Trends in Ukraine's Real Estate Market

January 2007

The year 2006 saw huge growth in real estate prices across many of Ukraine's big cities. The largest surge was in Odessa, where apartment prices all but tripled. Also, Kiev reportedly experienced the greatest rise in prices of any world capital. This article will discuss the prospects for 2007 and beyond.*

Residential real estate prices around Ukraine

Oblast centers at end of 2006, $ USD per sq. m.

Real estate in Kiev

Kiev leads the country in terms of real estate prices, which have been increasing by 50% each year since 2004. These days the cheapest single-room apartments cost nearly $70,000 (and you can imagine their condition). Supposedly the average price per square meter of residential real estate in Kiev has surpassed prices in Warsaw and the Baltic capitals.

Land prices for individual homes have been growing significantly faster in the emerging Kiev Oblast suburbs than have apartment prices in town, increasing by ten times in just a few years in many places. Most experts expect land prices to surge ahead again in 2007 even as the prospects for continued growth in Kiev apartment prices diminish. In most demand right now is land that is 0-30 km from the city boundaries. Most developed are the southern direction (towards Odessa), eastern (Boryspil and Brovary), and western (Zhytomyr highway). The northern direction is also growing in attractiveness despite its closer proximity to Chernobyl.

More and more often these days we read opinions that the apartment market in Kiev is overheated by speculation and that prices cannot continue growing much further. Authors cite a declining number of deals on the market, the presence of a large number of empty apartments waiting to be resold by investors for profit, and other factors. Other specialists tell the familiar line that until new apartment construction reaches a much higher level than today, demand will continue to push prices higher. The new mayor of Kiev, Leonid Chernovetskyy, has actually stalled this process and complicated the land allocation process for builders. Who is right will remain to be seen, but perhaps what is significant is the fact that the proportion of specialists expecting a stabilization or fall in prices has grown significantly since the beginning of 2006.

These days in Kiev it sometimes seems like everyone has bought apartments or land for investment purposes. People have gotten used to viewing real estate as a reliable investment — certainly better than banks that only offer 10-16% interest ("only!") where only $3000 is guaranteed by the government if the bank fails (as quite a few Ukrainian banks are prone to do). The past few years Kievites' earnings have risen dramatically, and real estate prices have followed suit.

Real estate prices around Ukraine

The same apartment appreciation pattern has been observed in all towns and cities of Ukraine. I'm not aware of real estate prices having fallen anywhere in the country, except for some coal-mining towns around Donetsk where apartments are being given out for free so that public utilities can continue to operate. Elsewhere, apartment prices rose from approximately 25% to 100% in 2006 across Ukraine's oblast centers. Obviously, there is a nation-wide trend here that has to do with Ukraine's economic revival of recent years that is picking up speed again. People have been living in cramped conditions for decades and now want to live separately from their parents, relatives, etc.

Important trends in Ukraine's real estate market

Traditionally there has been no such thing as "suburbs" in Ukraine. Everyone wanted to live only in the largest cities, and only in apartments. Now, however, there is a very clear trend towards recognizing the advantages of not living in an apartment in the middle of a big city. Apartment prices in Brovary and Boryspil 10-15 km from Kiev used to be far lower than in Kiev, but in 2006 they nearly caught up with prices in the capital. Brovary now has high-class shopping and entertainment centers, and Boryspil is getting a high-speed train to the nearest Kiev metro station in a few years. Towards the west, Irpen and Bucha have become desirable places to live as well, with pine-scented air and an electrical train that takes commuters to the center of Kiev.

The real winners, though, are landowners. People in Kiev and in other large cities around Ukraine are beginning to realize that they can buy a nice home on their own land for the same price or cheaper than a small apartment in the polluted city. This trend is just getting underway. Around Moscow, there is strong demand for land up to 100 km from city limits; Kievites are starting to look for property outside of town as well. Road building and modern city transportation projects are going to be developing rapidly in the next five years, making the creation of full-blown suburbs a reality. Housing developments are just starting to pick up around Kiev but are still several years behind Moscow. Other Ukrainian cities, naturally, are behind Kiev. Until now, house construction has been primarily on an individual scale, on plots in and around former villages around the capital. Ukrainian companies in the capital are starting to consider moving to city suburbs to reduce costs and enlarge production facilities. Eventually, Kievites will start moving away from the city center to be closer to their work.

What we are seeing, in my opinion, is the beginning of the decentralization of Ukraine's economic activity and the individualization of Ukrainian society. People are just beginning to realize that they can actually improve their quality of life by moving away from the center, not towards it. New transportation projects in and around Ukraine's metropolises will hasten this process. European capitals are typically surrounded by suburbs that connect to the city transportation network via high-speed train. Kiev's first such train will appear in a few years (to Boryspil) with more to come. As a result, high-rise neighborhoods in these cities that were less desirable to begin with may eventually turn into ghettos of sorts as the upwardly mobile move away.

*The author is not a real estate specialist, but has simply been following the local news and reflecting on processes taking place around the country during his frequent travels.