Who Need The Land? No One? Sorry....

The owners of large suburban plots began to massively ask them for sale. Land near Kiev in a rapidly losing value very quick. Owners of large pieces of commercial land are ready to concede the real buyers third of the price. Land already is not a tool for speculations.

Prices at suburban for the first time in the past seven years have stopped to grow, and in some cases even started to fall. According to Knight Frank, prices of large commercial land plots in 1H2008 decreased on average of 8%, and some of them even 25-30% down. At this spring large areas (several hectares) with access to the route on 10-15 kilometres zone from Kiev offered for USD 700-900 sqm. now owners have already agreed to sell them not more than 300-500 per 1 sqm.

The main reason – no buyers at all. No crazy income, no glammy speculations. Land owners put own assets up for sale. Huge land lots put up for sale from developers, who need funds for projects in progress. Land, which offers now has a speculative pricing, and we all know that. That’s why it is hot offers but no one need them. Therefore, in order to find a real buyer, you must put the price down significantly.

But owners in Obukhov district can sleep well: our tycoons still want to live there. Take a breath.

Ruslan Oleksenko - Commercial Real Estate Investment Prospects

Ruslan Oleksenko - Managing Partners, DEOL Partners

1. Is it the truth that commercial real estate is much more attractive for investment objectives rather than residential real estate?

It is difficult to compare the attractiveness of commercial real estate and residential real estate as these two real estate segments have different peculiarities of investment and ROI. So residential real estate development provides formation of investors' assets on the prime stage of building. That is why residential real estate projects are characterised with shorter period of payback (payout) and have higher rate of internal profitability. At the same time commercial real estate has more attractive future in long-term period of investment. Nowadays the situation that commercial real estate is more attractive for western investors is determined by these factors while the Ukrainian developers are still the main players at the residential real estate market.

2. Is it true that the opportunities for high returns have reduced?

It is quite an interesting question, but I would like to interpret it differently. There is a good English proverb: «No free lunches». The level of profitability of investment nearly always has the straight proportion to the level of risk which an investor is ready to take. With the other equal conditions, as less the risks of an investment, as less the profitability the investor could count on. Ukraine offers reasonable balance between the level of risks linked with the investment and the level of expected profitability or capitalization rate. This is the reason of the foreign investors' interest to the Ukrainian market of real estate. Thus the rates of capitalization for all kinds of commercial real estate in Ukraine at the end of the second part of 2006 were twice higher than the average European index: for office and trade real estate at the level 11-12% compared with 5-6 % in European countries. For warehouse estate - 12-15 % compared with 7-8 % in European countries. Development and saturation of the market rings appropriate capitalization rates reduce: for the present moment they are 8-10 % and in the nearest future they will decrease till 7-8 %. At the same time investment interest to the Ukrainian market of real estate from the side of the most successful businessmen and structures will gradually reduce.

3. Which kind of commercial real estate is easier to purchase?

The question is not about what kind of estate is easier to buy but what kind of real estate can bring the expected profitability to the investor. According to our forecasts during the short-term period land speculations will stay one of the most profitable businesses on the real estate market. The internal rate of profitability within the purchase and sale of land will vary from 40 % to 90 %. DEOL Partners recommend to clients that 60 % of all their investors profiles to be land deals. At the same time with the long term period (2010-2013) investors will be forced to redirect do the projects of strategic development because in some period land speculation will lose their investment attractiveness. In 3-4 years the interest of land operations will not exceed 10% in portfolio of investors while the part of projects of strategic development will increase from 30 % to 80 %. Moreover the increasing competition on the market will be conducive to develop projects in spare niches. As the examples of niche positioning on the market of office real estate can be Business Parks, Research and development complexes; Regional Shopping Malls - in trade segment; Flex Spaces, Self Storage is some kinds of warehouse and logistic real estate) - in the industrial segment; Master Planned Communities (some kind of cottage towns) - at the residential real estate market; Corporate Houses (service apartments) and Extended Stay Hotels (long-tern living hotels) - at the hotel market.

4. What amount of money should an investor need to purchase commercial real estate in the capital city?

Major investors, such as investment funds and companies are interested in projects which are valued from 30 to 100 m. US dollars. Moreover purchasing of land for building of large office, trade or warehouse premise should constitute 10-15% of its value. An essential sum of investment depends on lots of factors including of course size and lay-out of real estate project. However in commercial real estate the concept «price for 1 sq.m» is rare for project value definition in general. The main factor for definition of real estate value is net profit which characterize the ability of the object to generate cash flow. So, the average lease rate for Shopping Malls with total area of 10 000 sq.m can be 120$ for 1 sq.m, while larger units of real estate - 15-20$ for 1 sq.m. 5. Is it cheaper to purchase commercial real estate in the regions? Nowadays Kyiv, like other large capitals all over the world is like a magnet for foreign investors in spite of lower prices for commercial real estate in regions. The fact is that building costs in the regions will be the same as in Kyiv. It will be cheaper for investors to buy the ground area only. However, in the capital it is possible to lease the object of commercial real estate in a shorter period and at a higher price after finishing building. In addition while purchasing of functioning object of real estate in Kiev its rate of capitalisation is 8-10% but in the regions is from 14 to 17%. As a result of selling of commercial real estate object the developer can lose from 40 to 70 % of profit in regions in comparison with Kyiv.

6. Are there any hazards while purchasing commercial real estate?

How long is the process itself? Of course, there are a lot of questions while purchasing commercial real estate. First of all they are regarded to financial, commercial and legal audit. All these spheres need much attention, competence and professionalism as well as flexibility from the investor, customer and transit manager. So, real estate deals are connected with lots of risks. Some of them can be acceptable, some not. If nevertheless risks are unacceptable, chances for concluding a bargain are minimal. Inability to make a concession can cancel all the efforts of partners to conclude the deal. The process of structurization of a deal with amounts from $50 m. can take 3-5 months.

7. Foreign investors who enter the Ukrainian market maintain that lease rates are exorbitant in our country. Does the quality of office and trade real estate objects correspond to present prices?

Are there any differences between other European countries? In fact, in comparison with other Eastern Europe markets the leases rates in Ukraine are a bit overpriced. However simple economy laws allow this phenomenon to be proved. High tempos of lease rate increase mean the initial phase of development of real estate market and that there are no critical mass of areas on the Ukrainian market which could satisfy the requirements of all potential clients. Also when demand exceeds supply it goes to that the market is in the hands of owners of real estate who, in their turn, do not feel the necessity to make extra investments for improving their own commercial real estate. The process of saturation of the market and a large quantity of offers will stimulate developers to plan and build more qualitative premises and lease them at lower lease rates.

8. How much does the management of commercial real estate in Ukrainian conditions differ from the western «rules of the game»?

Both quality of the real estate objects and professionalism of the Ukrainian companies, which deal with the management of the commercial estate, characterize this level of the market development. It is not a secret that a lot of owners face with the lack of high-quality proposals when choosing the managing company to which they are ready to hand over all the volume of responsibility for the effective usage of their real estate. That's why we can state that future of the Property Management products presupposes the essential increase of professionalism.

9. How can the level of competition among real estate companies be determined?

To my mind, now it is too early to speak about the competition among the current real estate companies. Developing, a rapidly-moving market is able to ensure every player with a great deal of work. That's why I think that vice verse at the moment one can feel the lack of professional companies which can manage with the professional services demand in Ukraine. Competition exists only on the coordination level with the most prestigious real estate objects.

10. What factors does the profit of the managing company depend on?

Surely, the profit of the managing company depends on the volume of the accomplished work. Experience and professionalism allow the managing company to set the higher price for their services in comparison with the less professional players. Nevertheless, a more expensive solution is not always a loss for an owner of real estate according to the proverb which says that the cheapest things are not always best. That's why from the professional point of view it is more prospective to pay a high price but to get an expected and best result.

Kyiv Ex-Mayor Omelchenko - Kyiv City Council Decisions On Allocation Of Plots Without Auctions Illegitimate

From Ukrainian News

Former Kyiv city mayor and Verkhovna Rada deputy of the Our Ukraine People's Self-Defense Bloc faction Oleksandr Omelchenko considers that decisions of Kyiv city council on allocation of land plots for construction without holding of auctions are illegitimate.

Omelchenko disclosed this in an interview to the Contracts magazine.

He reminded that when he was the mayor, in September 2005, he signed the order on auctioning-off plots to later refuse from allocation of land by the city council.

It was planned that allocation of land without holding auctions would be undertaken only in the case potential investors had managed to submit bids before September 1, 2005.

However, Omelchenko said that current Kyiv city mayor Leonid Chernovetskyi did not cancel the decision of his predecessor and resumed old scheme of land allocation.

«In fact, all recent decisions of Kyiv city council are illegitimate, as my order on holding of land auctions is still in force,» Omelchenko said.

Besides, he is sure that to terminate unlawful land sales by Kyiv city council it is necessary to have political stability.

As Ukrainian News earlier reported, in September 2006, Kyiv city council amended temporary order of plot purchase via competition, excluding the item foreseen allocation of lands only to those investors, who had submitted their bids before September 2005 and bids, which had not been considered by the city council before 1, 2006.

I guess this post is slightly wrong spelled, but that's just a source copy. Hope you will clear with it.

Morarorium Comes Back

Lytvyn group in parliament is initiating prolongation the moratorium on sale of agricultural land until 2010.

The relevant draft law, which Parliamentary Deputy Kateryna Vaschuk of the Lytvyn Bloc prepared, has already been registered in the parliament. Lytvyn Bloc favored a land inventory with the aim of determining who actually own the land and the legal basis on which it is owned.

Early, parliamentary deputies Petro Symonenko, Oleksandr Tkachenko, and Volodymyr Matveev from Communist Party recently proposed that the parliament extend the moratorium on sale of agricultural land from 2008 until 2011.

President Viktor Yuschenko is confident that the moratorium is the cause of corruption on the land market.

New Land Rent Rate Proposals For Kiev City

The Kiev Department for land resources has urged Kiev City council to approve standard land rent rate from 0.3% up to 10% valuation of the land.

The rent for land under residential buildings is proposed to be the lowest - 0.3%, while the highest rent rate will be for land utilizing by alcoholic beverage companies, metal companies, retailers sellers, open markets for non-food and automotive goods.

Financial institutions and gambling will pay 10% rent, too.

The rent is set at 3% for meat and diary manufacturing companies, as well as ice-cream, sugar, canned vegetables and fruit.

The rent is set at 5% for hotels, bars and cafes, 6% for restaurants and tourist agencies, 9% for mobile and Internet service providers , 8% for advertising companies, 1.5% for state medical and educational services.

The Department asked The City council to cancel its resolution of December 2000 setting land rent from 0.03% to 6% of standard valuation.

Commercial Announcement

Land plot for sale

Location: Odessa city
Size: 13 ha
Zoning: Retail and social development
Title: Private property
Price: USD 110/1 sqm

write: kalinin.sergey@gmail.com

Kiev Region - Current Land Prices, October 1

- Kiev-Svyatoshin district - $90.19/1 sqm;

- Obukhov district - $73.31/1 sqm;

- Borispil district - $57.30/1 sqm;

- Vyshgorod district - $54.73/1 sqm;

- Brovary district - $45.88/1 sqm;

- Vasilkiv district - $42.98/1 sqm;

- Makarov district - $22.51/1 sqm;

- Borodyanka district - $23.62/1 sqm.

- Fastov district - $10.97/1 sqm.

Valid for single-family construction, master planned communities.

Using source: SV Development

One Line News - September 29

• The average price for hotel room in Ukraine - USD 300 - Yulia Stefanishina, Ernst &Young
• Cost of land lease in Kiev will be tripled up to UAH 382 for 1 sqm - Kievgorstroy ex-chairman
• Meinl European Land is gong to invest USD 1.2 bln in Ukraine until 2016
• Construction works volume has increased up to 14.5%n in this year
• Lviv authorities will sell 10 land plots for hotel development in 2008
• New retail chain "Miriada" starts from Dnepropetrovsk with first K11 sqm office-retail project at November 1

Kiev Region - Current Land Prices, August 1

- Kiev-Svyatoshin district - 4%↓ - $87.44/1 sqm;

- Obukhov district - 11%↓ - $71.23/1 sqm;

- Borispil district - 6%↓ - $52.47/1 sqm;

- Vyshgorod district - 5%↓ - $51.01/1 sqm;

- Brovary district - 2%↑ - $43.99/1 sqm;

- Vasilkiv district - 0.1↑ - $41.11/1 sqm;

- Makarov district - ↑↓ - $22.18/1 sqm;

- Borodyanka district - 4%↓ - $23.55/1 sqm.

Using source: SV Development

Thinks Investment from DEOL Partners

From Business Ukraine #15

News From Lviv Regarding Euro-2012

From Ukrainian News

The City council of Lviv plans to allocate 30 land plots for construction of hotels during preparations for the Euro-2012 that will take place in Ukraine and Poland, said Head of the natural resources and land tenure department Mykhailo Bokalo.

According to Lviv’s Chief Architect Yurii Kryvoruchko, it is necessary to build eight 4-5-star hotels able to of accommodate a total of 800 people and several 3-star hotels capable of accommodating a total of 1,000 in Lviv before 2012.

Kryvoruchko believes that what Lviv needs most of all is 1-2-star hotels to accommodate about 40,000 people. He believes that student hotels can temporarily be converted into hotels.

Lviv region’s Governor Petro Oliinyk has set up an organizing committee on preparation for hosting the 2012 European soccer championship.

Kyiv Administration Asks Court To Terminate Land Lease Agreements With 6 Companies

From Ukrainian News

The Kyiv City Administration has turned to court for a termination of lease agreements with six companies who took land on lease for construction purposes.

Anatolii Mukhovikov, who heads Kyiv's main land relations department, disclosed this to Ukrainian News.

The companies and the land plots are Interproekt, 10 Berezniakivska Street and 21 and 91 Tychyny Street, purpose - construction of high-rise houses with office space; Aviakov, 3B Tupoleva Street and 60 Palladina Avenue, purpose - construction of gasoline filling stations; NVP Budivnytstvo, at the corner of Lukianivska and Hlybochytska streets, purpose - construction of a residential complex.

The others are Business Support Center, 5 Nemyrovycha-Danchenka Street, purpose - construction of a residential house; Olimpbud, 12H Koroliova Avenue, purpose - construction of a residential house; Polius Plius, 12A Nahorna Street, purpose - construction of a residential house.

The city council had earlier nullified its decisions on allotment of land plots to these companies due to protests of local residents, Mukhovikov explained.

"There is [in the city council decisions on cancellation of allotment] an instruction to turn to court for a termination of agreements. The court claims have been elaborated, signed by the mayor and lodged," he stressed.

Mukhovikov added here that litigation may take long time, but the city administration is ready to go through all instances even up to the Supreme Court in order to terminate these agreements.

As Ukrainian News earlier reported, the Kyiv city council has nullified many of its decisions on land allotment for construction purposes because of public protests.

Ukrainian Land FOR SALE: Yes & No - Terry Pickard

I continue to post most interesting and useful presentation from Time To Invest Kiev IV. Now the material from Terry Pickard (NAI Pickard) - Ukrainian land FOR SALE : Yes & No

Kiev Region - Current Land Prices, May 27

- Kiev-Svyatoshin district - ↓2,63% (i.e. $2.36) to $87.19/1 sqm;

- Obukhov district - ↑1,33% (i.e. $1.08) to $82.28/1 sqm;

- Borispil district - ↓ 4,03% (i.e. $2.36) to $56.09/1 sqm;

- Vyshgorod district - ↑4,31% (i.e. $2.44) to $58.96/1 sqm;

- Brovary district - ↓8,31% (i.e. $3.94) to $43.43/1 sqm;

- Vasilkiv district - ↓0,22% (i.e. $0.08) to $37.72/1 sqm;

- Makarov district - ↓0,41% (i.e. $0.09) to $22.20/1 sqm;

- Borodyanka district - ↑6,71% (i.e. $1.39) to $22.10/1 sqm.

Using source: SV Development

Lviv Offer New Land For Euro-2012

Perhaps you know that Lviv is one of the host city for Euro-2012. Taking into this fact, local authorities bring "on the table" 30(!) land plots for development new facilities for this event. And , of course, these should be quite attractive ones. Regarding 8 of them, there is approved decision, including one (26 ha) for new local stadium and another one (17 ha) for the exhibition center nearby new sport complex.

So if you are going to participate, you should hurry up.

Land Resourse Agency On The Road

The State Land Resources Agency intends to compete land inventory by 2008, said First deputy chairman of the state agency Yurii Alekseenko. "We plan to settle the issue in at least half a year and a year maximum," he said.

Head of the state agency Ihor Yatsuk considers it the agency's priority to simplify allocation of land plots.

In late March, the Cabinet of Ministers appointed Yatsuk as the head of the State Land Resources Agency. With its decree of January 31, the Cabinet of Ministers reorganized State committee of land resources in State agency of land resources.

At the beginning of March, the chairman of commission for reorganization of State committee for land resources, first deputy chairman of state committee for land resources Mykola Kaliuzhnyi forecast end of reorganization of the committee and the beginning of work of State agency of land resources on April 12-13.

Yushchenko Believes In Land Moratorium' Cancelling Within This Year

The process of land privatization in Ukraine will be completed within seven or eight months, President Viktor Yushchenko said.
"Within the next seven or eight months, land privatization in Ukraine, which started in 2000, will be completed through farmers' acts," Yushchenko said at a meeting with foreign investors and diplomats in Kiev .
Ukrainian legislation now faces the task of creating a register and various mortgage mechanisms. " I am sure that parliamentary debates on the main issue - canceling the moratorium on land sale - will be successfully completed in the third and fourth quarters 2007," the president said. The position on this moratorium issue is simple, he said: "as we agreed with key political forces, the land market in Ukraine must start to fully operate as of January 2008."
"Ukrainian landowners must be allowed to use their title to the land," the president said.

Mirax Plans Coming To The Regions

The Mirax Group considers a construction projects in Ukrainian regions, said Vladimir Adikaev, Mirax Group Executive Director .

"We have come to Ukraine and are studying the situation. If there are some interesting proposals from the regions, we will come with pleasure to study. The political situation doesn't concern us," he said.

He mentioned, that Odessa is the most interesting region for the company and the political situation would not change the plans of the company.

Mirax Group, he said, is looking for new land lots for construction. "Company has interested in large land lots, since the company constructs large facilities".

Mirax Group Vice President Andrey Khariv said the selection of land in Kyiv more depends on the location and the project rather than on a form of purchasing a project (auction, secondary market, etc).

"The way of purchase is not very important. The project itself is important. Availability of approvals of projects and some features [are also important], such as height of buildings, since we build sky-scrapes," Khariv said.

According to Adikaev, the development of Kiev is slightly stopped by the flaws of the general plan of the city, as the development of districts continues regardless of the general plan, which is corrected by construction projects.

Land Around Kiev: Great Supply, Moderate Demand, High Price

Land market in Kiev suburbia has no volatility. Since 5 years, prices has stopped first time. And there is significant excess of supply. What does it mean? Perhaps, the enormous price growth with past few years. Look at this, pricing boom for last 4 month: Obukhov district + 95%, Kiev-Svyatoshin district +60%, Vyshgorod district +110, Brovary district +105%! In fact, prices must stop sometime, and here its is, I guess so.

Many experts say that prices exceed 100 USD/sqm are too high to grow more (Obukhov direction is absolutely different case, taking part of huge love of Ukrainian elite for that land).

But if in some time ago many people consider land plot and following single-house construction as an alternative way to solve their housing problem, now it is changed. Scary utilities, lack of retail, shopping and services, no entertainment, constantly rising land prices, and stability in apartment pricing lead people to think twice concerning moving to suburb.

I see some way to improve that situation: low-cost mortgage financing for single-family residential construction, improving and increasing numbers of infrastructure objects, roads construction. Last visible reason is new price growth in the Kiev’ multifamily residential could push land market to grow again.

New State Agency for land regulation

Cabinet of Ministers signed a regulation on the State Agency of Land Resources.

According to the regulation, the agency ensures implementation of the state policy and management in the regulation land relations, usage, security and monitoring lands, keeping land cadastre. They're involved in demarking regions, districts, cities, districts in city, villages and settlements as well.

The Agency must provide the documents and submit them for adoption to the Environmental Ministry. The Agency has own local branches in all regional cities.