MBS Blog

Although many have been walking around wondering if the sky is falling, there are a few cool heads amongst us whom are able to see vast opportunities on the horizon. One of those is Arik Shtern of www.odessaapts.com and www.kievapts.com.  Arik is on the “front lines” of the real estate business and has a good vantage point from which to see the overall economy here in Ukraine.

Here are a few of his recent comments:

“Interesting times we are in, to say the least.  I
was in Kiev the other week, dining at the finest restaurants the capital
has to offer for about a 50% discount compared to 4 months ago. One can have
everything included meal currently in the top tier Kiev restaurant for about
$70 for two.  Brings back the memories of the late 90s.

We are holding up overall okay although of course there is a dramatic slow
down in the worldwide travel.  Kiev is hurting particularly badly, and real
estate there for all intents and purposes has crashed on both the rental
and the sales market.  I personally think it will get much worse before it
gets better.  Rents in Kiev right now are down on average 30% and in some
cases much more. To give you an example, a two bedroom unit (standard, not
luxury) which used to rent for $110 per night or so with 90% average occupancy
last year is now being offered for $1500 per month on long term rental market.
 Last year, they probably wouldn’t have accepted anything under $2800.  There
are many similar options available, and keep in mind that Ukrainians as you
obviously know are quiet stubborn so whatever they’re asking, they probably
would need to accept about 80% of that to get the deal done.  Same thing
is seen on the sales front, apartments in the center of Kiev are slowly becoming
‘affordable’, relatively speaking as now on say Basseyna Street, there are
options for around $4000 sq/mt which was unheard of a year ago, with most
everything selling at $6K - $10K range on Basseyna.

Also, I looked at options in Odessa (only through newspaper ads just to gauge
the prices) and they are clearly now back to a level seen at least 2-3 years
ago.  Particularly interesting appear to be options in those new buildings
in Arkadia, as they are now actually being sold in many cases below the prices
that these people bought them for.  As you probably know, many of them were
purchased by speculators before the buildings were constructed and now, they
can clearly see they will not sell them at any profit – they are ready to
dump them for a fraction of their investment.  I think that the 2009 could
be a very good ‘opportunity’ year for real estate.  There are also some foreclosure
proceedings (these are more complicated) which allow well ‘connected’ individuals
to buy properties for about 50% of market rate too.  These are a bit more
difficult transactions, but nevertheless possible”

Most of us on the ground here in this emerging market agree with Arik’s assessment. Moreover, many of us are witnessing a sharp price deflation offering huge opportunities to invest in businesses, land…particularly agricultural land (more on that later in an upcoming series of reports) as well as commercial and residential real estate.

The next several months are a good time for investors and entrepreneurs to examine these opportunities on a first hand basis.

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