Results from RIEL developer: 2021 is the year of growth and development

The editors of Domik.ua portal go on summing up the results of the outgoing year. This time we talked to the General Director of RIEL Real Estate Corporation Rostyslav Melnyk. He told how the work of development companies in the capital market differs from that in Lviv, as well as what changes are expected from the reform of the urban planning industry and government programs.

Briefly about the developer

RIEL Real Estate Corporation has been operating since 2003. For 18 years, the developer has completed 60 implemented projects in Kyiv and Lviv; their portfolio contains more than 1.1 million square metres of real estate. Among the residential complexes, there are ОK`LAND, Mistechko Pidzamche, Bereh Dnipra, Great, Riel City, Nordica Residence, America, Shengen RCs and others.

About the company: “Reliability and compliance are among the company's priorities”  

This year, RIEL Corporation celebrated its “coming of age” – 18 years in the real estate market. Can you tell us exactly what you have achieved so far? How do you manage to keep the leading positions in Lviv market and conquer the capital all this time?

It was possible to grow from several people in the company to several hundred, from one project of the building completion to 24 objects in two largest cities of Ukraine. How do you do that? The company's priorities include reliability and compliance with commitments given to their investors, continuous development, working on errors, control of all processes and their proper planning. Besides, we use new techniques such as BIM technology (Building Information Modeling), VR tours, sales and service digitalization in our work. A separate area of ​​our work is the revitalization of depressed areas.

In 2019, 1,700 people worked on the corporation's construction sites. In 2020, it was already 2,700 employees. How many jobs did the company provide in 2021? How do you motivate professionals to stay with you instead of going to work in other countries?

In 2021, about 3,000 people work at RIEL. We motivate with market salaries, prospects both for each individual employee and for the company, because we grow and develop every year.

The corporation is involved in many charitable projects. You are the founder of Modrychi Charitable Foundation and Rehabilitation Centre. What social activities did the corporation support in the past year?

In connection with the COVID-19 pandemic, RIEL provides ongoing assistance to hospitals.

Do you implement new digital technologies in the work of your company and if so, which ones?

Well, first of all it’s ВІМ-technologies (Building Information Modeling). Thanks to these technologies, we can implement any of our objects virtually, that is, long before it is actually completed. Designers working with BIM reduce the risk of incorrect design decisions. The incorrectness of the project volumes and terms of construction and budget is nullified. To minimize these risks, we have come to use a number of tools: in particular, design in REVIT, using the capabilities of NEVISWORKS, process analytics in Power BI. At REC RIEL, all these tools are integrated into a single ERP system – the resource management system – and have a number of intermediate checkpoints and codes, so that all information is automatically shared between all systems.

It looks like this: for example, after receiving a model of the object from the designer, we transform it through NEVISWORKS into an Excel spreadsheet, removing the entire list and scope of major works and materials. So we form a basic version of the estimate, which forms the basis of our budget. Engineers of specialized departments check the results obtained, add secondary materials, and we get a more or less correct budget. After that, project managers and us upload this data to PROJECT and get a timeline of activities. Then there is the issue of control of indicators with the help of the project card – the main tool for operational control of the project. In it, we see the major and specified deadlines for completion of projects; we understand whether there are time deviations and whether this will incur additional costs. We also receive information from monthly planning, analysis of tasks to be performed, the number of completed ones, sales comparisons, etc.

Having a high-quality BIM model, we use it in almost all our business processes. In the construction process, we visualize complex design solutions for builders, qualitatively allocating financial and labour resources. In marketing, in particular for our website, where you can “view” any of our facilities in any city of presence, choose the relevant planning and specific floor and make the final choice. After the completion of the object construction, the BIM model created by us will be a great tool for the manager during the operation of the building. Thanks to BIM, we can respond quickly to changes in the object. The main advantage of using BIM technologies for us, the developers, and for our clients is the ability to achieve maximum compliance of the characteristics of the future object to customer requirements.

Besides, by visiting our sales departments, you can “walk” into your future apartment, where the designer has already “worked”, in VR-glasses. This is especially relevant when it comes to non-standard premises, such as an attic apartment. To “walk” inside it,  to “see” the design options and even the arrangement of furniture is quite real now, while the apartment is still under construction.

In May of this year, you have a new format of video reports on construction – reports from the construction site. What other innovations have been introduced to better communicate with investors?

You used to have to hire a realtor or go to the sales department yourself in order to choose an apartment and find out the details of the sale, including the cost. We decided to address all these issues online, making it possible for our buyers to find out the most important information via a mobile or laptop within a few minutes: the availability of a specific apartment and its layout, the relevance of the price and a specific figure instead of "from ... to", all the features of the residential complex. As a result, the share of sales from online channels increased from 30% to 40% of the total number of sales. As for the share of website leads in the structure of online channels, it soared from 3% to 12%.

All 8 sales departments of REC RIEL, 3 service centres and more than 20 RCs operate without any executive or manager with whom you have to coordinate your actions. At the same time, roles are clearly divided among employees, so each of them acts within their area of ​​responsibility and makes decisions on their own. Thus each action is provided, mandated and worked out in advance. These are well-thought-out steps and answers for various situations, reactions, processes, the effectiveness of which is always monitored (including by listening to conversations between managers and clients). These data are subsequently analysed and recorded if a non-compliance with the prescribed standards is revealed.

All the software we use in our work are interconnected. So, no matter how the client contacts us (via a website form, chat, phone call or email), we will track it down and create a “deal” in any case. And this will happen automatically: incoming and outgoing communication with a potential client is recorded in the CRM system. Power BI dashboards are integrated with Zoho CRM, there is also 1C integration and a cell diagram, a catalog of rooms depicted on the interface as the cells with apartment numbers. We insure against double sales due to inattention. Accounting is carried out by shading apartments with different status.

If a client calls us or fills out a form on the website, we would like to know which website or advertising campaign he followed from. And all this is automatically recorded, so as not to ask the client “How did you find out about us?”

About the last year: “Sales and number of employees growth”  

What one word or phrase can you use to describe 2021?

Growth and development.

What is the best news you have received in the past year?

Sales and number of employees growth. In 2020 and 2021 in Kyiv, we managed to sell our projects even more expensive than the average prices on the market of new buildings. This indicates the high attractiveness of our objects.

Throughout 2021, REC RIEL staff increased by 83 people: 53 in Kyiv and 30 in Lviv. Another 50 vacancies are open for 2022.

How do you think investors' values have changed in 2021?

Due to quarantine restrictions, there was a need to “stay at home around the clock”: study, work, have fun, and so on. REC RIEL responded to this, in particular, by designing new spaces inside the building. For example, our complexes have technological lounge areas for work or study, meeting rooms with appropriate infrastructure, play areas for adults and children of all ages and others.

How many objects did you put into operation in 2021?

In total, we put 7 objects into operation: the second stage of  Holoski Kruchi RC (Lviv), перша черга  Lvivska Ploshcha RC (Kyiv), the first start-up complex of the seventh stage Velyka Brytaniia RC (Lviv), all buildings of Monet RC (Lviv), the sixth and seventh stages of  Lvivskyi Kvartal RC (Kyiv), Topolis RC (Lviv).

How has the cost of a square metre in your RC changed over the past year?

We head out in market trends in general. In 2021 in Kyiv, the square metres in UAH in our objects grew in price as follows: comfort class – by 17%, business class – by 27%, premium class – by 18%. In USD: + 22, 32 and 28% respectively. In Lviv, the figures in UAH is as follows: + 14% in comfort class, + 20% in business class and + 14% in premium class. In USD they are: + 22% in comfort class, + 25% in business class and + 20% in premium class. As you can see, business class in Kyiv has risen in price the most, and comfort class – the least. In Lviv, the situation is somewhat different: here, the premium class has grown in price the least, while business class has steadily risen the most.

I predict that in 5 years the prices in Kyiv will be the same as in Warsaw – 4-5,000 euros per square metre. It cannot be otherwise, because we use the same materials, the same labour, the same gasoline and gas per square metre as they do in Warsaw. Demand is also the same.

On the developer's projects: “Revitalization of industrial areas is a trend of recent years”

What is the main difference between working in the construction market of Lviv and Kyiv?

50% of our Lviv buyers are labour migrants. This is an advantage, because our internal economic tremors, provoked, for example, by a surge in the exchange rate, a banking crisis, and the like, do not affect either their purchasing power or their investment intentions. Besides, we notice they are more scrupulous and punctual in making payments. Therefore, the Lviv market is more reliable than the Kyiv one. At the same time, Kyiv investors are much more attentive. As soon as there are changes in the relevant legislative field, or even in the conditions of control and supervision in the construction industry, Kyiv investors start sending letters asking for an explanation of the consequences. Lviv residential market is characterized by low and medium-rise buildings – five and nine floors. Such real estate constitute 90% in Lviv. Lviv residents just do not like to live on the 15th floor. For Kyiv market, for obvious reasons, real estate is being built on 16-25 floors.

Which project of the company are you especially proud of?

Mistechko Pidzamche RC. In 2019, REC RIEL together with partners AVR Development took first place in “Urban Planning” nomination at the All-Ukrainian competition of architecture and urban planning Ukrainian Urban Awards for the megaproject Mistechko Pidzamche — Novyi Fort RC. Mistechko Pidzamche is a large-scale RC located in Lviv, north of the High Castle. We present it as the “New Centre of the Old Town”. This RC is going to become a comfortable and well-thought-out centre not only for life, but also for recreation, leisure, and business. It consists of three residential complexes: “Brama”, “Vezha” and “Novyi Fort”, forming a single macro-complex. It has embodied an ultra-modern concept of architecture, designed the latest infrastructure, entertainment zones, cinemas, co-working spaces, sportsgrounds, relaxation areas, kindergartens and schools.

Each of the three residential complexes has its own peculiarity: on the territory of  Brama RC, for example, the city planned to build a cable car that will connect the “new heart of the city” with the Old Lviv. Here, in the area of ​​restored historic buildings, there is an art space for performances, concerts, exhibitions and more. There are also offices, coworking spaces, a hotel and apartments, restaurants and food courts, an underground car park with elevators, supermarkets and shops, a kindergarten and three playgrounds, a fitness studio and sports zones. There will be a car-free yard.

We call Novyi Fort RC  a centre of reliability and a symbol of security. This space will have a unique landscaping of the courtyard with historic buildings. Residents of ground floor apartments will have private patios. Duplex apartments with terraces are designed in this RC. There will also be terraces and recreation areas on the roofs – for meetings of the best Lviv dawns and atmospheric twilights. Except for the cafes, restaurants, recreation areas, offices, there will be its own kindergarten, five playgrounds and two sports grounds. Underground parking with elevators is planned.

Vezha RC is the infrastructure centre of Mistechko Pidzamche. A business centre with co-working spaces, meeting rooms, conference halls, and its own shopping centre is being built here. For recreation, we will equip recreational areas, green roofs, skate park and bike paths with bicycle parkings. There is a ground parking for cars. Two kindergartens, a school and a number of playgrounds are also being built there.

RIEL is actively involved in the revitalization of industrial zones. In Lviv, for example, this is a large-scale project – Mistechko Pidzamche. In Kyiv, there are Great RC and Bereh Dnipra in Pozniaky district. Can you tell us what is special about the implementation of such projects and what are the difficulties you face?

Let’s take Mistechko Pidzamche RC as an example. RIEL Real Estate Corporation began to “work with” Pidzamche in 2020 with the intention of creating a “new centre of the old city” on the site where life was slowly disappearing. The area was dominated by low-rise old buildings, the ruins of former production shops, the walls of modern local industries, spontaneous trade, vagabonds and heritage sites that had to certainly be preserved. And all this existed in the absence of roads: they were simply destroyed by time. Our main task – probably the most daring at the time – was not only revitalization of depressed Pidzamche, not only harmonious integration of the architectural heritage of the district in ultramodern technological design of Mistechko Pidzamche complex, but also the beginning of the project implementation in such conditions that even pulling up a concrete mixer was a real quest. We invest a lot of money to ensure that this infrastructure is of high quality and contemporary. We have planned to create a new centre for life, business and leisure here.

The city authorities has even planned a cable car to connect Pidzamche with Old Lviv. It will cost the investor, with whom we are currently negotiating, about ten million euros. Several years ago, the city has already invested about 170 million hryvnia for the reconstruction of Promyslova Street. And now, about the same amount of money is required for the restoration of Bohdan Khmelnytskyi Street. Millions of euros will be spent on the renovation of one of the main attractions of Pidzamche – the Jam Factory, the buildings of which were bought by an Austrian investor several years ago.

That is, such projects require more effort, attention, experience and more funds to be implemented. In each case, there are different nuances that depend on the territory and urban planning in different cities.

What makes such projects attractive to investors, as they are actually investing in housing, which will initially be located among the service stations, garages and warehouses? How do you try to attract potential buyers to compensate for the inconvenience?

For each individual project, these are different unique selling propositions (USPs) that attract investors. For example, in our Mistechko Pidzamche RC in fact, they will receive housing in a completely new area of the city, which will take into account all current trends. There will be all the necessary new and modern infrastructure – from co-working and lounges, electric vehicle charging stations, bicycles, to kindergartens and schools.

Our projects in Kyiv on the left bank are all scenic, i.e. the investor receives residential property on the first line of the Dnieper with gorgeous views because we chose an area with a developed infrastructure and transport interchange – new malls, supermarkets, convenient transport and new residential complexes – being built nearby. That is, such projects are really attractive for the investor. This is evidenced by the speed with which apartments are sold.

Why are developers would rather revitalize the industrial zone than renovate the old housing stock?

Revitalization of industrial areas is a recent years’ trend, and we are actively following it. It requires a lot of money and a more comprehensive approach to spatial planning, because it is necessary to fully build an area with all its infrastructure to make the lives of future residents as comfortable as possible. Industrial zones are often uninhabited, sometimes abandoned. Although the renovation of the old housing stock is even more difficult. After all, people live there, and in order to qualitatively renovate the old stock, it is necessary to relocate the residents somewhere, which is not easy.

On reforms and government programs: “The number of construction projects will increase significantly”

In March 2021, the government program “7% Affordable Mortgage” was launched. Did it affect the sale of your projects and if so, in which way?

At present, we can't say that this program has had a significant impact on sales. It is not yet very popular among buyers due to certain difficulties that anyone who plans to use it has to overcome.

However, I hope that next year the situation will change qualitatively: more banks will join, the legal framework will improve and processes will accelerate. We expect that lending will work better after the adoption of the draft law No. 5091 “On guaranteeing property rights to real estate to be built in the future” in the second reading. We call it a document that will guarantee the rights of investors. Due to the provisions of the draft law, the banking system should be “involved”: financial institutions will be more willing to lend on the security of registered property rights. Without an apartment as collateral, the borrower will be able to get a loan to purchase it on more interesting terms. A full-fledged mortgage market will be launched, in particular, in March 2021 the program “7% Affordable Mortgage” was launched. According to the Ministry of Finance of Ukraine, as of December 23, 1,274 loan agreements worth UAH 1.109 draft lawion were signed with authorized banks. At the same time, more than 1,789 applications for UAH 1.558 draft lawion were submitted, so the level of expectation of new credit conditions among potential real estate buyers is significant. The number of construction sites will soon increase dramatically.

In November 2021, in the second reading, the draft law No. 5600 was adopted, which changes the system of taxation of real estate sales by individuals. Thus, income received from the sale of the second property during the year is taxed at a rate of 5%, the third and subsequent – at a rate of 18%. How do you think this will affect the value of real estate in your new developments?

In the previous version of the document, which was adopted in the first reading on July 1, 2021, officials proposed to increase budget revenues, including through the introduction of 20% value added tax on the sale of real estate on the secondary market. Besides, it was planned to tax the total income of an individual from the sale of the third and each subsequent property at a rate of 18%. In our opinion, fully supported by other participants in the real estate market, this would lead to a sharp rise in price of square metres in both the primary and secondary markets. And the buyer would surely pay for these legislative initiatives.

While preparing the document for the second reading, MPs gave credence to us – real estate market participants – and financial experts and removed the VAT rule from the draft law. Besides, the conditions for taxing the sale of more than two premises per year have been relaxed and proposed in the first reading. After the amendments, the contributions of individuals to the budget during the sale of real estate should look like this:

• from the income from the first and only sale during the calendar year - 2%: 1% to the Pension Fund and 1% of the buyer’s and seller’s duty. This is if the property has been owned by the seller for more than 3 years. If less, then from the pocket of the seller in the budget go 5% personal income tax and 1.5% military tax;
• from the second sale income during the same year – 5% of personal income tax and 1.5% of military duty;
• from the third and each subsequent sale income – 18% tax and 1.5% military tax, but from the difference between the purchase price and the sale price.

In September 2021, the Verkhovna Rada adopted the draft law No. 5091 as a basis. With the new concepts of “special property law” and “guarantee share of construction”, it strengthens the rights of the buyer in the field of construction investment, without stipulating any specific mechanisms. What is your opinion on this draft law, what are the pros and cons of it?

The provisions of this document after its entry into force will affect the activities of all construction companies and their relations with real estate investors. The main and most important: “at the inlet of” the construction process of the object control of permits is strengthened. The draft law provides for a rule that requires the developer to enter data about the object – for each of its rooms particularly – in the State Register of property rights to future real estate. Without such registration, the object can not be sold or even advertised. You will need a complete package of permits to enter this information. Thus, legislators expect to prevent the emergence of at least two precedents: on the part of the buyer – the purchase of premises in illegal buildings, on the part of the developer – the chaotic sale of ancillary premises or redevelopment of large apartments in a number of small ones.

No less important issue is “presale contracts” are removed from the legislative field. So, the state will try to restrain the exempt of funds from taxation. Instead, investors will enter into real estate sale contracts, notarized (+ 1% of the amount paid). All information about residential complexes, sales statistics, and value of real estate will be digitized and published online.

As a result, as I said, we expect the banking system to “be involved” and launch a full-fledged mortgage market, including the “7%Affordable Mortgage”  program.

About 2022 plans: “It will be a series of large-scale, ambitious business-class facilities” 

Briefly describe the prospects that, in your opinion, await the primary real estate market in 2022.

In the first half of 2021 alone, primary real estate in Ukraine grew in price by more than 20% in USD and more than 17% in UAH. This trend is expected to preserve in the future. We predict a stable trend, as in the current year, to increase in demand, and with it – to increase construction and increase the cost of square metres. According to our estimates, the demand for real estate will be significantly fueled by cheaper mortgages to 7-10% due to government efforts, as well as the adoption of the draft law No. 5091 on guarantees of investors' rights. Besides, rising real estate prices will be provoked by price fluctuations in the gas market (and the gas component in the cost of price structure of the object reaches about 42%), building materials rising cost in Ukraine and the world, natural population growth, rising living costs and more. Therefore, we expect our market to increase by 2-4 times.

If we are talking about changes in the state architectural and construction control and supervision, the pace of construction, in my opinion, will not be affected. It will be recalled that from September 15, 2021, instead of the State Architectural and Construction Inspectorate (SACI), the function of state control and supervision in the field of construction will be performed by the new organization State Inspectorate for Architecture and Urban Planning (SIAUP). Developers are accustomed to work productively under any conditions.

What new projects do you plan to launch in 2022?

It will be a series of large-scale, ambitious business-class objects with the most modern “stuffing” in the best, most developed infrastructural locations of the cities of our presence. Three in Kyiv and in Lviv. I am sure these complexes will be very popular. In general, in the coming year, we intend to be actively implemented in the segment of business class.

In September, three houses of Great RC that RIEL is building in Kyiv together with IB Alliance, have received certificates of delivery. When will investors be able to start repairs?

After the heating season, approximately in March-April 2022.

What is your main objective for next year?

To qualitatively meet the needs and expectations of the investors. To grow quantitatively and qualitatively. To get a foothold in the business class segment.