The crisis of 2020 was expected – more precisely, it was expected in 2018, then in 2019, and now in 2020 it finally happened. Let’s remember why previous crises occurred and how the real estate market felt at the same time.
2008
The global crisis provoked a thoughtless issue of mortgages, from which portfolios were formed for subsequent sale. Further, derivatives were issued for them, and then derivatives on derivatives. So the pyramid of already secondary securities inflated. These swaps (a transaction in the form of an exchange of various assets in which the conclusion of a purchase (sale) transaction is accompanied by the conclusion of a counter-transaction on the reverse sale (purchase) of the same product after a certain period of time under the same or other conditions) were sold, resold, and then under these swaps other loans were taken. And a bubble sulked, which once burst. In Ukraine, the hryvnia devalued by 60%, enterprises were closed in large numbers, workers were cut, solvency was at zero, and people who took a foreign currency mortgage were held hostage – their loans were simply unbearable.
Construction sites first stopped, and then completely froze. Real estate as an asset dipped three times. The pre-crisis construction cost was about $ 1,500 per square meter, and the selling price was $ 2,500-3,000. It so happened that the more they managed to build, the greater the loss. The construction projects that were at the initial stage stopped because they needed to switch to a new price tag. Not only did the new project financing cease, banks overestimated the value of the collateral and began to require additional collateral from developers for allegedly unsecuring loans, otherwise they threatened to confiscate the unfinished. This collapse lasted several years, but consumer demand began to gradually return, and the market grew.
2014
This is a purely Ukrainian crisis related to the revolution and military operations. The hryvnia / dollar exchange rate from 8 first jumped to 12, then 16 and in February 2015 reached a historical maximum of over 30, gradually decreasing to 24 in 2016. On the one hand, the sharp devaluation of the hryvnia and the subsequent bank fall caused Ukrainians to invest in real estate to save their savings, on the other hand, the volatility of the exchange rate did not allow developers and their contractors to predict the cost and, accordingly, the final price. Of course, people who had income and savings in foreign currency won, since the dollar price of real estate, as in 2008, fell sharply. But many construction projects stopped again: the panic associated with the war, the change of political elites, distrust of the banking system and immersion in the general crisis forced people to postpone the purchase of real estate for whom it was not a necessary measure or investment. But the market has become stronger: the weak have gone into oblivion, the strong have only become stronger.
2020
At the beginning of the year, anxiety was brewing in the oil market, and when in March the price of a barrel collapsed to $ 30, countries whose income is heavily dependent on oil felt, to put it mildly, not very well. Ukraine, in spite of the fact that it is not an oil-dependent country, reacted to this by increasing the dollar exchange rate, which, on the one hand, should reduce the budget deficit due to the growth of customs revenues, on the other hand, it sowed panic among the population who rushed to buy currency, thereby pushing her even higher. But, of course, the main thing that affects all the economies of the world now is the coronavirus. This is a precedent when practically the whole world is sitting on a hard quarantine comparable to house arrest. Enterprises stop and even close, passenger transportation stops, the logistics system breaks down and, in the literal sense, the collapse of the global structure and the entire economic system sets in. Any predictions of losses are meaningless, until we even understand when all this can end.
And how did the real estate market need to prepare for new challenges and what else can and should be done?
1. Accumulate fast money. For example, Apple raised $ 207 billion in cash in its accounts – this is 4 times more than the budget of Ukraine for 2020. This money is not in stocks, not in real estate, not in production – but in the cache on bank accounts, which makes the company a world leader in terms of profitability.
2. If you have already begun to do something – continue! If there is a resource, categorically it is impossible to stop.
3. If the projects have not started, wait a month or two to understand where it all goes and how to restart later.
4. Search for your new consumer, whose behavior will change significantly after quarantine.
5. Prepare for the concept of everything. You cannot solve a new problem with old methods. That is why we will see new symbioses of real estate: hotels with coworking, offices similar to coworking, housing with a function of work, hotels transforming into offices and much more, which was difficult to imagine a few years ago.
Andriy Ryzhykov, CEO and managing partner of the development company DC Evolution