NBU predicts growing risks for constructors over extra housing supply

Growth in the number of newly built houses, postponed supply on the housing market and restricted demand are threatening to increase financial risks for constructors, according to a financial stability report of the National Bank of Ukraine (NBU) posted on its website early this week.

"Supply continues to grow on the residential real estate market, but demand is limited and there are no significant factors to increase it in the short term, which forms an excessive supply, gradually swelling. The lending volumes are too small to stimulate demand and influence prices," the report says.

According to the report, the surplus of new supply will continue to put pressure on prices and create risks, primarily for developers, and a slowdown in demand may result in a delay in launching the facilities.

According to the NBU, housing supply is growing in Kyiv and most regions. In 2016, a record number of apartments since the beginning of the 2000s - 20,300 apartments - was built in Kyiv. In the first quarter of 2017, twice as many apartments were built in comparison with the same period in 2016.

NBU presented data from intermediaries, according to which in the middle of May 2017 in Kyiv they sold apartments in 265 new buildings, compared with 230 in November 2016. The average area of new apartments in Kyiv in 2016 decreased to 64.7 square meters from 68.6 square meters a year before.

"Probably, the increase in the volume of housing construction will continue. In the past year in Ukraine 1,514 permits for the construction of apartment buildings were issued, which is 38% more than in 2015. The bulk of the housing constructed under these permits should be launched in 2017-2018," the central bank said.

According to the NBU, the volume of mortgage lending in 2016 rose slightly, to less than UAH 1 billion, and it almost does not affect demand. Banks also do not expect that the situation will improve significantly in 2017.

The NBU also said that a significant factor in demand for real estate is investment transactions.

The excessive supply of housing is pressing on prices, which continue to decline gradually. The average price of one square meter on the primary market in Kyiv in the U.S. dollars in April 2017 fell by 5%, and on the secondary market - by 9% compared to April 2016.