How to restore the housing market in Ukraine: a recipe from the Forbes Development Construction Forum
During the three years of full-scale war, the Ukrainian housing market has undergone significant changes. The volume of new construction has declined, while the need for it is catastrophic: the number of internally displaced persons alone has reached 4.6 million. Currently, only 84,000 apartments are being built across the country, so it will take decades to provide people with housing. At the same time, effective demand has declined on average, according to developers, and housing sales have recovered to only 35% of their pre-war levels. It is clear that the housing sector is facing the biggest housing crisis since independence, and if nothing is done, it will continue to deepen. However, housing should be the driver for the retention and return of Ukrainian citizens.
- It's not just about square meters. Either you have a home in your country and feel that this is your homeland, or you don't and you don't care about this country. Housing is today a way for the state to tell people that they are important, that they are needed. Today we have more than 2 million families who are homeless. And now they are waiting for the state, together with entrepreneurs, to build a lot of new housing and give them the opportunity to get this housing, said Yevhen Favorov, Chairman of the Board of the Ukrainian Association of Developers, at the Forbes Development Construction Forum.
Developers cite the unaffordability of housing for most Ukrainians as the main problem hindering the development of the construction sector. Therefore, only a full-fledged mortgage can significantly change the situation. But so far, market conditions for it have not developed, and the development and launch of appropriate mechanisms will take a long time. Therefore, other instruments that international financial institutions and Ukrainian government officials are already working on may be a way out.
- One of these tools is rent-to-own, or lease with the right to buy. This is one of the tools that we will look at how to apply it. We are also looking at such a tool as public-private partnership. It's a little difficult, the tool itself is not very easy, but the housing sector is a double challenge, - says Olena Voloshyna, head of the International Finance Corporation (IFC) in Ukraine. - "This requires several legislative changes, and that is why our participation in the intergovernmental working group is very important. And we have a very fruitful and constructive dialog with the Government.
According to Olena Voloshyna, the World Bank Group, which includes IFC, is generally involved in reforming the Ukrainian housing sector. The first meeting of the relevant working group has already taken place: consultations are underway at the level of ministries, the National Bank and the National Securities and Stock Market Commission.
Where to get funds for housing construction?
The World Bank estimates the financial need for the Ukrainian housing sector at $80 billion. And according to an IFC study, a third of these funds could come from the private sector. However, banks still see too many risks in financing construction projects. However, bank project financing is an essential component of the housing market recovery. And the experience of Europe, where the developer always has a leverage from a partner bank, can help in its development.
- The bank independently lends to the developer at 8-10% per annum so that the developer can use less equity and comfortably conduct its business. Therefore, I think we will come to this, but we need a dialog with banks so that they consider the possibility of lending to specific developers in principle, - explains Anna Laevska, Commercial Director of Intergal-Bud. - "The most optimal scheme is when a bank lends to a business as a partner, sees its transparent reporting, documents, beneficiaries, all information about the company's work, and decides that it is ready to work with this project. As an additional collateral, the bank takes either the construction object or the land plot, if it is owned, and, accordingly, finances the mutual relationship with the developer. But then the bank also controls the dynamics of construction, the fulfillment of obligations by this developer.
At the same time, members of the Ukrainian Association of Developers emphasize that they have long been ready for full transparency. After all, this will not only help finance construction, but also strengthen people's trust in primary real estate.
- One of the reasons why customers will go to these companies is precisely the transparency and understanding of who they are. Who is the beneficiary, what is the history of the company, where the money came from, and everything else. This will be a very important element for customers' decision-making, and it will be a tool and opportunity for cooperation with large financial institutions, including international ones. No consolidated reporting means no money. No money - no reason to build and sell to the client. That's it. We will get to that point, - emphasizes Rostyslav Melnyk, CEO of RIEL Real Estate Corporation.
According to Avalon CEO Roman Davymuka, attracting institutional foreign capital can be a real game changer for the Ukrainian real estate market. At the same time, this requires changes not only in legislation but also in approaches to housing that is put into operation.
- Many developed economies have rules about putting into operation housing that is ready to live in. That is, white box or ready-made finishing repairs. And this can definitely be a vector for the development of our market, because this product is convenient for the client, it is profitable for the developer, it is understandable for the state and for all international institutions and investors. Because for them, an apartment in the "zero cycle" (unfinished - ed.) is not an asset that can generate profit, - states Roman Davymuka.
What else prevents us from building more housing?
Among other reasons that hinder the development of the construction sector, developers also cite a shortage of personnel, which will manifest itself in full when the construction sector is operating at full capacity. In addition, the lack of statistical data remains a problem , making it impossible to build a strategy for the development of the housing market. Another important obstacle is the unresolved issue of city master plans and spatial development plans, as well as the inconsistency of monument protection and urban planning legislation.
But the most global challenge remains the general disorganization of the rules of the construction market. As a result, businesses have to operate in conditions of constant unpredictability, which does not allow them to make clear plans ahead: there are attempts to collect long-canceled share contributions, the development of urban planning documentation stops, authorities at various levels delay the issuance of documents or even retroactively change the status of already issued approvals. Today, developers are under constant pressure from law enforcement agencies and are forced to fight back in courts, which sometimes leads to a complete halt in construction projects.
Ihor Nikonov, founder of KAN Development, emphasizes that the state must take responsibility and become the referee who will judge any conflict situations on the basis of the law. And it is the state that should compensate the investor for losses if his or her already started project is stopped because some other interests turned out to be more important. Given the existing risks, the number of investors willing to invest in the construction sector and the economy as a whole will continue to decline rapidly.
- No document issued by a public authority can be revoked. There should be a criminal case against the person who revoked it, and business should not suffer losses, - emphasizes Igor Nikonov. - "If you have a document issued, it must be ironclad. Then banks can treat this document as final. Then we will have project financing, mortgages, and funds. And then people who buy housing will not take risks.
- Development is a way to provide people with housing, which can become a driver of great transformation and reconstruction: not just to build, but to implement social functions, work in partnership with the state, go to the regions, and develop cities. There are many problems and challenges today. But at the same time, there are opportunities and potential, - adds Yevhen Favorov.
