As the great apartment boom abates and prices for Kyiv city real estate level out, professional investors and members of Ukraine’s emerging middle classes are looking for the next big real estate pay day. The majority are focusing on land around the capital, where what were once mere clusters of luxury homes are fast forming the nucleus of a coming suburbia.
Planting cash in the land
With incomes rising across the board and Ukrainians commanding more and more disposable income, real estate remains a favoured form of private investment.
The Ukrainian stock market has yet to inspire the confidence of the population, while many people remain sceptical of placing their savings in the country’s domestic banks.
However, almost everyone has first hand experience in the remarkable real estate boom that saw apartment prices rocket almost 800% in the past five years, and Ukrainians are understandably eager to capitalise on the next wave before it reaches a peak.
The market is currently being driven by rising demand for small plots of land suitable for cottages or country residences, while a moratorium on the sale of large tracts of land has reduced the number of sizable commercial plots to nearly zero in the immediate vicinity of the capital.
This moratorium is unlikely to be lifted if Yulia Tymoshenko is installed as the country’s next prime minister, as she has publicly expressed support for the prevention of mass land sales, which means that in the short term limited supply will continued to force prices up.
Much of the land in Kyiv oblast currently available for commercial development remains the property of local administrations, leaving the sector wide open to the kind of questionable land distribution policies of which the administration of Kyiv Mayor Leonid Chernovetskiy currently stands accused.
Choosing the right neighbours
Prices are already jumping in a manner reminiscent of the apartment boom, with 100% leaps in a matter of months being registered at some of Kyiv region’s more sought after locales. A slight calm on the market last May prompted many experts to predict a collapse in land plot prices, but it failed to materialise.
Instead, there was a relative slowdown in price growth, but no discernible decline, and figures for September demonstrate that there is huge demand and plenty of scope for more big price increases.
Oleksandr Kopytov, an investment officer with the DEOL Partners real estate company explains that prices often rise as a result of expectations that a region is about to be the beneficiary of major infrastructure investment or improved facilities. “In terms of recent private construction, the main growth areas have been in Vyshhorod and Obukhiv districts. Vyshhorod and the surrounding villages of Lyutysh, Novi and Stari Petrivtsi, Khotyanovka have witnessed sharp price rises mainly because a number of politicians and celebrities have selected it for their residences and, as a result, this district has experienced quick development. Just five years ago, this region just north of Kyiv was not nearly so expensive. Today’s price for one hundred square metres is USD 8,000-10,000 in Khotyanovka, whereas a year ago the price was around 3,000.”
The ripples of the land rush are also beginning to be felt further and further away from Kyiv’s city limits. Districts such as Makarovskiy, located some 50km from Kyiv, have experienced major growth in the past two years. “While two years ago a middle class family could afford to purchase land within 15km of Kyiv, rising prices now force them to consider land 25km to 30km from the capital,” explains Kopytov.
“The same trend can be observed in all Ukraine’s major cities with populations of over one million. In Odessa, for example, land near the sea is even more expensive than in Kyiv, while plots that are not on the coastline itself are still selling for prices comparable to those found in Kyiv.
“To a lesser extend, the same thing is happening in Donetsk, Kharkiv, Dnipropetrovsk and Lviv, with families looking to buy plots for their planned home or investors keen to secure land assets forced to go further and further beyond the city limits.”
Beyond the big cities, where the wealthy upper echelons of society are increasingly looking to establish family homes in the countryside, Ukraine’s tourist hotspots are also benefiting from the current passion for land. “The situation in Crimea is problematic thanks to the involvement of Russian investors who have driven prices to astronomically high levels,” offers Kopytov.
“The Carpethian region doesn’t have such a high population density, and so has not witnessed the same kind of huge price rises yet,” he explains. A number of international investment groups are currently looking to begin work on major construction projects to create a rival to the hugely successful Bukovel ski resort in the Carpathians, and it is thought that as the region takes off as a winter sports destination for European tourists, the regional real estate market will develop accordingly.
At the present moment the Carpathian region is thought to offer some of Ukraine’s last remaining genuine land purchase bargains, but given the infrastructure of the area and the uncertain nature of the existing plans for the region’s development, such purchases continue to represent a significant risk.
Speculating on future appeal
Even around the capital itself many investors looking at Kyiv land are speculating on the potential impact of major future construction projects on the value of potential plots in the hope that a new bridge or ring road will turn their isolated plot into a prime piece of real estate.
While work on Kyiv’s planned new ring road remains torturously slow, prospective home owners are already trying to get close to this future fast track to the city centre. However, with plans constantly subject to changes and alterations, it remains very much a guessing game for potential buyers. “I have encountered people saying, ‘You know, this is where the new ring road will go,’ but actually when you take into account the rate of highway development in the country and the fact that the project still hasn’t been finally approved despite several years of effort, it is hard to even offer an opinion,” shares Kopytov, who offers an educated estimate of a minimum of eight years before any new ring road is operational.
Tempting for the opprotunist
Other more opportunistic investors are actually looking to purchase land that lies not near to planned infrastructure projects but directly on the route, with the promise of a guaranteed government payout at what they hope will be generously calculated market prices as the potential prize. As Kopytov explains: “Lots of traders say that the state will purchase any land that is needed for construction at the going commercial price, but it remains unclear how this will be done in practice. How truly independent will the expert be who calculates this price?”
The construction of one of Kyiv’s new bridges offers a test case here in the way these compensation packages are handled by the city authorities. Owners of land plots in the Left Bank dacha region of Rusanivski Sady, which lies directly in the path of the planned bridge, are being offered plots in Horbachykha, which is some distance away. “How many people are ready to accept this is not clear, especially if they have already invested their savings into building homes. I think that most plot owners will take their fight to the courts and seek valuations from truly independent experts,” says Kopytov.
