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Pelorus Pete

Kiev Property Collapse

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I have been in Kiev for 5 weeks but live in New Zealand

Firstly - NZ prices have definably bottomed and appear to be increasing, apart from the luxury market which has had large drops for those forced to meet the market. Family homes are picking up in value and would be selling at 2007 levels already.

Here in Kiev it’s a totally different picture !!!!!

It almost appears that every holiday/Dacha is on the market and alot partly built and not finished for obvious reasons are for sale with urgent intent.

The Apartment market could be back by 40 - 50% already.

Shops are shutting (approx 30% will be gone by winter) and those still in business have sales - some with up to 90% off but 60 and 70% sales are common.

Does anyone else have hands on experience of what’s happening in the Eastern Europe (FSU) regions ??

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I passed through Kiev a few years ago and I was dumbstruck by the amount of residential tower blocks going up all round the city. Like they were marching across the landscape. I wondered then where they would find the people to live in them.

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An acquaintance of mine was in Latvia or Lithuania a couple of months ago, can't remember which. He told me the bad stories that float around in the foreign news sections from time to time are not as bad as what he saw.

He told me there was just masses and masses of inventory and no one but no one was spending any money.

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The company I work for has operations in Ukraine and they are having a tough time, but they are still making money and still investing.

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I passed through Kiev a few years ago and I was dumbstruck by the amount of residential tower blocks going up all round the city. Like they were marching across the landscape. I wondered then where they would find the people to live in them.

Depending in which area of Kyiv one looks. Kreshyatic is still horrifyingly expensive. Even outside kiev and into the suburbs, kruschev era flats are still way out of range for the majority. Generally throughout Ukraine it is bad, and people have changed as a result for the worse.

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Guest DissipatedYouthIsValuable

So, New Zealand is fine, is it?

Is the average wage still about NZ$40k?

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I passed through Kiev a few years ago and I was dumbstruck by the amount of residential tower blocks going up all round the city. Like they were marching across the landscape. I wondered then where they would find the people to live in them.

They are everywhere now - BUT - almost all have stopped. We have 4 octagon shaped ones just across the road from our (M-in-laws) apartment block.

In centre and other suburbs have many the same - half built and stopped.

It’s a bit of a mess here - I think our trip back next year will be an eye opener - one web site alone has 270,000 second hand cars for sale, most are 2005 and newer too. The banks lent people 100% with 7 years to repay at approx 16%.

People borrowed on their apartment (most of which were literally handed to them when the soviet collapsed) and they felt rich because an average Kiev apartment was suddenly worth 200K+ and now the local currency is back approx 40% on US and Euro, they are really struggling to repay at Western currency based on their local currency earnings - and of course their apartments are probably worth 50% of this time last year

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most of Eastern europe is have a lot harder time than is made out on the news, i think it will collapse big time soon, and when it does it will be very fast

Doubt that; it would take a big chunk of the Austrian and German banking systems with it if it did, and in all likelihood the euro wouldn't be far behind. The ECB is not likely to let that happen.

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When Eastern Europe collapses it will take the Euro and the EU with it.

I expect we will avoid another war in Europe, but the EU in its current form won't survive this depression

IMO.

Germany played the game to get reunification, there is now nothing in it for Germany to bail out all the basket case economies of Europe.

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I have been in Kiev for 5 weeks but live in New Zealand

Firstly - NZ prices have definably bottomed and appear to be increasing, apart from the luxury market which has had large drops for those forced to meet the market. Family homes are picking up in value and would be selling at 2007 levels already.

Here in Kiev it’s a totally different picture !!!!!

It almost appears that every holiday/Dacha is on the market and alot partly built and not finished for obvious reasons are for sale with urgent intent.

The Apartment market could be back by 40 - 50% already.

Shops are shutting (approx 30% will be gone by winter) and those still in business have sales - some with up to 90% off but 60 and 70% sales are common.

Does anyone else have hands on experience of what’s happening in the Eastern Europe (FSU) regions ??

Baltics, especially Latvia, are on their knees. It's less corrupt there, but the credit feast was a lot bigger than in the Ukraine. Latvia is much closer to a state failure than the Ukraine from what I understand. As for (residential) real estate, officially they are 2/3 off the very top 2y ago, with hardly any volume. Probably -90% is the target. Rents have come down 2times in 2y time, beat that! And they were not that high before, so there's really plenty of room (2-3 times from current valuations) for further drops in valuations as there is barely any free cash around let alone credit with bad loans in the 15-20% area. Plenty of unfinished residential properties on the market, just like in the Ukraine. Plenty of empty commercial real estate, rents there down by a factor of 3 or so... A realistic scenario is that residential properties are soon rented out free of charge subject to the tennant heating the place and paying utilities - if that's not done, -20-25C winter cold snaps can eventually destroy the property completely. A bit like Detroit then where banks are happy to off-load property at a symbolic charge so that they don't need to pay tax and other maintence costs.

Macro-wise, Latvian GDP was -18% 1Q 2009, Lithuania -22.4% Q2 2009 and Estonia -15.1% Q1 2009. (Ukraine: -20.3% Q1 2009.) All Baltic countries are running ccy board wrt EUR and EU/IMF have already been lending money to the Latvian CB to "support" the ccy as it has had a few mini-runs in the past 9 months. But the currencies must be doomed as the low EUR % arrested much of productive investment back in 2004-2005, which went into real estate instead. The countries are struggling to generate foreign ccy receipts as exports are not competitive. Classic credit bust, in other words, and deflation. To support the currency, M0 has decreased 2 times from the top in Latvia, but the result is plenty of bankruptcies all over the place.

Other than that, Bulgaria (ccy board, too) and Romania, as well as Hungary are all on life-support. Hungary was close to default last autumn btw. Locals have massively borrowed CHF and EUR to invest in property, so it cannot be doing too well there, but don't have much further info. Bulgaria should also be into a very distressed real estate situation due to countless new developments near the Black Sea and not only, but the situation in these countries cannot be (yet) as bad as in the Baltics or Ukraine.

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Doubt that; it would take a big chunk of the Austrian and German banking systems with it if it did, and in all likelihood the euro wouldn't be far behind. The ECB is not likely to let that happen.

And the Swiss Banks

I read recently that the Swiss lent large amounts into the consume merry - go - round here in Kiev/Ukraine.

They said that if they put too much pressure to recover they stand to lose the lot

So perhaps that may save the day a little.

The likes of the Steel industry here, will benefit soon from the upswing in commodities - BUT - I can’t see that making a much difference to the average borrower here that borrowed against earnings that wouldn't even get you in the Bank door back home.

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Doubt that; it would take a big chunk of the Austrian and German banking systems with it if it did, and in all likelihood the euro wouldn't be far behind. The ECB is not likely to let that happen.

well maybe you are right,

i am only saying what people have told me, and these are people who live there, and remember the soviet collapse, and they are telling me that it is much worse there now, and property is falling up to 50% in a matter of months, in bulgaria they are already at the coast black sea

Edited by James Toney

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Baltics, especially Latvia, are on their knees. It's less corrupt there, but the credit feast was a lot bigger than in the Ukraine. Latvia is much closer to a state failure than the Ukraine from what I understand. As for (residential) real estate, officially they are 2/3 off the very top 2y ago, with hardly any volume. Probably -90% is the target. Rents have come down 2times in 2y time, beat that! And they were not that high before, so there's really plenty of room (2-3 times from current valuations) for further drops in valuations as there is barely any free cash around let alone credit with bad loans in the 15-20% area. Plenty of unfinished residential properties on the market, just like in the Ukraine. Plenty of empty commercial real estate, rents there down by a factor of 3 or so... A realistic scenario is that residential properties are soon rented out free of charge subject to the tennant heating the place and paying utilities - if that's not done, -20-25C winter cold snaps can eventually destroy the property completely. A bit like Detroit then where banks are happy to off-load property at a symbolic charge so that they don't need to pay tax and other maintence costs.

Macro-wise, Latvian GDP was -18% 1Q 2009, Lithuania -22.4% Q2 2009 and Estonia -15.1% Q1 2009. (Ukraine: -20.3% Q1 2009.) All Baltic countries are running ccy board wrt EUR and EU/IMF have already been lending money to the Latvian CB to "support" the ccy as it has had a few mini-runs in the past 9 months. But the currencies must be doomed as the low EUR % arrested much of productive investment back in 2004-2005, which went into real estate instead. The countries are struggling to generate foreign ccy receipts as exports are not competitive. Classic credit bust, in other words, and deflation. To support the currency, M0 has decreased 2 times from the top in Latvia, but the result is plenty of bankruptcies all over the place.

Other than that, Bulgaria (ccy board, too) and Romania, as well as Hungary are all on life-support. Hungary was close to default last autumn btw. Locals have massively borrowed CHF and EUR to invest in property, so it cannot be doing too well there, but don't have much further info. Bulgaria should also be into a very distressed real estate situation due to countless new developments near the Black Sea and not only, but the situation in these countries cannot be (yet) as bad as in the Baltics or Ukraine.

Thanx for that info

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So, New Zealand is fine, is it?

Is the average wage still about NZ$40k?

For some reason couldn't reply direct to this Post

I think the av is now about 46K

I not sure if there is some sarcasm in your question or not - but if there is - I agree with it

Kiwis are living way beyond their means too. I cannot understand what’s happening there either. People are still spending on credit cards - banks keep asking if you want more etc etc

House prices may be holding due to the return and slight increase in Nett migration ?????????

Don't know - 6 months ago - I did not expect to see so much confidence in bricks and mortar so quickly !!!!!!!!

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When Eastern Europe collapses it will take the Euro and the EU with it.

A scenario with a reasonably high probability. Just how EU is, for example, tackling the Latvian situation is very symbolic and telling what will eventually happen to EUR. There is likely a massive conflict between EU politicians and ECB down the road: politicians have demonstrated that they are capable of throwing good money after bad just to keep a zombie alive for a bit longer and avoid the capitalisation of (mostly banking) losses due to malinvestments and mis-judgement of risk. They play casino and keep their fingers crossed that situation will improve quickly enough without serious structural reforms. The money is being lent with no clear idea of how it will be paid back, i.e. no business plan.

Latvia or Baltics may turn out to be peanuts, but Ukraine will, in absolute terms, have a lot of corporate defaults later this year as even the state owned Naftogaz is in for a bail-out situation to pay its eurobond this month, and that will further increase delinquencies in the mortgage/consumer loans sectors. And then you have Bulgaria, Romania and Hungary, each of them very likely in further need of assistance from the IMF/EU. And that's on top of PIIGS.

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Guest DissipatedYouthIsValuable
So, New Zealand is fine, is it?

Is the average wage still about NZ$40k?

For some reason couldn't reply direct to this Post

I think the av is now about 46K

I not sure if there is some sarcasm in your question or not - but if there is - I agree with it

Kiwis are living way beyond their means too. I cannot understand what’s happening there either. People are still spending on credit cards - banks keep asking if you want more etc etc

House prices may be holding due to the return and slight increase in Nett migration ?????????

Don't know - 6 months ago - I did not expect to see so much confidence in bricks and mortar so quickly !!!!!!!!

Everywhere is insane.

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A scenario with a reasonably high probability. Just how EU is, for example, tackling the Latvian situation is very symbolic and telling what will eventually happen to EUR. There is likely a massive conflict between EU politicians and ECB down the road: politicians have demonstrated that they are capable of throwing good money after bad just to keep a zombie alive for a bit longer and avoid the capitalisation of (mostly banking) losses due to malinvestments and mis-judgement of risk. They play casino and keep their fingers crossed that situation will improve quickly enough without serious structural reforms. The money is being lent with no clear idea of how it will be paid back, i.e. no business plan.

Latvia or Baltics may turn out to be peanuts, but Ukraine will, in absolute terms, have a lot of corporate defaults later this year as even the state owned Naftogaz is in for a bail-out situation to pay its eurobond this month, and that will further increase delinquencies in the mortgage/consumer loans sectors. And then you have Bulgaria, Romania and Hungary, each of them very likely in further need of assistance from the IMF/EU. And that's on top of PIIGS.

Can you tell me - Is there a difference between "recapitalization" and "nationalisation"

The PM (the beautiful Yulia Tymoshenko) is busy the last few days supporting some Ukraine Banks so they can repay depositors. Its been on the news constantly since Friday, but I am not sure if she (govt) is buying them or bailing them out ?????

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'Can you tell me - Is there a difference between "recapitalization" and "nationalisation" ?'

How about if you nationalise something you make yourself the boss so you can do what you like?

If you recapitalise, do you become the majority shareholder, so you can call an EGM and get who your want on the board to do what you like?

And if you recapitalise don't you provide them with more funds than if you just nationalise?

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Is this Yulia Tomoshenko bright as well as cute?

How does she compare to Palin?

I would not put her and Palin in the same universe !!!

Yulia is very clever at playing the Media machine - in fact she so clever she just owns most of it probably :-)

She’s completely arrogant and treats people like idiots - but then most of them are :-)

She’s a shark in grandmas clothing but looks like a Queen :-)

No = seriously - she is far more savvy that Sarah - Yulia has been around a long time and knows the blows and knows the strings to pull. She is very wealthy - used to be called the Gas Princess" stole countless amounts from Gas imports when she was in control.

Pulled off one of the biggest Election stunts ever with the "Orange Revolution" helped by the likes of Goe Soros and USA of course.

She clever - but what I don’t like about any of them - is they treat people like complete idiots - but perhaps there is reason for this ????????

People do seem very easily hood-winked here and tunnelled versioned !!!!!!!!

Edited by Pelorus Pete

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Baltics, especially Latvia, are on their knees.

Very good post .. thankyou ..

May I just point out that two years ago you could not move on daytime TV in the UK for some cretin trying to persuade someone to buy "Investment" property in the Baltic states (by mewing their one bed ex council flat in the UK) ..

The Horror, The Horror ..

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A scenario with a reasonably high probability. Just how EU is, for example, tackling the Latvian situation is very symbolic and telling what will eventually happen to EUR. There is likely a massive conflict between EU politicians and ECB down the road: politicians have demonstrated that they are capable of throwing good money after bad just to keep a zombie alive for a bit longer and avoid the capitalisation of (mostly banking) losses due to malinvestments and mis-judgement of risk. They play casino and keep their fingers crossed that situation will improve quickly enough without serious structural reforms. The money is being lent with no clear idea of how it will be paid back, i.e. no business plan.

Latvia or Baltics may turn out to be peanuts, but Ukraine will, in absolute terms, have a lot of corporate defaults later this year as even the state owned Naftogaz is in for a bail-out situation to pay its eurobond this month, and that will further increase delinquencies in the mortgage/consumer loans sectors. And then you have Bulgaria, Romania and Hungary, each of them very likely in further need of assistance from the IMF/EU. And that's on top of PIIGS.

It appears from what I can read/see - the Ukraine IMF money that has come in thus far (almost 10Billion) is mostly getting used to support Hryvnia (UAH) their currency.

To give an example – last week the UAH started to lose ground and got to 8.15 against the US$ and 11.45 against the EURO

Against the NZ$ via ATM it was approx 4.95 – 5.02 that week

The IMF payment came in last week (appprox 3Billion) and sure enough the UAH started firming again and is today at 7.7US$ - 11.05 Euro

BUT

Is at 5.26 NZ$ today

The word is - the Ukraine Bank (like our Reserve Bank) is pumping in 10’s of million per day to stop it falling through the floor ??????????

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