capitalism, supply and demand

[Son of Clyde]

I know nothing of economics and I have been living in an apartment since 1984. I saw the thread about the real estate boom in Kiev. Funny, two years ago a friend was trying to talk me into buying a flat in Kiev and renting it out most of the year. He could see this real estate surge approaching.

Seems to me the prices rise with the demand, but is it justifiable? Are the materials any more expensive 2 years down the road? For a flat to go from $30,000.00 in 2004 to $200,000.00 in 2006 is totally outrageous.

In the US a good home in a run down neighborhood will sell for much less than the same home in an affluent suburb. But it is the same house.

Seems like Ukraine is becoming westernized very quickly.

[TexasBoar]

Well . . . for an extreme example, consider that if you could take ANY house in South Texas, where I live, and transport it to an equivalent size lot in Santa Barbara, California . . . you could add a ZERO to the price.  100K house here is a million-dollar "estate" there.

~Boar

[catzenmouse]

Less extreme example. We had a little 1300 sq ft Cape Cod outside of Richmond that sold for 130,000.00. In Richmond it would have been 200,000.00 and 2 hours away in DC it would have been 300,00.00+.

Location, location, location!

I guess right now Kiev is hot so they can get crazy prices for these flats.

Ken

[DKMM]

In this case, demand is outstripping supply.  Housing moves slowly and is thus prone to cycles and shocks.  I would expect the prices to come down eventually unless the Duma moves to restrict additional supply.

[I/O]

Seems to me the prices rise with the demand, but is it justifiable?

Something, anything is worth what someone is prepared to pay for it at any given time, not more, not less.

People with all their ambitions or personal desires are the fundamental driver in most economic equations.  Materials and other input costs are of secondary importance.  Sure it might cost slightly more to construct a building in central city areas rather than outlying areas, but when it comes to selling the building or part there of, the real driver is who and how many want it.

I/O

[Son of Clyde]

I/O reminds me of what my parents said, "Whoever said that life was fair?" It makes logical sense to make things affordable even when there is a large demand. Not so with real estate in prime locales.

[David1963]

Seems to me the prices rise with the demand, but is it justifiable? Are the materials any more expensive 2 years down the road? For a flat to go from $30,000.00 in 2004 to $200,000.00 in 2006 is totally outrageous.

It's not the price of materials but the price of land.  Land and location are a limited resource.  When it is scarce it is expensive.  When everyone wants to live in the same place the land goes to the highest bidder.  In many places the cost of the land is greater than the cost of building the house.

Ukraine is not really becoming more westernized, maybe Europeanized, but they are becomming more prosperous.

[Son of Clyde]

If they are so prosperous why then is there still so much poverty?
The only decent thing the government has done (well it is sounding better the more I read about it) is to offer free housing, free education and free medical care. Maybe some of this has changed since 1992. I have heard, from a reliable source, that those government subsidized homes (that look like condo's) were given to the people. I guess to live in a mansion you still need $$$$'s.

[I/O]

I/O reminds me of what my parents said, "Whoever said that life was fair?" It makes logical sense to make things affordable even when there is a large demand. Not so with real estate in prime locales.

Very "Socialistic"/..................hmmmmmm no I wont go there, thinking.  Seeing as this is a discussion regarding the FSU, look back over the last fifty odd years and it was all so equal for everyone.............

Not..............

As for the price of land been the major factor, sure, but it comes down to desires and aspirations of business/people.  If many didn't want it then it would not be worth much.  Hey this is capitalism in it's truest form.  Some say it is not fair, my question to them is why? 


I/O

[jinx13]

 The boom in Kiev wasn't so difficult to see coming, new Western friendly President, possibility of joining World trade Org. and European union, not to mention NATO.

 Look at Prague 10 or so years ago, the same thing happened. It's funny, I read some Yahoo net story about the top 10 ways to get rich, buying cheap real estate in a foreign country was one of them, and the article mentioned Prague and how much home values have increased.

 I wanted to buy in Kiev about 1 1/2 years ago, but didn't have the money, now I wish I would have done it anyway, it would have paid for itself already, well almost anyway. Nataly told me that after Chernobyl you could buy a flat in Kiev for $5,000 - $10,000. Her mother still doesn't let her dad forget about it, they live about 8 hours by train from Kiev in Sumy.

 I guess the smart investor needs to figure out where the next boom will be, any ideas guys?

[I/O]

The boom in Kiev wasn't so difficult to see coming, new Western friendly President, possibility of joining World trade Org. and European union, not to mention NATO.

 Look at Prague 10 or so years ago, the same thing happened. It's funny, I read some Yahoo net story about the top 10 ways to get rich, buying cheap real estate in a foreign country was one of them, and the article mentioned Prague and how much home values have increased.

 I wanted to buy in Kiev about 1 1/2 years ago, but didn't have the money, now I wish I would have done it anyway, it would have already paid for itself already, well almost anyway. Nataly told me that after Chernobyl you could buy a flat in Kiev for $5,000 - $10,000. Her mother still doesn't let her dad forget about it, they live about 8 hours by train from Kiev in Sumy.

 I guess the smart investor needs to figure out where the next boom will be, any ideas guys?

Romania is one place, but it may already be too late in some parts, however I tend to think there is still some quite good buys there for the longer term player.  But as always, if you want to make serious money out of passive investments, then it is "Time in the market, not timing the market".

I/O 

[DKMM]

Almaty.... seriously!

[Son of Clyde]

Almaty.... seriously!

Are you Larry? He is the only person I remember married to a lady from Almaty.

[Son of Clyde]

I remember the flats in Kiev jumping from $30,000.00 to $75,000.00 in less than a year. A friend I know has moved to Kiev but he didn't make his move when it was affordable.

[ScottinCrimea]

One factor in the rapid increase in prices of real estate in Kiev is that the major builders have a monopoly and have an under the table agreement to set prices for new apartments and offices artificially high.  This drives up the cost of existing property, of which they also own a healthy percent.  There was some discussion in the news here about the government wanting to do something about this, but this died very quickly.  I realized a couple of years ago that this would trickle down to other areas of Ukraine and bought real estate here in Simferopol.  I have since seen the value rise about 30% a year excluding improvements made.  Property in the downtowm area that was available for around $500 per square meter now goes for over $1,200.  Still, this area is running about 2 years behind Kiev so I expect to see continued rises in real estate values here in Simferopol and Crimea in general for the next few years at least.  If and when there are regular international flights in and out of Simferopol from the West and more people discover this area, I expect a major boom.  There are few if any such resort areas in Europe that are still so underdeveloped.

[apple47]

   I'm Larry ,Clyde.  And DKMM is right about Almaty.  My wife was given an unfinished house when the Soviet Union died.  She sold it in 2004 for 45k,she then bought a large1 room apartment for 21.5k.  She sold this apartment in nov 2006 for 60k.  Her mothers apartment was bought for 11k in 1996 .Because it is considered to be in a "good" area it is presently worth about 120k.    Big prices for people that average about 2k a year in income. Don't know how they do it.  The people that bought the house were from Uzbekistan and had 25k down and the only mortgage available at the time was for 5 years. The people that bought the apartment paid cash.   Much of what is being built in the city is going for 200k.  Lots of Germans in Almaty,but I'm sure they aren't buying all that is being built.

                                                             ...Larry