Kiev’s residential real estate market can be chaotic and seem risky to foreign investors who are unfamiliar with it. But as Petyr Baelish in Game of Thrones would say, “Chaos isn’t a pit–chaos is a ladder”–savvy investors know that the best opportunities lie in situations that aren’t easy. So whether you’re an individual buyer, small investor, property fund, or a foreign real estate developer that’s considering entering Ukraine’s market, here are 19 things you should know when buying property in Kiev, including price and supply drivers, the availability of market information, risks, legal issues, and other country-specific nuances.
1. REAL ESTATE IS UKRAINIANS’ MOST TRUSTED ASSET AND FUNCTIONS AS THEIR “PIGGY BANK”
Ukrainians don’t trust banks. Instead of depositing their savings into bank accounts, retirement accounts or other financial instruments, Ukrainians typically convert their earnings into hard currency (usually US dollars), save this physical cash, and buy real estate at the first opportunity. If a Ukrainian has a financial windfall, then much of it also gets spent on real estate, pushing up and maintaining the value of this asset class. In this way a great deal of Ukraine’s capital is locked up in real estate.
2. TODAY MORTGAGE FINANCING IS NOT A PRACTICAL OPTION IN UKRAINE
As of 2017 mortgage rates in Ukraine are above 20% per year. Since Ukrainians don’t trust banks and inflation is relatively high, banks must offer high deposit rates to attract funds. These deposit rates increase banks’ cost of funds and push up mortgage rates. Mortgages rates must be further adjusted upward to mitigate liquidity risks that arise from a lack of long-term funds on deposit–most Ukrainian depositors keep their money in banks 3-6 months while most mortgages have terms of 15 to 20 years. Mortgage rates are also high to account for currency risk, while the hryvnia has been relatively stable in 2017, there was a steep hryvnia devaluation from early 2014 to the end of 2015. Even if the hryvnia and inflation were to stabilize and depositors returned to Ukrainian banks, many other economic reforms must be tackled before mortgages could emerge a viable form of home financing in Ukraine. In the meantime, as of early 2017, about two-thirds of Kiev home buyers used their own funds for purchases and a bit less than a third used deferred financing from property developers, while only about 3-4% used some form of credit financing.
3. IN UKRAINE THERE’S NO LICENSING FOR REAL ESTATE BROKERS AND THE PROFESSION ISN’T REGULATED – SO BE CAREFUL
In many developed markets real estate professionals are required to pass several exams to receive a state license before practicing their profession. In addition, their behavior is usually governed by a code of ethics, and they can face steep fines or lose their license for ethical violations. None of these regulations exist in Ukraine, so use extreme caution when selecting a broker or real estate agency.
4. THERE’S NO MULTIPLE LISTINGS SERVICE (MLS) IN UKRAINE – SO INFO ABOUT PROPERTIES IS FRAGMENTED AND NON-TRANSPARENT
Unlike parts of the US or EU, Ukraine does not have a Multiple Listing Service that enables real estate brokers who represent sellers under exclusive listing contracts to share property information with the brokers of potential buyers or with other brokers who may wish to assist a seller’s agent with finding a buyer. Proprietary MLS databases are used to set commission offers between brokers and to create and share detailed information about a property that can be used for appraisals. The information about properties in an MLS are usually far more detailed than what you could typically find online on a real estate portal.
5. PROPERTY LISTINGS ON UKRAINIAN WEB PORTALS OFTEN CONTAIN INACCURATE, CONTRADICTORY, INCOMPLETE, OR DELIBERATELY FALSE AND DECEPTIVE INFORMATION
Online property information for existing homes in Ukraine can be a jumbled mess. There are many reasons for this: the relatively low level of professionalism among brokers, the reluctance of many Ukrainian owners to work exclusively with one broker which creates chaos, and lastly, some brokers have bad intentions and deliberately create false or misleading listings (a “zakidukha”) just to get the contacts of potential tenants or buyers so they can offer them something else. A good broker will be able to quickly filter through this mess and help you avoid pitfalls and scams.
6. OFFICIAL UKRAINIAN STATISTICS DO NOT REFLECT THE ACTUAL PRICES PAID FOR APARTMENTS SOLD ON THE SECONDARY MARKET
Most apartments on Ukraine’s secondary market are sold in exchange for physical cash in the form of US dollars. Often to save on taxes, the buyer and seller will sign a sales-purchase agreement with an official price in hryvnia (UAH) that is well below that actual transaction value. This makes official statistics for secondary market sales useless for price analysis. Instead of official statistics, some resourceful brokers in Ukraine compile information on recent sales transactions and by using a comparables valuation approach are able to advise buyers and sellers on fair market value for properties. If you’re an investor who is looking to buy, renovate and let an investment property in Kiev, then ideally you would want to find a broker, who is also familiar with the renovation costs and rental market prices for the type of flat you’re planning to buy.
7. DO YOUR DUE DILIGENCE – IT’S ESPECIALLY IMPORTANT IN UKRAINE
Because of a general lack of quality information about properties in Ukraine and the other investor risks inherent in any developing market, it’s especially important to do thorough due diligence when investing in Kiev real estate. Due diligence for residential real estate can be divided into three parts: initial/investment, legal, and technical. Only the very largest brokerages may do all of these steps in-house, and it’s more typical for the legal and technical due diligence to be outsourced to third-party specialists. The first important step for an investor is to find a competent broker, who can advise you on the investment potential of the properties that you’re considering. This broker or agency should also have the resources to help you with legal and technical due diligence. Initial due diligence usually involves checking the official state register to confirm that documents provided by the seller match registered owners and whether there are any liens on the property. If a buyer wishes to perform thorough legal due diligence, then most agencies will have their own lawyers (or attorneys selected by the buyer) examine all of the legal documents related to the seller’s property (for example, the technical passport to establish that any prior renovation work was done with the proper approvals and has been registered, etc.) At this point lawyers will often request additional documents from a seller–an intrepid lawyer will go the extra mile to dig into the paperwork at court cases and uncover court cases related to a property–these cases often will not be searchable in an online database and he may need to adopt the grey methods of a private investigator to get important info. Some buyers elect to engage an inspector for a technical due diligence report to check the structural integrity of an apartment and the building, etc. In Kiev it is possible to obtain a technical due diligence report from a provider with indemnity insurance. Technical due diligence can be especially important if you’re considering buying an apartment in a historical building (Pre-Revolutionary/Tsarsky, or a Stalinka). Typically such inspections focus on water and sewage systems, the structural integrity of your apartment and the building, the load capacity of the electricity in the building, the potential for asbestos exposure and where you’re able to install A/C units. If you’re considering buying in a newer building, then inspections usually focus on the design and construction quality of your apartment as well as background checks on the reputation and financial condition of the developer, i.e., will the building be finished at all, be finished on time, or without significant delays.
8. THERE’S A STRUCTURAL HOUSING SHORTAGE IN KIEV — THE AVERAGE LIVING SPACE PER PERSON IN M2 IS ABOUT 50% OF THE EU AVERAGE.
As Ukraine’s capital city, Kiev is the wealthiest part of the country, where the most financial capital is concentrated, and salaries and property values reflect this fact, making it the best market for real estate investment. Kiev also has a shortage of housing–as recently as 2014 the average living space per person in Kiev was only 22 m2 per person; by contrast, the EU average was more than 40 m2 person. But if we adjust these statistics by removing bankrupt and “frozen” projects” and divide by Kiev’s estimated unofficial population of 3.25 to 3.5 million–we get a 19.3 to 17.9 m2 per person without allowances for daily rental apartments and apartments used as offices. While construction of new housing has continued at a decent pace since 2014, the structural housing deficit in Kiev remains; moreover, much of the new housing in Kiev is being constructed well outside the prime locations for premium rental apartments.
9. LACK OF SIGNIFICANT PROPERTY TAXES AND LOW COMMUNAL CHARGES EXACERBATE HOUSING SHORTAGES IN KIEV AND CONTRIBUTE TO UNDERINVESTMENT.
The carrying costs for holding property in Ukraine are low–communal charges are small and significant property taxes haven’t been implemented (there are property taxes in some cases, but they are minimal at this point)–a federal law on property taxes was passed a few years ago, but its implementation was left to municipal governments that did nothing fearing voter backlash. These low carrying costs enable owners of Kiev rental apartments (especially in prime locations) to delay renovations to update their apartments, instead these owners will hold out hoping to find someone naive enough to pay their asking price that’s way above the market rate. All of this exacerbates the already existing shortage of housing and keeps its quality lower than it otherwise would be in a more competitive market.
10. CURIOUS DESIGN CHOICES BY UKRAINIAN LANDLORDS CREATE MARKET OPPORTUNITIES FOR OWNERS OF KIEV RENTAL PROPERTIES WITH “WESTERN-STYLE” RENOVATIONS.
There’s an acute shortage premium rental apartments in downtown Kiev that have been renovated to the quality, taste and style of expats. Expats in the premium rentals segment are usually seeking apartments that are light and bright with neutral colors, furniture and decor that evoke Scandinavian minimalism, but instead in Kiev they often find apartments with garish, over-the-top renovations that scream new money. The bad design choices include: baroque decor, overly fancy custom lighting, giant murals on the walls, overly large jacuzzis, showers that are difficult to climb in and out of, and space-eating bidets in small bathrooms. The owners of flats with garish but overly expensive renovations are usually anxious to recover their costs, so they often set rental prices far above the market demand for such apartments, and then are baffled when advised to lower their offering price. Sometimes an apartment can have a decent renovation for the most part, but it’s clear that its owner ran out of money while trying to finish his renovation and corners were cut to save costs. Still other times the problem is that an apartment has a bad layout, but this problem should have been foreseen before the apartment was bought and renovated in the first place.
11. MOST UKRAINIAN BUYERS HAVE A STRONG PREFERENCE FOR APARTMENTS IN NEW BUILDINGS THAT HELPS PUSH UP THE PRICE TO RENT RATIO FOR NEW BUILDINGS
Perhaps it’s to be expected that after years of living in poorly-maintained buildings with dank, dark and dreary entrance areas (podyezdy), many Ukrainian buyers have a strong emotional bias in favor of buying apartments in new buildings. This bias is so strong that many local buyers in Kiev are fully-prepared to accept incredibly long commutes for the opportunity just to buy into a new building, instead of buying and renovating in an older building, or deferring their home purchase until they can afford something closer to the center. To many expats, this can be a puzzling choice. But the net effect of this local preference is that the per square meter price of new housing in and near Kiev’s center is often far above the per square meter price of a fixer-upper in an historical building in Kiev’s center. This is especially curious since apartments in new buildings are sold completely unrenovated (“shell and core”).
12. IN 2017 SALES PRICES IN KIEV ARE WELL OFF THEIR PEAK PRICES, BUT DON’T EXPECT MANY DISTRESSED SALES
When visiting Kiev for the first time many foreign investors arrive with unrealistic expectations of finding fire sale prices for real estate. Some often mutter, “The prices for real estate in Kiev are still too high,” as if repeating this mantra will magically decrease prices to the level they desire. The fact is that Kiev prices for real estate have fallen substantially since reaching stratospheric highs in 2007-2008 when per square prices of fixer-uppers in historical buildings reached $10,000/m2 and up. The first big drop began with the 2008 Financial Crisis, and by the time just prior to the Maidan Revolution in 2014 prices for these same fixer-uppers had fallen to about $3,000/m2 and up. This was followed by another significant drop from early 2014 through 2015, when the hryvnia depreciated 60% against the US dollar. In 2015 alone hryvnia was down 34% for the year while sale prices were down 20-25% for apartments in older buildings in the center and 20% for business class complexes downtown. Today in August 2017 it’s possible to find fixer-uppers in historical buildings in Kiev from $1,200/m2 and up. But despite these big price drops in Kiev real estate, the amount of distressed property sales has been relatively small. This shouldn’t be surprising given Ukrainians’ passionate embrace of real estate as the most trusted asset class, the fact that comparatively very few properties were acquired with mortgage financing and that the carrying costs of holding real estate are low (minimal property taxes, low communal charges). Kiev in no way resembles the bursting of the US housing bubble during which millions of people ended up with “upside down mortgages” where they owed the bank more than than their house was worth.
13. FIXER-UPPER APARTMENTS IN HISTORICAL BUILDINGS IN THE HEART OF DOWNTOWN KIEV CURRENTLY OFFER THE BEST POTENTIAL RETURNS
The premium rental market in Kiev is dominated by expats, who usually make the best tenants. Expats in this segment can often sign leases for 2 or more years, while affluent Ukrainian tenants will usually rent for shorter periods that can be less predictable, for example, as a temporary arrangement while their house or apartment is being renovated. Kiev does not have an expat village or compound, instead premium apartments are clustered together in a narrow strip of Kiev’s Old Town near the metro stations Zoloti Vorota (“Golden Gate”), Universytet, and L’va Tolstoho near Park Shevchenko. (Over 60% of embassies and international organizations are located in the Golden Gate area.) As of 2017 there’s an absolute deficit of expat-suitable 90-100m2two-bedroom apartments this area due to the reasons discussed above (low carrying costs of holding property, local owners holding out for above market rental prices and not investing in “refresher” renovations of their apartments, bad design choices that result in unattractive and/or overly pricey apartments, and many apartments in the center are used as offices or let out as daily rentals). Because of the low carrying costs for holding property, there aren’t a lot of attractive offers on the secondary market at any one time, so you have to spend a lot of time searching and engage a broker who’s capable of sifting through a lot of misleading and false information online and filtering out otherwise decent-looking properties that carry red flags. Sometimes you can find prices for fixer-uppers in historical buildings in Kiev’s center for as low as $1,200/$1,300/m2 for “walk-ups” (apartments in buildings with no lift) that are being offered by motivated sellers; when properly renovated such apartments can deliver annual yields of 10-12% or more based only on rental income and not taking into account appreciation of these properties which is expected to be substantial in the next 5 to 7 years.
14. THE LACK OF TURN-KEY RENOVATIONS IN NEW APARTMENT BUILDINGS IN UKRAINE CREATES CHALLENGES FOR INVESTORS SEEKING TO MAXIMIZE THEIR RENTAL INCOME
Let’s say that you’re an investor who’s looking for investment property in Kiev and you prefer to invest in new buildings. You should keep in mind that virtually no new apartment buildings are being built with turn-key renovations, instead nearly all new apartments in Kiev are sold completely unrenovated (“shell and core”). While more and more developers are offering full turn-key renovations and “white box” renovations as options, few buyers are choosing them. New apartment buildings in Kiev can remain “construction sites” for 3-5 years as apartment owners are often very slow to complete their renovations. Why is this? Typically, many Ukrainian buyers do not have sufficient funds to complete their renovation when they buy their flats. Also, some buyers are speculators, who are hoping to flip these shell and core units on the secondary market, especially if they managed to buy-in at pre-construction prices, and it’s far easier to sell an unrenovated apartment. These drawn-out renovations make life unpleasant and noisy for residents of new apartment buildings and the constant movement of builders in and out of buildings can damage entrance areas and elevators and overall degrade the experience of living in a new building. Buildings with competent facilities management personnel can help mitigate damage to common areas and to control noise usually restrict renovations to business hours during the workweek, and forbid work on weekends. But fewer and fewer of us work 9-to-5 jobs any more, and so it’s very likely that if you live in a new building in Ukraine you’ll hear the renovation work of your neighbors. So if you’re considering buying an apartment in a new building to offer as a rental property, then it’s very important to check whether your immediate neighbors have completed their renovations, especially those above and below the apartment you’re considering buying. The noisier and less complete the renovations of your neighbors, the more difficult it will be to maximize the rental price of your flat in a new building. If the renovations of neighboring apartments are mostly completed and you can find a tenant for your apartment in a new building, then you can expect a rental pricing premium of 25-33% for two- and three-bedroom top-end luxury apartments in new buildings vs. apartments in “old”/historical buildings. (The rental rate premium for one-bedroom units in new buildings is lower at about 10-15% except for central Pechersk district which has many ultra luxury complexes.) However, despite these pricing premiums for rental rates in new buildings, you should keep in mind that it can still be difficult to make good investment returns given that 2017 prices for apartments in commissioned new buildings in the heart of Kiev usually range from about $4,000-$6,000/m2 for business and luxury class units; but few apartments are selling at these prices. If you get lucky, every now and then you can find such apartments for $3,500/m2, and there are some lower-floor units available in cheaper new buildings that aren’t truly business class selling for $2,000 to $3,000/m2, but these less expensive apartments are outside the most desirable districts for upmarket and luxury rentals–in fact today there are very few opportunities to buy into luxury and business class buildings in the Golden Gate-University area at pre-construction prices.
15. KIEV DOESN’T REALLY HAVE A DOWNTOWN
Kiev doesn’t really have a downtown in the classic sense of the word, although there are focal points for entertainment and public gatherings near the Khreschatyk/Maidan area. And unlike many capital cities Kiev doesn’t have a concentrated financial and commercial district, instead business centers are scattered around the city. The most central and desirable neighborhoods include: the aforementioned Golden Gate area that’s Kiev’s unofficial diplomatic quarter, Sofiivska Square the city’s most historical district with many five-star hotels and government ministries–something like Washington DC’s Georgetown minus the shopping options, and near Ukraine’s Parliament is the leafy and pricey Pecherski Lipki District. Just outside the center is Podil, an up and coming district with lots of low-rise historical buildings, art galleries and hipsters–think of Podil as Kiev’s Brooklyn, where you can find lots of buildings in various stages of reconstruction and gentrification.
16.THERE’S AN ASTOUNDING QUANTITY OF DERELICT HISTORICAL BUILDINGS IN PRIME CENTRAL LOCATIONS IN KIEV
Kiev’s Old Town and Podil have scores of derelict historical buildings, many of which are vacant and in various states of disrepair. These buildings date from the late 19th-early 20th century and many are street-facing with prime locations and would be perfect for luxury condominium conversions, boutiques, art galleries and other mixed residential-commercial projects that would preserve the historical character of these neighborhoods. Sadly, most of these buildings have complicated legal histories and disputed ownership, and many of their owners are trying to get their properties condemned, so they can demolish them and build a luxury high rise on prime real estate. Conversions and renovations of these buildings aren’t impossible, but they are only for doggedly determined investors who are prepared to hire a crack team of legal and real estate experts and spend several years working through obstacles. What about Kiev’s government intervening to protect these historical landmarks and spur redevelopment? Well, in Ukraine the instrument of eminent domain through the court system as it exists today does not resemble the more orderly practice in the West; in other words, if for example two or more powerful parties are involved in a dispute over a property in Ukraine, the government does not have adequate legal mechanisms to force a sale or reclaim the disputed property.
17. AFTER MORE THAN 20 YEARS OF INDEPENDENCE, THE SOVIET LEGACY STILL AFFECTS KIEV’S INFRASTRUCTURE AND REAL ESTATE MARKET
In addition to apartments in Tsarsky buildings from the late 19th-early 20th century, units in Stalinkas (Stalin-era buildings from the 1920’s to 1950’s) can also be attractive for many buyers in Kiev, who value these buildings for their construction quality, spaciousness, and durability. You can see examples of Stalinist architecture along Khreshchatyk, Kiev’s main street, which was rebuilt after WW2. The construction quality and design of later period Soviet apartment buildings are far inferior to that of Tsarsky and Stalinist buildings. And yet today a sizable part of the Kiev’s population continues to live in thousands of Soviet-era “Khrushchevky” apartment blocks years beyond the planned useful lives of these buildings. From time to time Ukrainian politicians have discussed solutions to this situation, but so far little action has been taken. Most proposals have called for relocating residents to new high rises, demolishing entire blocks of old apartments, and replacing them with high rises funded by private investment from property development companies. Opponents of the demolition approach argue that it would overwhelm Kiev’s infrastructure, local schools, hospitals, and other city services. Thousands of Soviet-era apartment blocks in former East Germany were renovated and modernized with only minor disruptions for the residents of these buildings, and much of the reconstruction was financed with energy savings. Some would like to try this method in Ukraine, though it would be much more complicated to implement than demolishing Khrushchevky.
Another important Soviet legacy to keep in mind, is that Kiev has a central heating plant that also supplies hot water to many apartments in the city. Most apartments in historical and Soviet-era buildings are connected to Kiev’s central heating plant, as well as some new apartment buildings. Many Kiev residents install independent hot water heaters (‘boilers”), to protect themselves from interruptions of their hot water supply that can last for weeks during twice per year maintenance periods and can also occur without warning due to “accidents” in the system. So if you plan to buy, renovate, and let out an apartment in Kiev that’s connected to the central heating plant, you should plan to install a boiler and also consider installing independent heating (either electric or gas) to supplement heating from the city. You should also be aware that apartments in Kiev that are connected to the central heating plant do not have usage meters for individual apartments–instead the heating bill of the entire building is divided among its residents. While energy consumers in Western countries can monitor and control their energy usage by mobile phone with smart meters and thermostats, energy reform and energy efficiency in Ukraine are far away from that future.
18. BRIEFLY ABOUT LEGAL ISSUES FOR FOREIGN/NON-RESIDENT BUYERS, CURRENCY CONTROLS, ESCROWS
Your specific circumstances may differ than the assumptions used here and qualified legal and tax advice are beyond the scope of this article, but here are few legal issues you should keep in mind if you are a foreign citizen who is considering buying property in Kiev. As a foreign citizen, you have the right to buy and own property in Ukraine. However, in Ukraine ownership rights of buildings and land are separate–as a foreign citizen or legal entity, you may acquire the land ownership rights for a property (i.e. building) you already own or have received through inheritance. If you plan to buy in Kiev remotely, or not spend more than a few days in the city at any one time, then it’s a good idea to have your lawyer draft a Power of Attorney, which authorizes individuals to complete legal formalities in your absence. If you plan to use a power of attorney that was not drafted in Ukraine, keep in mind that this document must be “legalized” with an Apostille and certified translation into Ukrainian; legalizing a foreign Power of Attorney can be a hassle, so it’s generally a good idea to be in touch with a Ukrainian lawyer prior to your visit, so you can take care of this locally shortly after your arrival in Kiev.
There are four main methods to legally bring in hard currency to buy real estate in Ukraine: (a) opening a Ukrainian limited liability company (“LLC”) with charter capital that is of equal value to the target property, followed by its acquisition of the property; (b) opening an LLC with a minimum charter capital and then extends a loan to this entity from abroad for to buy the property (such loans need to be registered with the National Bank of Ukraine); (c) a non-resident buyer wires funds to cover the sales price of a property directly from his foreign bank account to the bank account of the seller in Ukraine; (d) Or a foreign buyer transfer funds sufficient to purchase the property to his investment account at a bank in Ukraine for the subsequent purchase of a property via transfer of the necessary amount to the seller’s account at a bank in Ukraine. It is also possible to legally buy property in Ukraine, where settlement is between the foreign bank accounts of the buyer and the seller, if the seller is not a resident of Ukraine, or has bank accounts that were legally opened abroad. Each of these methods has pluses and minuses.
There are also a few basic ways for non-residents to expatriate rental income from the lease of acquired real estate in Ukraine: (a) via interest payments on the loan agreement under which your property was purchased–keeping in mind that such agreements are regulated by the National Bank of Ukraine, including a maximum interest rate on the loan agreements with non-residents (which ca vary depending on the term of the loan from about 10% to 11% per annum; (b) rental income could be theoretically expatriated via dividend payments to the founder of the LLC that owns the property; however, from time to time the NBU has banned or restricted payment of dividends abroad to foreign investors, so seek legal counsel before proceeding with this strategy. (c) an owner can lease out a property using a local agent (an individual private entrepreneur or legal entity in Ukraine)–this agent has the ability to transfer the income received from the leased premises overseas to the foreign account of the property’s owner.
You should keep in mind that Ukraine has currency controls, but they are slowly being relaxed–on April 5, 2017 the percentage of foreign currency proceeds received from abroad that is subject to mandatory conversion into Ukrainian hryvnia was reduced to 50%. In addition to slowly relaxing currency controls, Ukraine is also moving closer towards implementing escrow accounts that would greatly reduce counterparty risk for skeptical investors who are considering investing in Ukraine’s real estate market. (Using an escrow account, the seller receives money only after bank or escrow agent receives confirmation of the transfer of ownership.) In March 2017 a draft law for the introduction of escrows was approved by Ukraine’s Parliament and became effective in early June; however, the National Bank of Ukraine still needs to create regulations to implement escrows.
Because most real estate on Kiev’s secondary market is priced in and changes hands for $USD in physical cash between local buyers and sellers, the majority of Kiev real estate agencies are neither capable of nor not interested in helping foreign buyers to complete a 100% “legal” purchase by bank wire payment. Some agencies may even tell you that this isn’t possible in the current environment of currency controls and regulations. But it is possible. It is also possible to structure an investment in Ukrainian real estate in a tax-efficient way and to address banking requirements with the help of experienced real estate professionals and their legal partners.
19. AN OLIGOPOLY OF LOCAL UKRAINIAN DEVELOPERS DOMINATES CONSTRUCTION OF RESIDENTIAL REAL ESTATE IN KIEV, BUT MORE VARIETY AND QUALITY IS NEEDED, ESPECIALLY FOR THE BUSINESS CLASS AND LUXURY SEGMENTS
Construction is one of the most corrupt sectors of Ukraine’s economy. And in Kiev the real estate development market is dominated by a handful of entrenched players, many of which have close ties to the city government. While big city corruption isn’t unique to Ukraine, according to The World Bank’s Ease of Doing Business Report, Ukraine ranks near the bottom for ease of obtaining construction permits, registering property, and getting electricity. These costs are passed on to Ukrainian homebuyers in the form of higher sale prices. Despite all of this, in recent years Ukrainian developers in Kiev have come along way in developing their cost controls to serve the lower and lower-middle market segments. However, with few exceptions (such as Western-investor backed Skyline) construction quality and design of business-class and luxury buildings in Kiev do not meet international standards for such housing. Historically, elite apartments in Kiev have been bought as investments overwhelmingly by local buyers. So not surprisingly architectural styles, design and building materials have reflected local tastes rather than global best practices. While the quality for luxury and business class buildings in Kiev is slowly rising, today just a handful of luxury developments in Kiev use the services of foreign architects and global design firms, and the marketing and sales of even the most expensive apartments can be primitive by international standards.
We can say that as of 2017 Ukrainian real estate developers have a strong, entrenched market position for the low and lower-middle segments of Kiev’s housing market, but the luxury and business class segments remain open for determined and intrepid foreign developers. The product mix of real estate offerings in Kiev is also lacking in diversity and this is also an opportunity for investors. For example, foreign buyers frequently inquire about loft-style apartments, but these are hard to find in Kiev, even though the city has many buildings that would be good candidates for loft conversions, this real estate product isn’t really being widely developed for Kiev’s market…yet. Lastly, some so-called experts may argue that Ukrainians won’t buy apartments in a building with mandatory turn-key renovations, but Belgian developer TPF Ukraine is proving them wrong in Lviv with one comfort class building nearly sold-out, and two other projects moving forward quickly–Kiev is still waiting for a developer to do this in a big way. And if Kiev developers were to offer quality, mandatory turn-key renovations for projects with attractive locations and rental prices, then this would do a lot to attract foreign investment.
THAT WAS JUST AN INTRODUCTION TO KIEV’S REAL ESTATE MARKET
Real estate investment in Kiev can seem daunting to many upon first glance, but if you’ve read this far then–congratulations–you’re well on your way to understanding the basics of investing here, and I guarantee that you have a ton of follow-up questions.
About the author: Tim Louzonis (email@example.com) is a co-founder of AIM Realty Kiev and AIM Realty Lviv, real estate agencies that specialize in real estate for foreign investors and expats. Tim is a long-time expat with Ukrainian roots; he first came to Ukraine as an exchange student in 1993 and returned in 2008.
Shorter versions of this article appeared in the September 2017 and October 2017 issues of Business Ukraine Magazine.
Article from: www.aimrealtykiev.com/19-things-you-should-know-when-buying-kiev-property/