Today in the section "Different opinion: FIABCI-Ukraine experts" on how the picture will change in the Ukrainian market and in the world as a whole, we will listen to real estate investment expert and FIABCI-Ukraine member - Dimitrian Merkulov.
In my opinion, the geoeconomic architecture of the world will change soon. The so-called "liquidity veil" will fall . Fear will pass when humanity accepts the inevitable. The speed of decision-making will increase.
Budget deficits will also continue to rise, allowing governments in many countries to devalue past debts and keep financing artificially cheap, as inflation, meanwhile, will continue to remain above discount rates.
The emergence of negative rates and negative oil prices is the result of governments and central banks going beyond limited financial assistance. Therefore, the stability of the financial systems of states will depend only on the ability of their governments to levy taxes on businesses and citizens indefinitely.
This is what will soon lead to the fact that we will see how taxes will increase: in particular VAT, inheritance taxes and real estate taxes.
Pressure on the financial sector will cause a significant rise in price of tangible assets.
In summary, we can say that in 2020 the world economy will fall and according to various sources, this figure will be about 3.0%.
If we talk about the economy of Ukraine as a whole, then, firstly, financial control and pressure on the labor market will increase significantly, and secondly, social responsibility and discipline will increase. I would like to note that the mortality rate from the coronavirus pandemic, according to the State Statistics Service, does not exceed 1.4% of the share of total mortality in Ukraine, so against this background, the general anxiety will quickly dissipate.
As Ukraine has not yet completed the process of integration into the global value chain, and Ukraine's share in world GDP is only a modest 0.15%, the shock that will shift the supply chain will be less acute than in other economies.
The COVID-19 pandemic stress test has shown that the situation is gradually improving, and the cost of the consumer basket in Ukraine, more than half of which is occupied by food, alcohol and cigarettes, is gradually declining, and the decline in industry was primarily due to external factors.
In my opinion, the negative impact of the pandemic will be relatively short-term. The COVID-19 pandemic will only slow down economic activity in the country.
According to various forecasts, in 2020 GDP will shrink by 3.5%, while in 2021 it will grow by 3%.
By sectors, we would like to note that our metallurgists will be helped by the devalued hryvnia, while our farmers are unlikely to face a reduction in world demand, while a surge in demand for food supplies to entire countries is not ruled out.
The collapse of oil prices will also be good news for Ukraine's balance of payments. Banks are no longer the center of risk. As you know - rates on hryvnia IGLBs have decreased twice - to 9-10%, while short and expensive debts have been replaced by long and cheap ones. Human capital is temporarily returned.
The main tool in 2020 will be the discount rate.
It is the reduction in the cost of credit resources that will contribute to more active lending by banks in 2020-2021.
And in 2021 the main tool will be international tax cooperation and information exchange with mandatory disclosure of information about the owners of offshore companies.
Like any force majeure, quarantine has knocked the housing market off track. However, the trends that have emerged before have only intensified - the capital's market will be ruled by comfort! In this regard, the trend of seasonal rental of country houses has been exposed, and we would also like to note another trend of quarantine - the demand for the purchase of inexpensive country houses.
After the end of the quarantine, the objects of complex construction with the developed own infrastructure will remain in demand.
In 2019, the market was pending as potential buyers paused due to the strengthening of the hryvnia. Currently, there is a significant increase in deferred demand in the market, and by the end of the quarantine it will almost double the number of real transactions. The market will also be affected by the reduction of the discount rate to 8% by the end of 2020, which will be a direct stimulus to the development of mortgage lending. This rate will be acceptable to potential investors and can, in turn, become a catalyst for the construction market.
Financial monitoring of market players will intensify, so it's time for financially smart development and customer-oriented service. Prices will be adjusted upwards at facilities that are in the final stages of implementation depending on the stage of construction and the degree of demand. For developers, whose portfolio has a large number of objects - the commissioning date will be extended. Companies that built solely on sales will be forced to leave the market.
Those developers who will build at their own expense will win.
If last year investment speculators worked in the IGLBs segment, this year, after the end of quarantine, there is every chance to see them in the primary housing market. Price fluctuations provide an excellent opportunity to earn from 20-30% per annum, provided investment in reliable buildings.
Summing up, given the healthier state of our economy, compared to past crises -
there are all prerequisites to believe that the crisis will not last long and in 2020-2021 we will have a balance of supply and demand, which will allow real estate prices to lag behind the growth of the economy as a whole.