Crisis: Verdict or Renewal?

“Will you continue building? Will you keep selling? Are you planning to raise prices?” — I’ve been hearing these three questions daily since the quarantine was announced. And, most likely, every businessperson hears the same. Let me answer based on my own experience. The answer to the first two is simple: yes.

Our company has sufficient internal resources to continue operating effectively under new conditions. Since our founding in 2003, we have weathered several crises, and I clearly understand what needs to be done. So, we quickly adapted — developed multiple development scenarios and are prepared for any of them.

Our operational processes have long been digitalized, so our sales departments had no difficulty transitioning to online work. All internal workflows have been managed electronically for years — from document management to communication and data collection in CRM systems.

Construction sites, meanwhile, remain active. We are following our schedules at every project and will continue to do so. Naturally, our personnel work under safe conditions, including compliance with all sanitary requirements. Employees are provided with personal protective equipment and are transported to and from work by company vehicles — this is non-negotiable. Despite the challenges of quarantine, people are ready and eager to work — and that is particularly encouraging.

As for the third question — about prices — they certainly won’t be going down. Let me explain why.

The Factors Behind Construction Costs

The industry is heavily dependent on the exchange rate and labor market conditions — both factors we must account for. Dollar fluctuations already create stress: they lead to rising prices for materials, components, metal, energy resources, logistics — in short, for everything that contributes to the cost per square meter.

The labor market also plays a key role. For example, in 2017, when Ukraine opened its borders to Europe, construction wages quickly reached near-European levels — meaning they doubled in Ukrainian terms. Developers who didn’t pay fair wages were left without workers, as builders massively left for Poland and other countries. Rising wages increased costs, and, as a result, construction margins significantly decreased. Today, profit margins in residential construction are far lower than they were 15 or even 5 years ago.

The Nature of This Crisis

Many compare the current crisis with the global mortgage collapse of 2008–2009. I don’t think that’s accurate. Eleven years ago, the crisis hit the primary real estate market much harder. In Ukraine, it was almost catastrophic: about 40% of all construction sites nationwide stopped completely, while the rest barely moved. Buyers had no funds, mortgage lending froze, and developers lacked resources to complete projects on time.

In 2008, 10.5 million square meters of housing were commissioned (before the crisis was fully felt), but in 2009 — only 6.4 million. The market changed dramatically: weak, random, and overly young companies that hadn’t built up resilience disappeared, leaving only the strongest players.

This time, we’ll likely see a similar pattern, but in a milder form.

A crisis acts as a “sanitizer” that forces every player to reveal their true strength. Unscrupulous developers living from one project to the next on buyers’ money will be forced off the market. Even now, during quarantine, this is visible: some developers stopped work on the first day and simply vanished.

Yes, it’s unpleasant — especially for investors in those projects. But it’s important to understand that such companies would have disappeared sooner or later anyway, burying under their rubble the money and hopes of many families.

By contrast, strong and confident players — those with resources, sound strategies, and, in some cases, a solid reputation and investor trust — will only strengthen their positions. Their number of active sites will grow, and the flow of visitors to their sales offices will increase. Because construction must continue — and there’s plenty of work to do. Demand for new housing continues to rise.

Why Is Demand Growing?

There are four main reasons for this.

1. A massive housing need.

Deferred demand in Ukraine has been accumulating since Soviet times. Back then, several large state programs were launched to solve the housing problem. They achieved partial success, but queues for apartments never disappeared. As recently as a few years ago, Kyiv still officially had a Soviet-era waiting list for housing — with people waiting 40–50 years for their turn. Today, every fourth family in the country owns no housing at all, and every third urgently needs better living conditions.

2. Supply still lags behind demand.

Ukraine continues to build far less than is actually needed. The market has enormous room for growth. Even today, during a period of increased activity, construction companies are producing just over half the housing volume built during the Soviet era. In 1990, 17.4 million square meters of housing were commissioned in Ukraine. Last year — only 11 million; in 2018 — just 8.7 million.

3. People now have money.

During the 2009 crisis, many wanted to buy new housing, but purchasing power was too low, and banks stopped issuing mortgages. Today, the economy has strengthened, and people’s purchasing power has improved. Many can now buy property outright — and are doing so.

4. Real estate remains the most reliable investment.

Property in Ukraine has long been — and remains — the safest way to preserve savings or invest profitably, especially in times of uncertainty. The instability of the domestic banking system has already been proven. The “banking collapse” of 2014–2016, when over 85 financial institutions exited the market, clearly demonstrated this. No one has even calculated how many household deposits remain frozen — some say it’s equivalent to several national budgets.

Money invested in construction, however, does not vanish (assuming one chooses a reliable developer). Over time, it transforms into a tangible asset that will always bring value and potential profit.

The Numbers Behind Investment

On average, an investment in an early-stage residential project yields 20–35% profit in USD by completion. That’s a solid return, considering that a housing project typically takes 1.5 to 2.5 years to complete. In annualized terms, that’s about 10–20% per year — much higher than any deposit rate, especially in a stable bank.

Some might argue that banks occasionally offer more attractive rates, but those apply only to deposits in the national currency, which by the end of the term often loses value due to inflation and currency depreciation.

The Buyer Profile and Market Dynamics

Thus, the number of people seeking to buy property directly from developers is not decreasing — it’s growing. Our key buyers are mid-level managers and Ukrainians working abroad. Both groups buy for two main reasons: to improve their living conditions or to securely invest their savings.

Yes, some businesses have had to close due to the crisis and quarantine — that’s true. But most of the private sector is adapting, embracing new formats, and moving online. People continue to earn money — and will continue to do so. Accordingly, they’ll continue solving their housing needs.

Moreover, tens of thousands of migrant workers have returned to Ukraine with savings, increasing competition among buyers — all amid currency fluctuations and the rising dollar.

Typically, when the dollar rises, activity on the primary market spikes. Ukrainians traditionally save in dollars but invest in hryvnias, while developers don’t immediately raise local prices. As a result, buyers can purchase property more profitably — by roughly the same percentage as the dollar’s growth. For example, during the recent surge of 15–17%, many took advantage of the opportunity.

Now, with IMF support and partial currency stabilization, the hryvnia has regained some strength — but buyer activity remains high.

Looking Ahead

We continue to work and observe. I believe that Ukraine’s primary real estate market will emerge from this crisis stronger than many other sectors — renewed, more resilient, and of higher quality.

We won’t have to wait long to see it.

Rostyslav Melnyk

President, RIEL Real Estate Corporation