02 April 2012

Standards MUST improve in the property sector

I know a lot about the so called 'property business' in Ukraine. What I do know is that it's operating in an outdated manner compared to the rest of the civilised world. The property market in Ukraine is currently experiencing a down turn. For the first time in many years we now have a buyers market. But the sellers still fail to understand this.

Banks in Ukraine have already stopped providing mortgages for property purchase unless the client has a deposit of about 40% of the purchase price. So, the only buyers in the market right now are people who have cash available.

Many apartment blocks and 'village houses' in Ukraine remain empty as a result of the downturn/financial crisis. Many properties are for sale and on the market. Unfortunately the majority of these properties are for sale under what is called 'shell and core'. This is where the property is offered for sale as a 'completed' property, but in reality the property still needs a significant amount of investment before it can be classified as   'habitable'.  Here lies the major problem in Ukraine.

I have viewed many many properties for sale in Ukraine that need almost as much money to be spent on them in order for them to become available for living. Moreover, many of these properties have been 'constructed' by gentlemen from the low skills sector of the economy. Time and time again I see walls that have been built, that if they had been constructed in my own country, they would have been condemned by the local Health and Safety Executive as 'Unsafe for Living'. I have seen brick work and plaster work that looks as if it was completed by a 10 year old boy doing the job for the first time. I have seen electrical systems that would bring on a heart attack for many a true 'inspector of buildings'.

But the main problem is that properties are 'completed' leaving the new owner to undertake a massive 'remont' project to make the property available for human habitation. The acceptable norm in Ukraine is that an apartment or house is completed when the walls and roof have been built. Leaving the new owner to finish the property. This finishing usually includes the installation of all plaster work, ceilings, doors, electrical sockets, water plumbing, flooring etc. It usually involves the installation of an external door as the first door was just a temporary structure.

Moreover, a buyer can expect that there will be no new roads to the property until a few years afterwards.
Maybe gas and electricity will also be added extras to the property. In apartment blocks, the property purchased will not have a working lift and may have the added problem of an unfinished reception area.
The developer/builder will be under no pressure to complete any of these outstanding works and probably never will complete them, leaving the owners with the added tasks of sorting out all the unfinished work.

In exchange for all this the developers of these properties still expect to demand and be paid the so called going market rate for a property in Ukraine. They still think it is OK to demand USD 100,000 plus for a 65 metre apartment on the outskirts of Kyiv that needs approximately another USD 80,000 spending on it to make it liveable.. Plus they still do not understand the normal practice that takes place in most developed countries....the practice of negotiation. For example.....OK you are asking for USD 120,000 for this apartment, but we are only prepared to pay USD 110,000 as we will have to spend another USD 50,000 to make it possible to live in. The answer to which is usually........It's your problem.....The price is still USD 120,000. These people clearly understand nothing about negotiating. But very soon....they will be FORCED to understand it.

There are far too many Ukrainian people and mainly Ukrainian developers/builders that are living in 'cloud cockoo land'. They need to wake up and realise that prices are NOT going up anymore, but are going down and down and they need to strike a deal with any potential buyer while they can.


Anonymous said...

The problem with Ukrainian lawyers, accountants, businessmen and politicians is that they know everything already, so there is no need to learn anything. In fact, they are so superior that they cannot be measured by other people's "standards". Ever been to a nice Ukrainian restaurant where they serve first one diner, and halfway through the mean, the plate for the other diner is delivered? Who can take Ukrainian business seriously?

Bold Endeavours said...

Those of us who have always lived in market economies believe the market will dictate.
Maybe Ukraine has forgotten how terrible it was post Perestroika when a market economy did rule.
In the end, no-one has to sell, no-one has to buy.
So no one has lost face, but they cannot put petrol in the 4x4.
Meantime Gerald, if prices are still falling it may not a good time to buy.
Derek Mansfield