CEO of Edelburg Development Serhii Kucher told about the areas in which Ukrainians are investing
The founder and CEO of the development company Edelburg Development, Serhii Kucher, told UNIAN what developers will construct in the nearest future, what companies should be trusted and whether there are prospects for attracting foreign investment to the Ukrainian real estate market.
- It is likely that one of the topics currently under discussion in the business environment is the global economic crisis to come in 2020. In your estimate, what will be the impact on the Ukrainian economy as a whole and the housing market in particular?
- Abroad, we talk so much about the 2020 crisis, that even if it does not happen, everyone will say it has. I do not see any prerequisites for the crisis - either at the global level or in Ukraine. In Austria, for example, the economy grows every year by 3 to 5%, in Germany by 7%. As for the Ukrainian real estate market, yes, our purchasing power is decreasing. But the following factors must be taken into account: firstly, the Ukrainian population is wary of banks, the banking system of our country has already "crashed" several times. If Ukrainians do not invest money in banks, they are afraid to keep them under their pillows, where do they take their money? Traditionally, they invest in real estate. Secondly, it is in our mentality to buy dwelling for ourselves and children, the western approach of living constantly in rented apartments is not rooted in the country.
- Many experts have stated about the primary real estate market being oversaturated.
- We have been reading and hearing about the oversaturation of the market for many years. However, there are more and more new facilities. If business keeps on investing in the residential sector, it means there are buyers, transactions are made.
- Developers have obtained not the best image of greedy “bad guys” with exorbitant profits. In your estimate, what is the current profitability of a development company?
- In the economy and comfort class segments, the developer "turnovers" money through the rapid sale of apartments, highlights Kucher. About twenty percent per annum, provided that the company's portfolio includes facilities of different classes: economy, comfort, business. I think some large companies operating with a minimum margin have a return of no more than fifteen percent per annum. Now, the gains in economy class facilities do not exceed 50 to 100 dollars per square meter. I build not only in Ukraine, but also in Germany and Austria. The profitability of Ukrainian companies is now closer to European indicators where it equals to 10-15% per annum on invested capital. But in Germany and Austria, I devote 2-3 days a month to business, and in Ukraine - 12 hours a day. To return to the topic of profitability and financing of the construction: in Vienna, banks provide 80% loans for residential facilities, 20% is the proprietary funds of companies. Moreover, the interest rate according to the norms of Ukrainian companies is ridiculous - only 2 to 3%, and the return on invested capital, more or less, is equal to the same rate of return in Ukraine. The duration of project implementation is at least 2-3 years, the competition is strong, today there cannot be a margin seen previously – 40-50%. Thus, claims that developers receive super-profits are groundless, this is only a common legend. At the same time, if in the economy, comfort class segments the developer “turnovers” money through the rapid sale of apartments, the situation is different in the business class segment, where the apartments are sold more slowly. Therefore, developers working with residential developments of this class have to be provided with a so-called financial leverage for the project, i.e. before the project starts, a certain amount of proprietary funds should be included in the business plan. And every year, the financial leverage of a business-class project increases - if previously someone included a 20-30% leverage in a business plan, two years ago we already realized: you need at least 60% of proprietary funds of the project cost. And not all Ukrainian developers can offer such an approach today, companies are used to building with the investors’ money. Now that sales have declined, projects without their proprietary money are in danger - the days when business class apartments were queued are definitely over.
- What do you think has caused a decline in sales on the primary real estate market?
- I think there are a number of reasons: it is associated with UAH/USD exchange rate fluctuations, seasonality and political situation. Although with the election of the new president and the new composition of the Verkhovna Rada, the expectations of society remain optimistic. And the decline in transactions and construction, mainly with the investors' money, is likely to lead to new delayed / unfinished projects ... Of course, delayed and unfinished buildings will appear. But we already had a tendency when one came into the development business with two hundred thousand dollars, put up a fence and started selling at the excavation stage. But today, the buyer more and more prefers to give money to the developer for the apartment at the final stage of construction. As a result, I suppose, developers who do not have significant financial leverage, a possibility to complete projects with their own money - will disappear. As a result, I think there will remain two types of development companies on the market: a strong brand and an excellent reputation, as well as those that have the opportunity to implement projects with their own money and thus reduce the risk of unfinished developments. But unfinished and delayed constructions will eventually be completed. Depending on economic benefits, there will show up some companies that will be able to negotiate with existing investors and complete the project.