Middle-week thoughts: movable – immovable, movable – immovable, movable – imm…

Tags: Yevhen Pentsak, investments, investor, real estate

Real estate investments are a subject that most often comes up the Ukrainian headlines. The etymology of the word (“real estate”) is quite complex and dates back to lat. realis that bares a meaning “genuine” (or even more authentic one “res” (“a thing”). Hence, to put it simple, real estate means some genuinely real thing! Have such views on the subject undergone dramatic changes since times of Romans?

Realty” remains one of most traditionally used definitions for a sign-word which expressly occupies quite an honorable position in Ukrainian mentality today. It has been established historically that stability, self-respect, laboriousness have been the traits normally attributed to Ukrainians. One can hardly find a more comprehensive concept that would comprise the above qualities, other than “real estate”. For every Ukrainian realtor those conclusions have long since become the true 4 “P”s and a magic idea in one pack.

The word’s (“real estate”) etymology is quite complex and dates back to lat. realis that means “genuine” (or even more ancient meaning “res” - “a thing”). To put it simple, real estate means something genuinely real, a real thing. Our ancestors used to hold to that idea, too, and similar attitude has firmly nested in modern way of thought, either.

In law language the word “real” - “genuine, true” - conveys the meaning of property relationship whereby something is affixed or given title to something else, forever. And that something – as it appeared - is an immovable piece of property. In case of the real estate, the latter is affixed to land, contrary to the items of personal property that can be moved – like money, clothes and furniture and other movables, which are capable of being carried over to the person’s new place of residence.

Real property has always stayed amidst most bitter controversies. People stirred up feuds and fought for it; it was laid flat or merely burned to ashes. In Ukraine real estate has always been associated with an idea of family traditions and personal comfort. As an old song goes «збудуй хату з лободи, а в чужую не веди» (“we’d rather set up a house under a hay roof to own it, than live in somebody else’s home like tenants”). Raising children, planting a garden, and building a home of your own are indispensable as far as the mentality of a Ukrainian is concerned.

In the flow of time people have started to distinguish a social value of real property, too. Once you’ve got well-off, have built a house of your own, the idea of purchasing an extra house appears quite pointless. At first sight. But at that particular instance realty happens to acquire a quality of an investment instrument.

World’s population has grown in quantity over the past centuries and that caused steady shortage of residential places. Houses bought or erected as extra property that was in individual possession could quite conveniently be let out for lease. Thus, rentable property has turned out to be a source of steady and safe revenue. Over centuries the market has kept continuous growth up and so did the rent.

“Those who are more clever, talented, firm and far-sighted keep lion’s share for themselves, whereas the weak starve and die out to prevent the nation from depopulation” stated Vilfredo Pareto, a known Italian economist.

He also postulated a principle known as the law of the vital few or the 80-20 rule, stating that for many events roughly 80% of the effects come from 20% of the causes. Working on the analysis of Italian realty market he observed that 80% of the land in Italy was owned by 20% of the population.

Ukrainians have had their own experience of real estate market booming in the years of 2000-2007. At that time everybody who felt like that, did plunge into starting constructions, joined mortgage credit programs or just purchased real estate pieces. The realty market bubbles like those had been floating on the surface in many countries. Some of them are still in a state of pipe-dreams in regards to the realty.

Investors, though, have long since discovered that real estate may well fluctuate – upturns as well as downturns may happen, both in the property and lease prices; yet real estate belongings require relevant expenses and (as an asset) realty can’t be at all considered a conveniently available capital. Owning a house happens to slow down family business/job-search migrations; in many countries private mansion owners have to face a burden of heavy taxes. As long as one feels comfortable living in a house he/she doesn’t own and can freely change residences in his life-span search for new experience and discoveries, why does one need to own the house? The opinion of this kind prevails in the western world where quality of the house you rent or its interior is of far less importance than the cost of the rent. The wide-spread attitude towards the thing in the western world is coming up to the conclusion that one can afford to buy a residence if its value does not exceed 2, 5 years’ revenue.

Why is the concept of owning realty so fervently held to by the Ukrainians instead of treating a house like an element of everyday routine? At this stage of investigation of the Ukrainian mentality, the fourth “P” should be taken into consideration, and that is the desire to stand out, a wish to “show off”. And none of ironic implications is there whatsoever in my saying this, for I’m far from treating it a good taste to speak ironically of my national mentality. Looking back at the 90s, we see massive developing start-ups in the outskirts of Ukrainian cities. Available materials, cheap labor and sagging land market were the factors of the construction boom; as well as the 3-level “noov” mansion-houses that were the token of time then. That was the riot of wealth and extravagance in full swing! As appeared, the "monstrous carbuncles" on the edge of town (once thought to be the exhibits of social weight) now remained almost uninhabited. Western borders - fragrant enough for economic migration – let the younger generation make it to the west in search of their own self-realization. The extravaganza went stale. Now the noov started to rush for exclusive life-style looks – a lake nearby, historical block location or “decent neighbors” notified the raise of the property price to a sky-high level. All those factors have always had substantial influence on world real estate market indices, anyway.

While travelling abroad, Ukrainians keep opening new investment opportunities. I promptly recalled my leisure time at Budva a couple of years ago, when I was considering purchase of a beautifully pretty villa near one of the Adriatic resorts. As the ask price did not exceed $1000.00 per square I was really amazed at Ukrainian expats’ attempting to buy Villa Grande -like apartments in Switzerland at $2000-3000.00 or flats in Zurich, Paris or Genève at $5000.00-10000.00 per meter. The land plots near Lac de Genève were offered at about $10000.00 for one hundred square meters.

Land prices in Kyiv at that time were trying to desperately keep pace with their western counterparts. This year, for instance, Ukrainians have focused on American property as schemed to be purchased for further resale. The prices are really sagging there, yet as a Benoit Mandelbrot, founder of fractal theory and a researcher renowned for a fresh look on financial markets modeling once said: “After Black Tuesday an even blacker Wednesday could follow”.

Buying real estate nowadays is a gesture that articulates a definite sign of personal self-expression, with of economic and personal freedom implications, and thus exhibiting individual’s strife for high-quality living standards. The finance science identifies such course of action as an option or possibility of performing certain acts in future as long as you are in possession of some investment instrument now. So as to have an influential look, say when in company of people of weight, one can mention his/her beloved Swiss chalet that has just been visited. The point is not solely in saying it but in the feeling of total security, experiencing the delicious joy of seeing the Grandeur of the Alps and eventually in coming to the conclusion that life’s still worth living!

Anyway, owning property does not necessarily mean enjoying it. Real estate markets in the West keep in a steady setback and nobody has defined its bottom line, as yet. The real property in US has exhibited a 20% fall in the 1st quarter of 2009. Same rate of downturn is demonstrated in GB, too. As has been said, Ukraine has marked the bottom of its market in the whereabouts of 20-25% less current prices.

One should note that only high-quality property is worth buying. A new real estate boom is to rebound in 2 years’ time, or so. Hence, the fundamentals of your future success are to be wisely laid down right now.

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See also:

Мысли среди недели:путь к спасению мировой экономики

Последние события на мировых фондовых рынках заставили задуматься, как близко мы стоим к краю мировой экономической пропасти. События 11 марта 2011 года, 4 августа 2011 уверенно указывают на то, что депрессивное десятилетия начала третьего тысячелетия будет иметь еще более депрессивное продолжение. Движется ли мир в хорошем направлении во всех смыслах слова «добрый»? Может долго держаться макияж, если наносить один слой пудры за другим?

Comments:

gost99 28/05/2009 22:59

Через два роки ми побачимо знову «бум» на ринку нерухомості
Що ви маєте на увазі кажучи про бум-початок росту цін на нерухомість, чи досягнення ними докризового рівня, чи щось інше?

pentsak@kmbs.com.ua 29/05/2009 08:17

Слово "бум" у моєму розумінні означає швидкий ріст ринку і стрімке зростання цін. Докризовий рівень цін на нерухомість - це був супер "бум", нічим невиправданий, тільки спекулятивною банківською політикою на ринку іпотечного кредитування. Тому докризового рівня цін ми швидко не досягнемо, але на 50% ріст можна буде розраховувати. Пам"ятаймо, що падіння цін на нерухомість на 50% відповідає 100% зростанню для досягнення початкового рівня цін. Думаю, що люди стануть відтепер більш раціональними при прийнятті інвестиційних рішень.

serelena 31/05/2009 14:13

"Как я уже писал, в Украине недвижимость уже «нащупала» дно: минус 20% -25% от текущих цен"
По-моему, еще очень рано говорить о дне. Как минимум должна восстановиться способность банковской системы к кредитованию.
3-5% населения, владеющего достаточным объемом налички, рынок не поднимут. А, учитывая известный экономистами "часовий лаг", умноженный на недоверие населения к банкам, процесс поиска дна продлится минимум на год. Т.е. цены на недвижимость должны только зафиксироваться через год после начала "цивилизованной" работы банков.
Во всяком случае, после августа 1998г в 1999г. цены еще продолжали падать.

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