The transition to a regime of managed exchange rate flexibility has not yet affected housing prices in the primary market, but it may change the behavior of potential buyers, and the rise in the dollar in the future may affect construction costs, according to Ukrainian developers interviewed by Interfax-Ukraine.
“We do not expect any sharp price fluctuations in the primary market. Pegging to the current US dollar exchange rate is a standard practice among developers. That is, in case of a significant depreciation of the hryvnia against the dollar, prices for square meters in the national currency equivalent will indeed increase. However, we do not see any reasons for this at the moment,” Anna Laevska, Commercial Director of Intergal-Bud, told the agency.
According to her, in the short term, the cost per square meter will be mainly influenced by the dynamics of real demand and the cost of construction.
At the same time, the rise in the dollar may lead to higher prices for contractors’ services and construction materials, said Dmytro Novikov, marketing director of City One Development.
“At present, we do not see any prerequisites for a rapid rise in prices in the primary real estate market. Even if the dollar rises in value, there will be no significant changes in the primary market in the near future. But it may have an impact in the future: if the cost of construction materials, which are directly tied to the currency, rises, the cost of construction will certainly increase,” he said.
Daria Bedia, Marketing Director of DIM Group, expressed a similar opinion.
“The pricing policy in the primary market is always closely linked to exchange rate fluctuations, as a large percentage of contractor services and the cost of construction materials, for example, are tied to the US currency. If the exchange rate rises significantly, it will create an additional burden on the cost of construction, which will push the price up,” the expert said.
At the same time, the rhetoric about the “rise in prices” against the background of a flexible exchange rate is nothing more than a marketing ploy and an attempt to persuade buyers to buy, she noted.
“There will be no rapid growth in this case, taking into account the constraining factors,” Bedia believes.
In case of a dollar appreciation, developers will be able to slow down the growth of costs only with the help of previously purchased stock of building materials, said Irina Mikhaleva, marketing director of Alliance Novobud.
“We can say for sure that with the further growth of the dollar, the cost of primary materials will also increase, primarily in hryvnia equivalent. The cost of construction will also increase, as manufacturers and suppliers of services and building materials will raise prices. The only way to slow down the growth of costs may be the stocks of building materials that were purchased earlier and are now at the disposal of builders,” she said.
Ms. Mikhaleva noted that the market reaction can be predicted only if the dollar gradually rises, without sharp jumps.
For their part, KAN Development believes that even a sharp fluctuation in the exchange rate will have a minor impact on the housing market.
“Even a sharp fluctuation in the exchange rate, if it affects the cost of real estate, will not significantly affect the housing market. If the hryvnia drops by 10%, it will strengthen later. Government mortgage programs will not be suspended and will continue to be issued in hryvnia. As for new housing, developers will continue to adjust to the market price in dollars. So far, we do not see any factors that could sharply collapse the hryvnia,” the developer commented.
According to the Kovalska Group’s press office, the transition to exchange rate flexibility may have an indirect impact on demand and may slow down the pace of recovery in the real estate market amid a general decline in purchasing power.
“For example, buyers who have savings in another currency and are ready to buy today may postpone their purchase decisions until the exchange rate is “better”, and buyers who are considering purchasing under government and partner programs such as eOselya, preferential mortgages, etc. may go to the secondary market in search of cheaper housing due to “uncertainty”,” the developer noted.
Susanna Karakhanyan, Head of Sales at Greenville Group, also spoke about the likelihood of changing the behavior of potential buyers.
“For those who are now thinking about buying a home, a window of opportunity is opening to invest before the exchange rate gains speed and starts to grow after the commercial one. This situation is likely to accelerate investors who are ready to pay the full price immediately,” the expert told the agency.
In addition, the situation has become unpredictable for those who planned to take out a long installment plan to buy a home.
“While the NBU exchange rate was unchanged for more than a year, investors could clearly calculate their payments. Now the situation will be unpredictable. Therefore, developers will try to take control of the situation: for example, to fix the exchange rate for a certain period in order not to lose a buyer and demonstrate loyalty,” Karakhanyan said.
As reported, on October 3, the National Bank of Ukraine switched to a regime of managed exchange rate flexibility.
