Kyivmiskbud’s construction sites all frozen — any solution in sight?
Kyivmiskbud’s construction sites all frozen (Photo:Наталія Кравчук/NV)
Kyivmiskbud, Kyiv’s largest real estate developer, has not been building housing at all of its 17 sites for more than three months, due to a lack of funds. The company turned to its main shareholder, the Kyiv City Council, for help.
"Tough times call for tough decisions," wrote Ihor Kushnir, Chairman of the Board of Kyivmiskbud, on his Facebook page. Work has been frozen at its sites since December 2022.
The developer lacks funds, Kushnir claims, as the cost of work and materials has risen significantly since the outbreak of the full-scale war.
What is the scale of the problem? Kushnir has asked buyers to pay up the accrued debt from installment payments, and the company’s main shareholder, the Kyiv City Council, to capitalize the company with UAH 1 billion ($27.1 million) — as well as purchase housing for the city's needs for UAH 300 million ($8.1 million).
Investors and market participants hope that Kyivmiskbud will be able to resolve its financial problems. But is that a reality? NV Business has looked into the issues surrounding the company.
Why did construction freeze?
Projects started by Ukrbud, the state-owned construction company, will be finished by Kyivmiskbud, President Volodymyr Zelenskyy said back in 2019. This was his way of reassuring about 13,000 investors that all was not lost after top construction player Ukrbud Development stopped work at 23 construction sites at the time.
In contrast, Kyivmiskbud personified stability. The presence of municipal funds in its equity not only persuaded Zelenskyy to transfer Ukrbud’s frozen sites to the enterprise, but also helped win the favor of apartment buyers. Kyivmiskbud managers even promised to “eat a brick” if even one building was not completed. Its well-known brand also helped attract investors, as the company, like others, built new housing at the expense of homebuyers.
Four years later, it is Kyivmiskbud itself that needs help. The war has collapsed the demand for housing real estate, and customers are in no hurry to pay interest on the housing they have already purchased.
"What we have today in the real estate market is a rise in the cost of construction materials, a reduction in the number of qualified personnel, and almost no sales," says Kushnir.
The cost of materials has increased by 35% on average over the past year, and the cost of construction work itself has risen by 40%, according to another developer, DIM Group.
According to Kushnir, for these reasons, Kyivmiskbud was forced to suspend work on construction sites in the winter. Power outages added to the problems.
After the outbreak of the full-scale war, the company commissioned a portion of the planned buildings in the residential complexes Hvardiyskyi, Oberih-2, Rayduzhnyi, Zlahoda, Freedom, Shevchenkivskyi, as well as four underground parking lots. Currently, the developer's portfolio includes 17 unfinished projects, the largest of which are the residential complexes Charivne Misto and Urban Park. About 15,000 investors have invested in apartments in these unfinished constructions, says Marharyta Yakuba, a representative of the Milos residential complex initiative group.
"People had been saving for 10 years to buy apartments in the company's complexes, or sold their only houses or apartments and invested the money,” she says.
“Many people took out loans and are still servicing their loans during the war."
She adds that the developer and representatives of the Kyiv City State Administration's Construction Department, with whom they have already met, have not yet told them when work will resume and whether they will receive keys to their apartments.
Is there a solution?
During the year of full-scale war, Kyivmiskbud exhausted a certain amount of stocks, Kushnir says. According to him, the city council's committees are now considering whether to recapitalize the developer with UAH 1 billion ($27.1 million). In addition, the company is negotiating with the city to sell real estate worth UAH 300 million ($8.1 million).
"I urge people who have bought real estate in installments to pay up," says Kushnir.
"The debt under such agreements is currently at about UAH 326 million ($8.8 million).”
However, buyers are not in a hurry to pay — until the developer starts work on the site, explains investor Marharyta Yakuba.
Regardless of whether the developer has many projects under construction or one large project, for example, with eight separate blocks, yet its financial reserves are exhausted and sales are too low, then the money is spread too thinly, says Anhelina Derevleva, marketing director of development company Miskzhytlobud. Construction can continue, but not as fast as apartment buyers would like.
"However, Kyivmiskbud can turn to its main shareholder for help, and I think the company will not be denied,” says Derevleva.
“It has a lot of housing investors.”
And those investors are outraged. Yakuba says they are ready to protest and bring bricks to the company's office.
"Which the company representatives promised to eat if the housing (construction) was not completed," she recalls.
This financial squeeze is however likely to be resolved, a source at Kyivmiskbud told NV Business informally.
The Kyiv City State Administration did not responded to a press request by the time of publication.
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