High cost of property in Kiev

[wxman]

How long before the bubble bursts?

http://news.independent.co.uk/europe/article2129965.ece

[Bruno]

How long before the bubble bursts?

And when i think that the great mother of my girlfriend have shell her home for a few hundred $$$... no so far from Kiev, a old fram with enough ground... hogh price are mainly in Kiev but in a few years, it will become a good investment... simply compare with Moscow...... Dascha outside the city reach now very high price...

[wxman]

I wonder how long before the people of Kiev say enough is enough. The lucky ones have owned their flats before the prices went through the roof. However, many people who moved to Kiev to find work, and the large majority of the others living there, will never be able to buy a flat with their limited incomes, unless they inherit the flat from a family member.  I have been to Kiev several times and talked to people living there. Many of the new apartment complexes that are being built will never have any tenants. They are owned by speculators who are trying to make a quick profit, and the empty flats are being sold every few months, with the buyers having no intention of moving in. Eventually the bubble will burst, and the last one left owning the title to those empty flats will lose their money. One of my friends moved to Kiev 7 years ago and rents a flat 30 km from center of city. He lives there with his wife, 2 children, his parents and his wife's sister. They pay $500 rent a month for the flat. He works as a taxi driver and works 7 days a week to make ends meet. He says he is not any closer to being able to buy a flat, and in fact, the odds are even less likely as the cost to own is outpacing his growth in income. 

[Nat]

How long before the bubble bursts?

Will it? A lot of people here and from abroad say, that prices are going to fall. When i start asking them precisely, they agree, that:
- it's not clear, when exactly they'll fall, if they are going to do it at all,
- in any case they won't fall to much,
- in Europe prices on flats are going higher now - almost in every European country.
So if everywhere in Europe prices are going higher, why somebody would think that they'll stop growing or even fall in here?

[wxman]

Hi Nat

I was curious how much a flat costs in your region. I'm sure it varies considerably especially outside of Kiev, and the Black Sea. I can't imagine flats elsewhere in Ukraine can be as high as it is in Kiev. The reason why I thought the bubble might burst is that the cost of flats in Kiev are growing astronomically faster than income. I can understand why flats in major cities of western Europe are as high as Kiev, but the incomes in the western European countries are many times higher than the incomes in Kiev, thus the flats are more affordable in the west. Supply and demand rule the market, and if the supply is more than the demand, or what people can afford, then the prices should come down.

[Stirlitz]

Prices are about to drop.When people realize you do not have to own property to live well and start spending their money otherwise, the demand will dwindle. All the fuss is now due to the soviet mentality: you must own the place where you live, or else you are a tramp. In the meantime, only a quarter of the Swiss population own where they live. Not because they cannot afford it. So, what’s the big deal?

[ScottinCrimea]

The price increases are being fueled by foreign speculation.  As long as they are getting more return on their investment here this will continue.  But over time the return will decrease.  Property only has value if you can find someone to sell it to and the higher the prices, the smaller the pool of potential buyers.  Yes the bubble wqill burst, it's just a queston of when.  To be honest, I thought it would happen before now.

[Stirlitz]

You will watch it this year. I am sure.

[Nat]

I was curious how much a flat costs in your region.

Well, I live in Donetsk, and here a 2-roomed flat, not a very big one, but in the very center of the town costs $130k. Is it a normal price or not?

I can't imagine flats elsewhere in Ukraine can be as high as it is in Kiev.

I think here it is. My friend bought a flat in Kiev several month ago - it was $120k. It is 4-roomed, but not in the center.

The reason why I thought the bubble might burst is that the cost of flats in Kiev are growing astronomically faster than income. I can understand why flats in major cities of western Europe are as high as Kiev, but the incomes in the western European countries are many times higher than the incomes in Kiev, thus the flats are more affordable in the west. Supply and demand rule the market, and if the supply is more than the demand, or what people can afford, then the prices should come down.

Well, it's reasonable... But prices still continue to grow up...  ???

Prices are about to drop.When people realize you do not have to own property to live well and start spending their money otherwise, the demand will dwindle. All the fuss is now due to the soviet mentality: you must own the place where you live, or else you are a tramp. In the meantime, only a quarter of the Swiss population own where they live. Not because they cannot afford it. So, what’s the big deal?

Well, may be you're right, but i think that the most people who buy flats now, buy them to invest money. Dollar falls down, euro is unstable, gold is too high in price already, so those people, who have a lot of money, buy flats.

The price increases are being fueled by foreign speculation.  As long as they are getting more return on their investment here this will continue.  But over time the return will decrease.  Property only has value if you can find someone to sell it to and the higher the prices, the smaller the pool of potential buyers.  Yes the bubble wqill burst, it's just a queston of when.  To be honest, I thought it would happen before now.

I thought so too in summer, when 2-roomed flats in the center of our town costed $70 000

You will watch it this year. I am sure.

It would be really nice! But it was promised so many times the previous year, that i can hardly believe it already...

[Stirlitz]

Well, may be you're right, but i think that the most people who buy flats now, buy them to invest money. Dollar falls down, euro is unstable, gold is too high in price already, so those people, who have a lot of money, buy flats.

There are not many people who can invest money. Most people are just ordinary people who need a place to live. It does not mean they have money. When they believe they must own their apartments, prices will go up because they have no choice. When they have a choice (rent vs own) there will be competition.

[Rvrwind]

I find this true here as well. Although Tver is still cheaper than Moscow I find the prices outragous. Especially when I consider what I could buy in canada for the same cost. I knw can't compare but it is habit, sorry.
What you can buy here for fifty K would be condemed in Canada!
I for one like to get something for my money & the flats I see here under 100 K I wouldn't even consider buying in Canada, wouldn't even look at them. But here, because of the housing shortage & the fact as Sterlitz states that everybody percieves they must own their own flat for whatever reasons, jacks the prices skyward. Totally rediculous when you actually look at what your money can buy you.
The new buildings going up are nice but still when you look close, the workmanship really sucks! Better to buy a piece of land & build your own place, properly & the way you want it. It will likely stand longer & be the envy of the neighbourhood quality wise & cheaper in the long run.
Best buys I have seen here are some of the older houses that are collapsing or property where the house has burned & the property is sitting idle. Not close to the center but in my opinion that in itself is a plus. Plenty to choose from in Tve,r for a smart investor & no problem renting or selling after you build, just takes somebody with the right attitude & funds to get started, then your on your way.

[ScottinCrimea]

     There are a lot of people sitting on property in Ukraine that was given to them when the USSR collapsed.  All they need to do is pay a small amount to "privatize" it and have the title transferred into their name.  Unfortunately a lot of these people don't have even this small amount and they don't see the need to spend the money to get the title since they are allowed to live there until they die.  So what happens is that when they die the government takes possession of the property.  If someone were to arrange things such that they pay for the privatization and pay some cash up front in exchange for the title being signed over to them on the death of the occupant, they could make a ton of money.  Another short term option is simply more cash up front.  Less than the property is worth, but more than enough for the owner to live on.  The owner has nothing to lose since they would never own the property otherwise.
     Here each citizen is allowed to privatize unclaimed property for themselves.  They are allowed a certain amount for a house, for a garage, and for a dacha.  The cost of this is only the cost of the paperwork, a few hundered dollars at most.  Taking advantage of this, our family has claimed two large pieces of land on the outskirts of Simferopol where we have our dacha and two pieces on the coast in Northwest Crimea.  There are pieces of land near our dacha that are still unclaimed, and other pieces that have been privatized that the owners are willing to sell for a few hundred dollars because they have no use for the land.  If someone is willing to put the time and effort into it, there there are ways to make a killing in real estate here beyond the normal "buy an apartment, fix it up and resell it" mentality.

[wxman]

Wow. the prices quoted for prices in Ukraine, even outside of Kiev are just plain absurd.  No wonder the extended family all lives together. So if you legally own the property, one can pass it on to their children from what I am reading. That is probably why, plus economics, that most couples have only one child so they can all live together and when the parent dies, the property goes to the child and the cycle starts all over again. 

Still the cost of $130,000 for a 2 room flat in Donetsk when the average person is only making $3000 to $4000 a year or so, doesn't allow for many locals to buy the flats.  If you translated that to the US where the average income is around $40,000, then the average house would cost $1.7 million. In fact the average house in the US is only around $150,000. Housing must be affordable to the majority if you want to have a sustained housing market growth.   

[ScottinCrimea]

It's simple demographics.  Two sets of grandparents living in two apartments have one child each, who marry.  These two apartments pass down to this couple.  They have one child who marries someone with a similar situation.  This couple will eventually have four apartments.  Their child and his/her spouse will eventually inherit eight apartments, etc. etc. etc.  Because of the shrinking population, the wealth is gradually trickling down.  You see young people with small incomes driving a Mercedes because they have sold one or more of these apartments and suddenly have $100,000 in disposable income.

[wxman]

I understand about inheriting the property, but if the population is getting smaller, there should be an overabundance of property. Who buys the flats if the majority of the people inherit their property? I would think the price should be going down, not up, outside the popular locations. Doesn't seem to be following any rule of economics.

[ScottinCrimea]

as mentioned before, foreign investors are fueling the price rise.  Wealthy Ukrainians are also contributing.  They need somewhere to put their money and right now, real estate is offering the best return.  When this changes, you will see the prices stabilize and then drop.  Only those who are investing for the long term will stick around, waiting for the next growth cycle.

[wxman]

Guess they will get burned like the ones who bought up the overbuilt condo market in Miami and other parts of South Florida. Lot of nice condos, but nobody living in them. That bubble has burst with some property losing quite a bit in value. The last ones holding the title are the ones who took the hit. Same will happen in Ukraine. Speculators are nothing but gamblers. Only the smart ones know when to fold and run. 

[Nat]

In fact the average house in the US is only around $150,000. Housing must be affordable to the majority if you want to have a sustained housing market growth.   

I’ve heard that real estate is in trouble in USA now – BBC, if I’m not mistaken, said that people don’t buy new houses so actively, as before, that’s why prices are quite low. On the other hand, in Finland an average flat near Helsinki costs $200k. Of course, Helsinki – it’s not Ukraine, it’s just to compare prices

Guess they will get burned like the ones who bought up the overbuilt condo market in Miami and other parts of South Florida. Lot of nice condos, but nobody living in them. That bubble has burst with some property losing quite a bit in value. The last ones holding the title are the ones who took the hit. Same will happen in Ukraine. Speculators are nothing but gamblers. Only the smart ones know when to fold and run. 

Is it time to fold and run now?

Well, in general, I agree with what was said. I don’t understand, where real estate agents take these prices from. It’s just unbelievable   

[wxman]

I’ve heard that real estate is in trouble in USA now – BBC, if I’m not mistaken, said that people don’t buy new houses so actively, as before, that’s why prices are quite low. On the other hand, in Finland an average flat near Helsinki costs $200k. Of course, Helsinki – it’s not Ukraine, it’s just to compare prices

One main reason why the US market is flat, is that over the last few years when interest rates were around 5% on home loans, most people who wanted to buy a house or condo, did. So now it is actually a buyers market with an over abundance of homes for sale, and people are not in a rush to buy like they were before. It still is a healthy market and real estate in general has always been a good investment, especially for the speculators. With the population continuing to grow, housing prices will not fall in most locations as many still want the "American dream" of owning a house. Housing prices in the US are very reasonable and home builders understand the huge profit potential if they make homes that are affordable for the masses.

[Stirlitz]

What’s funny in Ukraine, though, is that, unlike the US, the population is shrinking whil housing is growing.

[Rvrwind]

What’s funny in Ukraine, though, is that, unlike the US, the population is shrinking whil housing is growing.

Very true,& the same applies in Russia.However there is still a he!! of alot more people than there is housing to accomadate them.

[wxman]

Could one reason be that living together as an extended family was once a necessity, and now as incomes grow it is no longer such? I wonder if the youth have become so westernized that they all want their own apartments when they become adults, and thus in reality there is a housing shortage?  So even though the children may inherit their parents flats, they rather have their own place now. Also many of those flat they will inherit are old and not up to date with many of today's conveniences. I imagine the newer flats being built are more appealing to the younger generation.

[Stirlitz]

That’s right but they are also absolutely unaffordable to young people. With the cost of a one-bedroom apartment reaching $70,000 and more in the outskirts of Odessa you can imagine that you need to save at least $6,000 a month to buy it within a year, or get a credit which is not easy for someone young. With salaries seldom reaching $1,000 it is impossible.

[Nat]

I wonder if the youth have become so westernized that they all want their own apartments when they become adults, and thus in reality there is a housing shortage? 

Yes, it is so, at least in big cities, where at least some young people get a proper salary and can afford at least a 30-years-long loan. But it's a very small percent among the population.

I imagine the newer flats being built are more appealing to the younger generation.

The among of conveniences of course depends on how long ago the house was build, but the problem can be solved with repair works

That’s right but they are also absolutely unaffordable to young people. With the cost of a one-bedroom apartment reaching $70,000 and more in the outskirts of Odessa

And I thought here the prices are absurd. $70k not in the center - it's just... i don't have proper decent words 

you can imagine that you need to save at least $6,000 a month to buy it within a year, or get a credit which is not easy for someone young. With salaries seldom reaching $1,000 it is impossible.[/color]

Well, if to take Donetsk prices, where a one-roomed flat costs somewhere around $55k in a good, but not the best area of the city, it is may be possible to take a loan for, for example, 20 years, but not with a $4k annual income. I think the young person needs something around $10k a year, which makes 850$ a month. Or there should be two of them making each 500$ a month. There are people who get such a salary here, but not much. At least I'm not among them

Upd: No, i made calculations and understood, that it's really impossible. Even if this young person earns 850$ a month, he/she can't give away 600$ monthly for 30 years and live on 250$... May be it's good, because it gives hope that prices will finally fall down and be logical!

[ScottinCrimea]

Long term mortgages are pretty much unheard of here.  The expectation is that you pay cash, in dollars, up front for an apartment.  There is also the belief that it is the responsibility of the parents to provide a home for their children when they marry.  They will either sell one of the apartments that they own, buy a fixer upper larger or more near downtown and do the necessary repairs, or else sell two apartments to pay for the one.  It is also not uncommon for the parents to sell their larger downtown apartment to buy two smaller ones, one for them and one for the children. Yes, like in the West, the younger generation want bigger and better, and it does put a burden on the parents.  For those families who don't have extra apartments to sell, the young couple moves in with the parents and waits for them or a grandparent to die to have their own apartment.