lviv as our next strategic targets, but when you take into account the real estate situation throughout Ukraine, every city has massive potential for development.
Scorpio has been involved in PPPs in other countries. Do you see potential for similar projects here in Ukraine?
Our parent company, Scorpio, has a great deal of experience in PPPs all over the world, and we believe that Ukraine has huge potential in this sphere. We have already participated in some tenders but unfortunately they were cancelled. However, we are sure Ukraine will realise its potential in this area and will be ready to invest in PPP projects in the near future.
