Author: Alexey Oleinikov, Managing Partner of InVenture

Over the past few years, there has been a trend of increasing demand for cottage real estate in the Kyiv region. What are the prerequisites for investing in suburban real estate in Kyiv?

Inflation factor

Record inflation against the backdrop of the issuance of money and the rapid recovery of global GDP after the COVID-19 pandemic is reflected in the change in investment strategies and investment instruments in many developed and developing countries.

There is an assumption that inflationary pressures on a global scale may take place for several more years. Trillion-dollar injections of money from US, Chinese, and EU central banks to support the economy and high uncertainty caused by the risks of COVID-19 have created an unprecedented level of savings among the population that are not directed to the economy.

In addition, supply chains remain disrupted, leading to a drop in global production, a shortage of raw materials and, consequently, an increase in product and asset prices.

By importing goods and services from abroad, Ukraine also became a hostage to inflation; in September 2021, consumer price growth accelerated to 11%. In Ukraine, gas, fuel, building materials are becoming more expensive, wages are also growing against the backdrop of a shortage of personnel. All this spurs the rise in real estate prices and the desire of citizens to invest in square meters.

Investment alternatives for an ordinary Ukrainian

Watching the depreciation of their savings, sooner or later people realize the need to invest. At this point, they are faced with the dilemma of choosing an investment instrument.

Traditionally, real estate or a bank deposit remains the most understandable and reliable investment of capital for Ukrainians. Banks have long been a viable investment alternative due to their high liquidity and acceptable returns for savings and counteracting the effects of inflation. However, now deposit rates have fallen to record lows: 1-2% in USD and 6-8% in hryvnia, and, in addition, they are taxed, which significantly reduced their attractiveness against the backdrop of rising inflation.

Due to the low financial literacy of the population and unwillingness to take higher risks, most investors are wary of alternative sources of passive income, such as government bonds, investments in shares of foreign companies, cryptocurrency, business partnerships, venture projects, agricultural land, etc. In any case, diversifying their portfolio, people are ready to invest no more than 10% of their savings in such instruments.

Shift in preferences for suburban real estate

The pandemic has made adjustments to the preferences of investors in the residential real estate sector. People, after sitting at home in quarantine and switching to a remote work format and realizing that the third wave of COVID-19 in Ukraine will most likely not be the last, are beginning to reevaluate their lifestyle.

Today, suburban cottage real estate is coming to the fore, especially for categories of people who are not connected with the need to go to work every day and who want to improve the comfort of living conditions and increase the prestige of housing.

We are increasingly seeing the growing fatigue of the population of Kyiv from the deterioration of environmental living conditions, traffic jams, lack of parking and other adverse factors of city life. In addition, there is an increase in the public consciousness of a shift in values ​​in favor of a country lifestyle (proximity to nature, a less stressful rhythm of life, the possibility of living in a manor house, near a lake or river, etc.).

In turn, modern cottage towns, as a rule, have all the infrastructure for a full life: from supermarkets and restaurants, up to private kindergartens and schools, tennis courts, swimming pools, etc. In addition, the desire of people of a certain social elevator to have an appropriate environment , positions suburban cottage townships as a non-alternative option for investment in new housing.

What areas will be in demand among investors?

When choosing a cottage or a country house, the direction is of great importance, this is especially important for the target audience, which plans to regularly travel from Kyiv to the country house. Each of the directions has its own advantages and disadvantages, which, in fact, are assessed by the level of quality and congestion of the routes, the natural component (presence of water bodies, forests, relief), social infrastructure, and the price factor.

According to our estimates, the demand for suburban real estate will be focused on the following areas as their attractiveness decreases: Obukhov, Odessa, Zhytomyr, Vyshgorod, Warsaw, Brovari, Boryspil highways.

In any case, the greatest interest will be directed to sites and projects that are located in the inner part of the ring of the future large (new) “ring road” around Kyiv.

Large developers and professional investors are in trend

Large real estate companies and investment funds were among the first to pick up the trend, and some of them stood at the origins of the market formation and are now reaping the rewards of their investments.

• In 2021, Dragon Capital completed its participation in the Riviera Villas club community project in the Kyiv region, selling the last home ownership, providing 150 families with new premium-class homes. However, the successful implementation of the first stage prompted the launch of an even more powerful, new Riviera Village project, where new areas and additional infrastructure facilities will appear.
• – Igor Mazepa, the founder of the investment company Concorde Capital, also bet on the growing trend of de-urbanization and the development of suburban premium class real estate. The total amount of investments in this area amounted to $65 million. Significant investments include the Goodlife Park cottage village and the Shelest cottage village with a hotel complex and SPA, located in the Vyshgorodsky district of the Kyiv region. In addition, 3 more projects are also underway.
• Igor Nikonov, the founder of KAN Development, is also working on a project for a cottage town in Koncha-Zaspa, where all infrastructure facilities will be provided: a marina, a restaurant, a sports club, a kindergarten, pharmacies – everything you need for life outside the city. According to him, the demand trend is increasingly shifting towards suburban real estate, and there is a shortage of good projects.

The construction of suburban real estate is now a new trend in the market of the Moscow region, and Oscar Hartman referred to this more than once. This wave has not yet reached us in full, but the one who will be one of the first in the suburbs of Kyiv will earn money to skim the cream.

Investment opportunities for developers and system investors

We predict that suburban real estate will be in high demand in the medium and long term and will become an attractive investment tool. This hypothesis is based on a number of factors:

Private households will always be in demand, because 30% of all money earned in a lifetime is spent by a person on a house and everything related to living.
The coronavirus is becoming a stimulus for the deurbanization of society and a catalyst for the movement of the urban population to suburban areas, and this trend is indicative not only in Kyiv or the Moscow region, but also in many European countries.

High demand for missing modern premium/medium class cottage projects and a small number of good premium/business class cottage complexes near Kyiv increases the investment attractiveness of new development projects. Now this request is being satisfied through the purchase of land by end-users (for example, in Irpin, Sofiyivka Borshchagovka, Vishnevoe, Belogorodka, Vyshgorod and other locations) at a rather high price per 1 acre and the subsequent construction of a single household.

Taking into account the rush demand for renting country houses in the past few years, private investors can count on an acceptable level of profitability of cottage houses, which can reach 7-9%, and taking into account the growth of capitalization, they can count on 9-13% per annum.

The tightening of measures to deshadow the economy of Ukraine and the introduction of a zero declaration (capital amnesty) will encourage investors to invest cash in development projects, primarily in the sector of cottage development.

Current investment proposals on the suburban real estate market in Kyiv

For investors who want to invest in the development of cottage real estate in the suburbs of Kyiv, exclusive land plots of 20 and 30 hectares are available on the market with projects for the construction of cottage townships using energy-efficient and innovative technologies for 260-280 households.

The land plots are located within the boundaries of the settlements of Lyubimovka and Buzovaya, Kievo-Svyatoshinsky district of the Kyiv region (17 km from the checkpoint on the Zhytomyr highway; remoteness from the Novaya Okruzhnaya road is about 1-2 km from the sites along the inner ring).

The projects include a shopping and office center, shops, a pharmacy, a hotel, a restaurant and a bar, a lake with a beach, sports and playgrounds, an elementary school and a kindergarten, squares and much more.

In addition, design solutions are adapted to the modern requirements of “smart housing”, which are put forward by IT specialists, respectively, the project itself can be focused on the target solvent audience of IT specialists in Ukraine.