Overview of secondary housing market in Kiev in the first half of 2011

05.07.2011 14:12
Real Estate Market Analysis | Overview of secondary housing market in Kiev in the first half of 2011 In June, the pace of decline has slowed the index value at the end of the month they were close to zero.

The index value of housing in Kiev IKm (USD) 1462 points
(-0.5% Last month, -5.5% for the first half)

Related article: Analysis of prices on the secondary market of residential real estate in Kiev: February 2016


The index value of housing in Kiev IKm (UAH) 11 691 items
(-0.4% Last month, -5.3% for the first half)

The index of price expectations (expected change in the index value in the next month) -0.6%

Profitability index of housing (real estate investment compared to bank deposits) in June increased by 0.1 bank deposit and bank deposits amounted to -0.4.

In June, the pace of decline has slowed the index value at the end of the month they were close to zero. The level of business increased. Although many market participants have gone on summer vacation, the deposit and contract of sale was signed in June than in May.

It is not clear how sustainable will these trends. Clearly, the role played by two factors:

- Increase the share of nonresident and foreign buyers;

- Inertial reaction to enhance the real estate market banks in mortgage lending.

Analyzing the impact of these factors, you should not rely on a purely arithmetic approach, referring to the fact that in absolute terms, the changes are small. Depending here quite complex. The influx of additional funds as a catalyst, initiating a chain of transactions in real estate.

The fact that most participants of the Kiev real estate market - it's a family seeking help with the purchase and sale operations to improve their living and financial conditions. Simply put, the exchange with additional payments and compensations their apartments to others. And most of these "obmenschikov" try to improve their living conditions, and have accumulated the necessary funds (usually about 20 - 50 thousand dollars).

Implement such plans, with no access to mortgages, "obmenschiki" can only, if at first sold their apartment and then buy more. And since in this situation is a good half of the market participants, they are all waiting for buyers.

In such circumstances, out of town and foreign buyers with the money not only to initiate the chain of exchanges, but also promote the flow of savings to the property market "obmenschikov." After all, most of the "obmenschikov" is added to the proceeds on the sale of their money savings. The result is a process similar to chain reactions in physics. And let these chain reactions quickly damped (faced with vendors who do not buy anything), however, the impact factor, "the flow of money from abroad" is hard to overestimate.

Effect of mortgage pricing and business activity is still very weak. And yet, this effect is.

The active position of banks, trying to adjust their mortgage programs for the needs and real possibilities of potential borrowers, is beginning to bear fruit. If a few months ago, very few members of the secondary market are considering buying real estate with a mortgage, but now their number has increased markedly.

Another thing is that the intention to take credit in most cases are still quite abstract in nature (the actual transactions involving mortgage loans in our list - very few).

Nevertheless, the very willingness of potential customers to take credit for the missing amount is not only expands the scope of the search of acceptable options (thus contributing to growth in business activity), but also serves as a factor in pricing. "Impenetrable" argument buyer that he has on hand is strictly a fixed amount of money and nowhere to take more, now do not always work. At auction sellers are increasingly argue that relatively small amounts of missing potential buyers can borrow at the bank.

Noting the growth of business activity in June, it should be noted that to a large extent it was triggered by the May decline. Confidence in the dollar (the base currency of the secondary market of Kiev real estate) in April and May significantly reduced, and the level of uncertainty increased. Accordingly, decreased during the period and number of transactions, some of which have been moved to next month. Hence the increase in the number of transactions in June.

Similar processes occur in the same period in 2008 and 2009. For some reason, in May there have been problems associated with currency fluctuations and rising uncertainty. The reaction of the real estate market any time was similar.

Played a role as the approach of a period of mass leave. The desire to retire from the already solved the housing and financial problems are always prompted some market participants to make compromises and take responsible decisions. In those years when the overall business activity was high, this factor is secondary. But as soon as the number of transactions declined significantly, the influence of this factor was significant.

Turning from the end of June to the first half, then in general it has not brought any surprises. Prices continued to gradually decline, the level of business activity was quite low.

Compared with the previous year rate of decline in value index of IKm (USD) a little sped up. If in 2010 the average rate of decline of the index value was 0.7% per month, in the first half of 2011 it had risen to 0.9% (we expected the rate of decline of 0.8% - 1.0% per month).

In general, above the rate of decline in prices can be viewed as a compromise between those shoppers who are tired of waiting for a price floor, and vendors sell apartments tired without clear plans for the effective use of funds received outside of the housing market.

Apparently, these rates suit and domestic banks, which all this time, rather loyal to troubled borrowers, often helping them to sell the mortgage on an apartment fairly high prices. And it is quite reasonable, in our opinion, politics. For the mass forced the release of mortgage market apartments with a large discount not only dramatically increase the social tension, but also devalue the collateral. And, therefore, will hit the entire banking system.

Analyzing the above data, you must clearly understand that they relate to the nominal prices, which do not account for inflation. Meanwhile, inflation (as in the national currency and when converted to dollars) is very significant.

According to official data of the Central Statistical Office in Kiev, the first five months of 2011 consumer price index rose by 6.0% (data for June so far). If the nominal price reductions add inflation, the real value of the property in the first half of 2011 decreased by 12-12.5%. By world standards, this is a very high rate of reduction in price of real estate relative to other essential goods and services. A further increase in these rates can have very negative consequences for the domestic banking system and the economy.

According to our research, about the same views shared by the majority of sellers who are reluctant to make concessions. Many of them believe that if the prices have ceased to decline, the number of transactions increased. Link with those potential customers who walk to their views, but observing the general decline in market prices, delaying purchases in the future.

In the majority of buyers different views. They believe that prices should fall even faster in order to match the level of income and size savings. In addition, each focused on their income and savings, often forgetting about the competition that exists between the "net buyers" (ie, people who only rely on their savings) and "obmenschikami." The first to solve their housing problems require significantly more savings than the second. For one thing to buy two-bedroom apartment "from scratch", and quite another thing to exchange for a two-room studio. While "net buyer" to save money on a two-room, it is likely to gain the "obmenschik" sold before this studio.

Summing up the first six months, must have been substantial fluctuations in business activity. The number of calls, views, dispositions and transactions then noticeably declined, then rose again. Many vendors that put their apartment, then rented them to sell (or temporarily discontinued views).

The main reason for these fluctuations - changes in expectations of market participants.

By its very nature, the real estate market has tremendous momentum. In the sense that the trends in prices change quite slowly. However, the real estate market is very sensitive to adverse economic forecasts, currency fluctuations, changes in the regulatory framework and other developments that could affect prices and future trends. The reaction to these events - business loss.

In this regard, the Kiev real estate market is similar to the chronically ill person who responds to any change in the weather and other factors, it is sometimes better, sometimes - well, but the disease remains at the same time.

It should be emphasized that even in periods of improving market conditions, the number of transactions in real estate in Kiev does not correspond to the needs of the city in which more than one million apartments, and more and more people are seeking to solve their housing problems.

On numerous diseases of our market, we write regularly. Did not escape them in this review. In this case we consider it necessary to note that in the first half of 2011 clearly visible some signs of recovery.

Compared to last year increased the number of transactions and market turnover. The list of transactions has considerably increased the proportion of "expensive objects." It seems that buyers of expensive apartments and houses have come to the conclusion that prices have fallen so much that it is time to act.

Banks quite active in promoting their mortgage programs, in some cases involving this estate. The results are still quite modest, but they are.

The list of transactions has increased markedly in the bundle of apartments depending on the quality of repairs. And it's not by accident. Choosing a sufficiently large and each buyer could not hurrying to find accommodation according to your taste, and material opportunities. As a result, some have purchased an apartment with quality furniture repair and even, especially not overpaying for them, while others felt that it makes more "dead" flat, and do it in repair according to your taste.

Signs of gradual recovery of the market can also be found by analyzing the results of competitions forecasts, which are regularly conducted real estate portal www.domik.net. In fact, it's a kind of sociological surveys, which permit investigating the change in attitudes of actual and potential market participants.

While in previous years has been the spread of forecasts is very high, it is now not only substantially reduced, but in general, forecasts are more accurate. Correct prediction of the results of the first half gave 38% of https://www.domik.net/forum/viewtopic.php?f=86&t=19656&p=279788 # p279788. According to the weighted average (generalized) projection of all 165 participants, the index of housing costs in Kiev IKm (USD) for the first half of 2011 was reduced by 7.8%. In reality, it declined by 5.5%.

This indicates that market participants have become more balanced approach to the analysis of existing trends and their projections. It is very important, given that our real estate market impact of psychological factors often prevails over the purely economic.

According to our data, in May, sales prices were on average 14.5% below the average prices of the proposals in their respective market segments. How true these data reflect the general market trend - hard to say. First, in every market segment its own characteristics, its supply and demand. Second, these data were obtained on the basis of a very small number of transactions (because the statistical error is high). Third, most of the objects sold are flat, the state which is significantly different (in either direction) from "average". While comparing prices, we use not only the public service evaluation of apartments in Kiev, but also appropriate methods to take into account the state of housing, this diversity of options is also a source of bugs and errors.

Kyiv housing value index is calculated based on the actual database of real estate real estate portal www.domik.net (that is, on the basis of price bids), but take into account the sale price and the size of trades, as well as the dynamics of their change in prior periods. At this price information is given either in dollars per square meter, or in UAH per square meter.

In determining the indices used mathematical methods of approximation, which, while delaying transients, but let's smooth curves and highlight the trend (the main dependence of price changes).

Unlike forms of the curves on the graphs of the indices IKm (USD) and IKm (UAH) due to currency fluctuations which occurred in each month.

We took into account only the objects, the price proposals which were included in the confidence interval in a particular market segment

Analyzing the data presented in the tables, you must keep in mind that in early 2011, we changed the methodology of the samples used in the calculations.

The main innovations are: increasing the number of information sources with simultaneous tightening of the rules of selection of objects involved in determining the statistics.

In particular, when statistics were used suggestions made in the section "Announcements" real estate portal www.domik.net (before such proposals are not included). As a result, the sample size increased significantly (and this reduced the statistical error). But it is complicated screening of ads that contain false information. In addition, the change in the way of formation of the analyzed samples is associated with transient, difficult to compare statistics for different periods. Because until the transients associated with changes in methodology, we have decided to waive such a comparison.

The main factors affecting price change in the first half

In the first half of the price changes influenced by many factors. We list the main (we think). While trying to identify those whose influence is evident only in recent years.

The main factors contributing to lower prices:

- A huge gap between property prices and features of the vast majority of our citizens to create necessary for its acquisition of accumulation;

- Outflow from the country, as well as growth companies and government debt as a result of a significant excess of imports over exports;

- A huge backlog in the country, economy and society problems (poor economy, budget deficits, minimize the production of a sharp increase in debt, high inflation, constant political confrontation ... The list goes on and on). As a consequence - the outflow of capital and skilled personnel from the country, as well as reducing the index of consumer sentiment;

- The most powerful global economic crisis, which resulted in reduced exports and foreign investment;

- The growth of utility bills, and as a consequence, the desire of many citizens to sell "excess" real estate;

- Unavailability of mortgage lending for the vast majority of market participants;

- Problems with repayment mortgages and other loans, forcing borrowers to sell real estate on the conditions that dictate a few buyers;

- Withdrawal from the real estate market of speculative capital;

- A powerful propaganda campaign to a sharp decline in prices;

- Revaluation of values ​​(many market participants have changed their attitude towards property, money, available savings, real estate lost much of its investment appeal);

- The adoption of legislation to simplify the enforcement of the collateral property.

The main factors that stabilize the price of real estate:

- Especially the mentality of our citizens, many of whom belong to the estate of Kiev as one of the main values ​​in life;

- Waiting attitude of banks that are in no hurry to auction collateral apartments that provide bad loans;

- Lack of confidence in the banking system and any currency (as a consequence, the intransigence of sellers, their rejection of the sale of "excess" real estate, as well as the desire of some buyers to invest the available money in real estate);

- Specifics of the domestic property market, which consists in the fact that the majority of transactions - is actually a property exchange to another (with additional payments and compensation), improvement of living conditions in this case is much cheaper than buying it "from scratch". As a consequence, the "chain reaction", when some of the sale of real estate have other;

- A very limited number of alternative placement of savings in order to preserve them;

- Problems with the construction of new housing in Kyiv, which buyers often prefer the secondary market;

- Interest in real estate in the Kiev region of Ukraine and abroad (especially among our former compatriots);

- Reduction of prices to a level where buyers who planned to buy property with mortgage loans in the state to buy it without them;

- The active position of banks, trying to adjust their mortgage programs for the needs and real possibilities of potential borrowers (especially those who lack the relatively small amounts);

- Poor access shelter much of the inhabitants of Kiev.

Analysis of the impact of all these factors - rather voluminous, results of which are difficult to cram into one article. Joint analysis is the effect of these (and many other) factors - a task for a scientific institute.

Relatively new from the above factors:

- The desire of some sellers to get rid of "excess property" because of soaring utility bills;

- A gradual return mortgage lending to the real estate market;

- Increasing the disparity in prices for real estate in Moscow and Kiev, as a consequence, the increasing interest of Muscovites to Kiev real estate.

Forecast for July 2011

July - Season mass holidays. Activity in the secondary market of Kiev real estate at this time is usually significantly reduced.

We believe that this year the tradition will not be compromised.

The probability that a low level of business activity dramatically change the price trend is very low. This requires a powerful external influence on the market because of its very high inertia.

Index changes cost housing will be in Kiev, most likely in the range of one per cent (as in a positive and a negative). The reduction of the index value, in our opinion, is more likely. For this is not just economic reasons, but purely psychological. Namely, the inertia of perception of market participants who are accustomed to, that property prices are gradually declining.
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