Ukrainian market of residential real estate continues to develop passing definite stages of its evolution. The new market tendency, which has been forming several years ago, is development of suburban real estate, mainly represented by cottage estate.
The principal formats of organized country real estate if not take into consideration the apartment suburban building, which is mostly developing around Kiev, are cottages and town-houses which are accepted to call cottage building.
The beginning of cottage real estate extension was rather chaotic. Only several years ago the supply of organized cottage settlements was scanty. There were only single examples of implemented cottage towns’ projects with rather small squares and number of housing estate, which were mainly situated near the millionaire cities e.g. the “Golden Gates” near Kiev. In other respects, country real estate was mainly represented by disorganized settlements including “dachas”/summer cottages which were built in Soviet times. At this stage of development exactly due to such buildings and self house construction the desire of purchasers’ was satisfied in this way.
Often the first cottage towns were not well planned and generally could be built without elaborated concept. As in the other real estate market fields the majority of cottage towns were based (and often based now too) not on the successfully chosen idea or segment but on the primarily purchased (allotted) land plot, for which in future developer (investor) is looking for adequate ideas for realization. However today against the background of competition increase in this market developers and investors ever more thoroughly approach to concept elaboration and direct implementation of cottage towns projects. Otherwise, their projects might be unprofitable and uncompetitive. Especially it concerns metropolitan market where competition is the highest.
Market development of organized cottage building was encouraged by the demand of wealthy citizens following the world trend – to live in the suburbs and work in the megalopolis, longed for acquiring housing estate and land in the suburbs. In developed countries long time ago life in the suburb became ordinary for middle class, which evidently is expected in Ukraine. The impetuous price growth for apartments in big cities urges the demand for cottages.
Despite rather short development history of cottage real estate we can observe definite changes concerning demand characteristics on this market. Now the biggest demand is not for big objects but for the cottages of 200-250 sq. m. Desirable area of outdoors plots also has endured changes in the downward. Now the most desirable square of the land plot is approximately 10 sq.m. Main characteristics which influence the choice of buying the cottages in suburban settlements, except pointed above, are the location (remoteness from the city and highways), price, building quality, reputation of developer, availability and quality of engineering and social infrastructure.
Although in many Ukrainian regions the market of cottage estate is at its infant stage, the high dynamics of its development is typical for most regions. In Kiev, Dnepropetrovsk, Kharkov cottage towns as a rule are developed by local residents and resort, tourist regions, such as the Crimea, Odessa and the Carpathians are attractive for Ukrainians visitors and foreigners. Generally the demand in all regional centers practically is the same. According to various estimations from 40 to 60% of Ukrainian buyers of apartments would prefer to buy a house in the suburb instead of flat on conditions of convenient road interchange and the availability of the required comfort.
The rapid prices growth for cottage real estate over the past few years, growing consumer demand, more simple solution of land concordance questions in the suburb catalyzed developers and investors to enter the market and to form appropriate supply. Primordially, unprofessional investors and developers dominated cottage real estate market, such as those who managed to get in ownership or lease attractive land plots for development. Only now we can observe the process of gradual professionalization of market players.
Initially, serious supply and demand disproportion was observed (and in many regional markets is still present) in cottage real estate market development. The desire to live in the suburb is forming considerable potential demand for suburban residential estate, but high prices are “cutting off” significant number of potential buyers. According to experts’ estimation the construction cost of self built house on the average is $ 500 sq. m for the brick house and $ 450 sq. m – for the wooden. Meanwhile, significant demand formed in economy class suburban settlements with small houses (up to 200 meters) and small plots. However, the supply on the market on the contrary, not so long ago, mainly was formed by йlite segment of real estate. Thus the situation of different supply and demand correlation in various market segments was shaped. In economy segment (primarily, if to proceed from the value of housing estate) demand significantly exceeds supply. Not so long ago developers finally paid their attention to that fact and began to offer relevant townships. Supply over demand prevail in elite segment is not least to influence lowering property sales rate against developers expectations in such towns. It makes them go into new market segments where there is another supply and demand ratio.
It should be noted that at the domestic market there is no universally accepted system of cottage real estate classification. Not so long ago the Ukrainian Real Estate Experts Association developed the classifier of cottage towns, which suggested to allocate such cottage classes as De-luxe, premium, business, economy, + economy. Within this classifier the class belonging of cottage town is determined by the 6 main (e.g. location, sq. of houses and plots, etc.) and several additional criteria. However, developers often within marketing strategy position their townships in the inappropriate segments. Primarily the reason is “blind working” without consulting companies and correspondingly without marketing researches. If developers organize in their structure the marketing department or consulting company, it resulted that studies are made just “we wrote exactly what you wanted to read “… as marketing specialist in such situations adapt to the views of those who pays them salaries.
Turning to the market price indicators, it should be noted that the main factors determining cottage price are location of the township (concerning the city and roads), materials used in construction, availability of natural and recreational resources (forest, river, sea, etc.) availability and characteristics of social and engineering infrastructure.
It is also worth to stop briefly on peculiarities of efficient cottage building markets in separate regions of Ukraine.
The highest dynamic of cottage estate development is observed in Kiev region as well as numbers of markets in southern Ukraine, particularly the market of Odessa region.
The development of capital area has been started and exists today within about 30 km from the Kiev boundary. Currently the most built-up place is Koncha-Zaspa region (Obuhovskoe direction), where the building of cottages for officials was in progress long time ago and especially increased in 90-s of the last century and present one. Today in Kiev region, for various estimations there are more than 100 cottage settlements at the different stages of implementation. Particularly about 30 projects have already been implemented and are ready for living, within more than 50 projects are at the construction work stage, the rest ones are at development and documentation concordance stage. Experts comprise about 10 thousand housing estate in implemented projects of cottage towns. More than a half of cottage towns are 15-20 km away from Kiev, but the lack of appropriate land plots in this range caused the interest of developers in the territories all round Kiev.
For now the most developed direction remains Obuhovskoe, characterized by significant recreational potential and prestigiousness due to the residence of many officials, businessmen and artists. For this direction there are about one third of cottage towns, meanwhile they often do not differ by great dimensions due to the limitation of land plots and mostly form the supply in the elite suburban real estate segment. Slightly less than one-third of cottage real estate market of Kiev region is Zhytomir direction, where the number of new projects is rapidly growing. Recently, the high popularity of Odessa and Borispol directions is observed. Apparently, the most actively developing areas are the right bank near Kiev, for the present the directions of Levoberezhya are less interesting to developers.
Regarding the pricing policy, the majority of housing estate supply on the capital cottage market is in the range from $ 350 thsd. to $ 500 thsd., about 20% of supply are elite-class segment, where the cost ranges from $750-800 thsd. to several million dollars for the object. In the lower price segment (the cost is below $350 thsd.) there are about 20% of supply.
In this segment demand exceeds supply, especially for the objects of $ 200-250 thsd. which resulted in numbers of ambitious projects, e.g. cottage town “New Bogdanovka”, located about 30 km from Kiev and has more than 1000 housing estates which is implementing in several stages.
Main trends of the capital market of cottage real estate development can be sharply identified by:
- the increase of cottage towns, the dimensions growth (towns implementation of 100 hectares and even more) and the level of projects’ development;
- the range increase of the territory around Kiev, meanwhile more remote housing estate will be more used as summer houses, rather than places of permanent residence;
- the increase of supply of settlements in the economy class segment;
- the decrease of housing estate area and its plots, the improvement of buyers’ requirements to the quality of projects, particularly to homes’ decoration and infrastructure;
- The increase of big and professional players number, including foreigners (developers, investors, construction companies), gradual leaving market by companies which do not have sufficient capabilities to implement relevant projects.
Among the regions which are successors of Kiev, Odessa region can be marked out. The same as for the Kiev region the expanding of cottage buildings around Odessa is observed too. Considering the specificity of Odessa placing along the sea coast, the main directions of cottage construction development are the northern (along the “Staronikolaevskaya” road) and the southern. According to the northern direction implementation of ambitious cottage project “Golden Key”, which is positioned by developer as elite-class settlement, the “Green cape” cottage town, the project of Investment Group “GROWTH ” in Chabanok that is not far from Odessa can be mentioned. And numbers of other towns are at the early stages of construction.
Also it’s worth to be mentioned about cottage building in the southern direction. Here we should note cottage buildings within the Sauvignon settlement, located on the southern border of Odessa which has number of building stages, including some independent projects within the overall development, for example residential complex “Marin Villas”. The peculiarity of Odessa is large area of private buildings within the city borders. A number of cottage building projects are located not only in the suburb of the city, but inside Odessa too. However, these objects of cottage real estate occupy a small area and more particularly belong to elite-segment.
Of course, in many regions organized cottage building is at its infant stages of development. For example, in Donetsk region the number of cottage projects is rather limited: experts count only about 6-8 cottage towns’ projects, mostly in the southern part of the city. Separately the project of cottage town construction can be mentioned near the so-called Donetsk Sea, which is at the initial stage of its implementation. Here cottage construction is supposed on about 65 hectares, where about 300 cottages will be built, its plots will vary from 10 to 25 hundred square metres. It is obvious that such small supply for Donetsk region leads to significant imbalance of supply and demand, so at this stage developers and investors can take good profits.
In general, cottage real estate market is at the stage of active development in most regions, where demand for such properties can be formed. Considerable influence on the demand increase is observed in connection with the price rising for apartments in the primary and secondary residential markets. Within the coming years the largest development dynamics will be typical for millionaire cities, as well as recreational areas of Ukraine, especially in the Crimea. For the present, only in the capital region there are indicators of active competition among developers and buyers who have considerable choice while purchasing. In other regions the markets of cottage real estate are at the earlier stages of development and have significant potential for developers’ and investors’ activities. Those of market participants, who are implementing professionally developed projects or will start implementation in the nearest future, obviously will have priority over those, who will come to the market later when competition will seriously increase.