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As a rule, Kiev’s expats overwhelming choose to live in the city center and usually in older historical buildings. When discussing this topic with Ukrainian friends, it’s not uncommon to hear criticisms of this choice–”it’s noisy there, the air is bad, there’s no parking, the entrance ways are terrible, those buildings have bad infrastructure, etc.”  These viewpoints and the stigma against living downtown are so commonplace that they have become conventional wisdom among large parts of the population and contribute to the underdevelopment of Kiev’s center. While downtown Kiev is regarded as a place for expats, tourists and restaurants and cafes, when compared with the historical downtowns of most European capitals the city center and neighboring Podil are still quite shabby and many buildings and apartments are in desperate need of renovation.  This article will discuss the scale of Kiev’s unrenovated housing stock downtown, current incentives that discourage investment, ideas to attract investment and modernize these historical properties, and the benefits that would result from this.

The Scale of Kiev’s Unrenovated Housing Stock

There are two basic types of older buildings in Kiev–Tsarist and Stalinist.  Tsarist (or pre-Revolutionary) buildings date from the late 19th to early 20th century, incorporate many styles (most notably Art Nouveau), and feature numerous ornate architectural flourishes.  Most Tsarist buildings are protected architectural monuments; however, it should be noted that unlike in other countries, there are no strict protections that require owners of apartments in these buildings to preserve the ornate interiors and features of their apartments–most protections are limited to a building’s street-facing exterior and common areas.  Tsarist buildings are low-rise typically with 3-5 floors (with some seeing 1-2 floors added onto the top of the buildings) and apartments in them generally feature high ceilings, large windows, thick walls and spacious living areas. Stalinist buildings (or “Stalinkas”) were built in the 1920’s to the 1950’s. Stalinkas can be taller than Tsarist buildings (up to 8 storeys tall), and apartments in them tend to be slightly smaller while ceilings can be almost as high.  While these buildings lack the ornate architectural features of Tsarist buildings, they are solidly built with spacious common areas and apartments. 

Tsarist buildings are almost exclusively located in Kiev’s center and Podil. There are approximately 1,500 of these buildings in Kiev, and assuming a conservative estimate of 5 apartments per building, all told there are about 8,000 apartments in Tsarist buildings in Kiev.  Here it should also be noted that this total includes approximately dozens of derelict buildings in prime locations. Stalinist buildings can be found in Kiev’s center and near center. There are about 1,800 Stalinky in Kiev and assuming 6 floors and 3.25 apartments per floor, there are about 40,000 Stalinist apartments in the city.   Thus, in total we can estimate that there are about 50,000 apartments in historical buildings in Kiev. So what is current condition of these buildings? And how much extensive capital repair is required? Well, after WW2 some Tsarist buildings were partially reconstructed and now feature concrete floors, partially updated heating, water and sewage systems, and no mechanical ventilation systems. But many Tsarist buildings were not reconstructed and apartments in them still have old water, sewage lines, heating systems, no ventilation and floors with the original wooden floor beams.

Insolvent and Unmotivated Owners

Many apartments in Kiev’s historical buildings were received through privatization or otherwise were acquired during the early years of Ukraine’s independence. Typically these apartments have two types of owners–elderly pensioners who lack the financial means to renovate their apartments, or long-time owners who renovated their properties often more than a decade ago and who are now unwilling or unable to refurbish them to make them suitable for modern living. Another factor contributing to underinvestment in Kiev’s historical buildings is that among local buyers in Ukraine there is a strong preference to buy apartments in new buildings or even to move outside Kiev to the suburbs. Many local homebuyers are also discouraged by the real and perceived challenges of renovating apartments in older buildings–such projects often require technical skills and planning beyond the experience of many builder-contractors, who would much prefer to renovate an apartment in a new building.  Moreover, without proper advance due diligence prior to buying and sufficient planning before renovating an apartment in an historical building, these projects of can easily go over budget and off schedule.

Disincentives for Investment

In addition to a lack of resources among some owners, cultural preferences among local buyers, and a reluctance to assume the challenges of renovating apartments in historical buildings, Ukraine’s laws and regulatory environment have also created disincentives to investing in Kiev’s historical apartment buildings. First, unlike in many other markets, carrying costs for property owners are small to non-existent in Ukraine–property taxes are currently insignificant, common charges remain quite low (although are now rising with increasing energy tariffs), and owners don’t have pay mortgages on these properties since they received them during privatization or bought them long ago–thus current owners are discouraged from investing in or selling their properties. Second, lack of eminent domain or equivalent legal mechanisms deprive Kiev’s government of the legal tools necessary to force a sale of derelict buildings that are currently subject to disputes among multiple owners, leaving these buildings undeveloped. Third, Ukraine’s legislation has established punitive “anti-speculation” taxes for owners who sell their properties after holding them for less than 3 years or who sell more than 1 property in a calendar year. For foreign non-residents the income tax on the sale of the real estate is 18% if the real estate is sold within 1 year after purchase, and 5% if it is sold between 1 to 3 years after purchase. For Ukrainian residents the tax is 5% if a property is sold within 3 years after its purchase.  The income tax on properties held more than 3 years is 1%, but if you have owned multiple properties more than 3 years and sell more than 1 of these properties during a calendar year, then there is a 5% income tax on the sale of these additional properties. Such taxes “put the brakes on investment” – indeed, not all property investors wish to be long-term landlords or run AirBnB properties for several years. Instead many investors wish to get in, exit quickly and move on to their next investment; in the US some call this strategy BRRRR investment which stands for “buy, rehab, rent, refinance, and repeat”. (Note that there are legal strategies to mitigate the impact of Ukraine’s anti-speculation taxes on real estate investment, but these strategies entail higher overhead costs for investors making them unattractive for some smaller investors, in any case such strategies are beyond the scope of this article.)

Ideas for Investment Incentives

Other countries offer interesting ideas for incentives to stimulate real estate investment and encourage renovation of Kiev’s historical downtown.  For example, real estate investors in the United States can take advantage of something called a 1031 exchange. The most popular form of a 1031 exchange is called a delayed like-kind exchange where the exchangor relinquishes the original property before he acquires a replacement property. The property the exchangor owns is transferred first and then the target property is acquired after that. The exchangor has to market his property, find a buyer, and execute a sale. Then the proceeds are held in trust by a 3rd party intermediary and the exchangor has up to 180 days to acquire the replacement property.  In this way an investor is able to reinvest his capital gains and defer taxes to the future. In addition to the benefits of tax deferment, a 1031 can also allow a property investor to shift the focus of his investments–for example, from a high-maintenance to a low-maintenance property or from one location to another location. In Ukraine a structure similar to a 1031 exchange would allow investors to harvest capital gains from properties that they have redeveloped and reinvest these gains in new investments while deferring taxes on their gains. For example, as prices rise in downtown Kiev, an investor could redeploy his capital opportunistically to areas near the center as prosperity continued to spread outward.  Creating incentives that would allow such investors to pay the lower 1% income tax on total sale proceeds if they were hold their properties for a required amount of time would keep this investment capital within Ukraine and help rebuild Kiev’s housing stock. And introducing such progressive legislation in Ukraine, would attract restless BRRRR-type investors, who wish to invest, rehabilitate their properties and quickly move on to their next investment and thus unlock investment capital from all over the world. Once Kiev succeeds in breaking the legal deadlock surrounding many derelict historical buildings, it would be helpful to create specific programs that target in investment in historical buildings to accelerate their redevelopment.  The Federal Historic Preservation Tax Incentives Program in the US provides a 10% tax credit for the rehabilitation of old non-historical buildings and a 20% tax credit for certified rehabilitation of certified historical buildings; Kiev would greatly benefit from adopting a similar program.

A Little Bit of Gentrification Could Do Some Good

Current incentives have contributed to the chronic neglect of apartments in Kiev’s historical buildings and to a underdeveloped downtown that is far from realizing its potential. While it may have become be a dirty word in other countries, Kiev could do with a little gentrification to tidy up its historical center and modernize this housing stock. A fully-renovated downtown would stimulate the economy and offer more residents the benefits of smart urban living (e.g., walkability, car-free living, etc.) while preserving the character of Kiev’s historical architecture. Of course, changing the status quo will require coordinated action and political will. But look what Ukraine’s green tariffs have done to stimulate investment in wind and solar power.  It’s time to rethink Ukraine’s chaotic approach to real estate and replace it with some similar forward-thinking policies – after all, real estate is Ukrainians’ most trusted asset class and it deserves that much.

(Please note that this is article not intended to replace qualified legal advice, but instead to introduce readers to common legal issues for foreign real estate investors in Ukraine.)

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for 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.

A version of this article originally appeared in the March 2019 issue of Business Ukraine magazine.

The post How to Rebuild Kiev from the Inside Out? Ideas and Incentives appeared first on AIM Realty Kiev.

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As we near the end of 2018, Ukraine’s economic recovery has continued to gain momentum and progress has been made on many fronts that have laid important groundwork to improve Ukraine’s long-term growth potential and to strengthen its integration with the global economy. But this November, quite predictably, tensions flared between Russia and Ukraine–this time over the Sea of Azov–which has added greater clouds of uncertainty for investors who had already been growing increasingly skittish about Ukraine in the runup period to the country’s elections next year. So what will all of this mean for Kiev’s property market in 2019? This article will review developments on Kiev’s housing market and Ukraine’s macro economy in 2018 in the context of recent and upcoming political events in order to provide property investors who are considering buying in Kiev with a framework for their decision-making in 2019.

Review of Kiev’s Housing Market in 2018

In 2018 the story of Kiev real estate remained a tale of two cities–the upmarket and premium rental market downtown that caters largely to expats, who often live in Tsarist and Stalinist buildings in a small area that represents the city’s historical center and the broader market that overwhelmingly serves the local population that tends to live in a mix of later period Soviet-era buildings and new buildings spread across a large area that is roughly the size of Berlin.  The market dynamics (prices, supply and demand) and investment potential for these two segments are quite distinct with the best returns to be found by serving the expat market in the city center, something that investors who are considering Kiev property in 2019 should bear in mind.

Continuing trends from 2017, in 2018 the supply of rental apartments in the upmarket $1,000 to $3,000/month price range in Kiev remains tight as more and more expats are moving to Kiev and rental prices have continued to rise slightly. Meanwhile demand for premium rentals ($5,000+/month) picked up only slightly. While demand for premium rentals is not nearly strong as the upmarket segment, the renovation quality of offers in the premium segment (large 3- and 4-bedroom apartments for families) remains highly unsatisfactory for many expats making it an opportunity for property investors, who can take advantage of lower per m2 sale prices and renovation costs for larger fix-upper apartments. With many investment projects on hold pending the outcome of Ukraine’s elections in 2019, we could see a pick up in demand for premium housing for expats after this uncertainty is gone in the second half of 2019.

Following a sharp rise in foreign buyer interest in Kiev property in 2017, this interest remained high in 2018 but with only a gradual increase in the number of transactions on the secondary market. But as the 2018 draws to a close more and more buyers are choosing to wait until after either the New Year or the outcome of Ukraine’s 2019 elections. So far prices for investment-grade flats on Kiev’s secondary market remain stable and have been at their current post-Maidan levels for about the past two years. While sale prices for properties on Kiev’s secondary market and rental prices for upmarket and premium rental housing are both usually priced in $USD, large movements in the hryvnia/dollar exchange rate can affect prices. But after strengthening during a year of a rising US dollar, as of late December 2018, Ukraine’s currency is about 28 UAH to the dollar–about where it began the year.

As in the previous few years, in 2018 mortgage financing remained a non-viable option for Ukraine’s homebuyers with lending rates 20%+ per year. Earlier in 2018 some Western banks had been hopeful that mortgage rates could fall to a more reasonable 9%-14% in 2019, but now these banks are less sanguine that Ukraine will be able bring down inflation and to lower its refinancing to 7-10% to make such mortgages possible (as of late December 2018, Ukraine is maintaining one of the tightest monetary policies in Europe with a benchmark rate of 18%). Instead, banks expect mortgage rates to be around 15-20% in 2019 which won’t be enough to lift prices in Kiev’s broader housing market. On the positive side, there’s more optimism that escrow management companies will begin providing buyers with services in mid-2019. This should help mitigate counterparty risk and make Ukraine’s property market more attractive for foreign buyers.

Ukraine’s Economic Recovery Continues in 2018

According to the World Bank, Ukraine’s economic growth rate was 3.5% for first half of 2018 vs. 2.5% for the first half of 2017, but then decelerated in the third quarter of 2018.  Overall for 2018 many analysts are predicting economic growth of 2.7%-3.2% with growth slightly lower in 2019 due to election uncertainties, delays in key reforms and Ukraine’s sizable public debt obligations of $17 billion in 2019-2020.  However, much like economist Paul Samuelson’s quip that “the stock market has predicted nine of the last five recessions,” economists have been proven wrong before. And in 2018 Ukraine took several positive steps to increase its economic integration with the global economy (especially the EU) and to open up key areas of its economy to foreign investment.  One particularly promising example is the energy sector, where Ukraine has begun making strides towards energy independence from Russia. 2018 saw the development of new solar and wind power projects, including those with funding from foreign private equity investors and international financial institutions (e.g., EBRD, KfW IPEX-Bank, BayernLB, etc.). New support schemes for renewables may be adopted already next year, which would be more sustainable, and would drive competition and investment in the industry, in the longer term. Ukraine also boasts the third largest proven natural gas reserves in Europe and the oil & gas industry also has an improved outlook for investment growth in the coming years, following fiscal relief, liberalization of the regulatory framework and the launch of electronic auctions for the sale of exploration and production licences, as well as efforts to improve the transparency of geological information.  In 2018 a new law on the energy performance of buildings was enacted in Ukraine, which requires energy certification of certain types of buildings and provides the platform for a broader use of energy performance contracts and energy saving technologies. A new electricity market is about to be launched based on Europe’s liberalized and decentralized model, with improvements in market entry and competition, and cross-border electricity trade.

For Ukraine 2018 was also a year of travel–Kiev airports recorded passenger growth of almost 25% and in Lviv this growth was nearly 50%, fueled by the market entry of new low cost carriers like behemoth Ryan Air and the route expansion of existing operators. And in 2019 Kiev is predicting a record number of visitors. Ukraine’s IT sector continues to hum along at 20%+ annual growth driving demand for office space in Kiev and in other major outsourcing hubs. And in 2018 Ukraine recorded a record grain harvest of 70 million tons its largest since it gained independence in 1991. Getting Ukraine’s exports to market will also require sizable investments to remove logistical bottlenecks in the country’s transport network and GE Transportation’s billion-dollar deal for new locomotives and to modernize existing rolling stock was a positive step in this direction. When looking at Ukraine’s medium and long-term growth prospects, it’s helpful to bear in mind that it is still in the early stages of its post-Maidan economic recovery with much more room to grow especially in the area of value-added exports (“Global Value Chains”). Currently, Ukraine’s share of exports that is integrated with the global supply chain is quite low at about 6% versus 27% for neighboring Poland.

Election Year Uncertainty and Investor Caution

By late 2018 many foreign investors began shelving investment plans in Ukraine until after its election results in 2019. (The outcome of Ukraine’s presidential election should be known by late April and parliamentary elections are scheduled for October 27.)  This is the predictable Pavlovian pause of investors in any election year. But Russia’s seizure of 3 small naval vessels in the Sea of Azov in November 2018 was equally predictable to veteran observers–ever since the Maidan Revolution Russia has taken actions to sabotage Ukraine’s economic recovery and growing integration with the EU. This new tension with Russia led Ukraine to declare martial law for 30 days for 10 strategic border regions which has further dampened investor enthusiasm for Ukraine.  Despite the international community’s limp response to recent Russian aggression, we can expect increased multilateral lending and technical assistance for Ukraine from the IMF, EBRD and EU. Indeed, on December 18 the IMF improved a new $3.9 billion standby-loan program for Ukraine, which will allow it to go to market and raise more public debt and receive more foreign aid. In early February 2019 Ukraine will implement its law on currency liberalization, which will relax existing currency controls, which should improve conditions for foreign direct investment. In 2019-2020 Ukraine will face sizable large foreign debt payments of $17 billion, the country’s need IMF support will probably limit the maneuvering room of political candidates like Yulia Tymoshenko and their populist promises to potential voters and help maintain support for key reforms that are condition of continued IMF lending.

Predictions for Kiev Real Estate in 2018

Not surprisingly, many investors who are considering Ukraine are hitting the pause button until after its elections, But if you’re thinking of buying investment property in Kiev should you also wait on the sidelines? Sure it can be difficult to cut through the “noise” of the 24/7 news cycle and see past the “bad optics” of the current tensions in the Sea of Azov. But if you’re a buyer who plans to hold your property for the medium to long-term term and are attracted by gross current yields that can be 10-14%+, then waiting would just mean you’ll have more competition for good deals when elections are over. Given that sale prices for investment-grade properties have been at current levels for about two years and Ukraine’s economic recovery is well underway, it’s doubtful that these prices will decrease in 2019.  In fact, it’s far more likely that we’ll start to see price increases after Ukraine’s elections. Buying property in prime locations at historically low prices with strong appreciation potential and achieving high current yields by renovating these properties to let as premium rentals (which are in short supply) is hardly a radical investment strategy; however, in the current news cycle it will appear contrarian to many. Thus for most of 2019 we can expect that herd thinking about Ukraine will mean a prolonged buying period for properties in Kiev’s historical buildings in prime locations downtown.

(A special thanks to Robert Kossmann at Raiffeisen Bank Aval, and Svitlana Teush, Head of Real Estate, Construction and Renewable Energy practices at Redcliffe Partners, for their contributions to this article.)

About the author: Tim Louzonis (tim@aimrealtykiev.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.

A version of this article originally appeared in the January 2019 issue of Business Ukraine Magazine.

Want to avoid the hassle of renovating your apartment in Kiev? Want to maximize the ROI of your investment property with an interior design tailored to the requirements of Kiev’s rental market? Learn more about AIM’s Turnkey Service for Investors.

The post What Can We Expect from Kiev’s Housing Market in 2019? A Forecast appeared first on AIM Realty Kiev.

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From 2013 to 2017 Ukraine’s hryvnia plummeted 70% and during that period premium rental rates decreased 20-25% and sale prices for fixer-uppers downtown decreased 40-50%. Since 2017 Ukraine has made great strides in restarting its economy, turning West, and reorienting its economy towards the EU.  Today in 2018 GDP growth is a bit above 3% and forecast to be higher in 2019, more than half a million Ukrainians visited the EU in the first year after visa-free travel was granted, and Ukraine’s trade turnover with the EU increased by 27% in 2017–the first promising results of the EU-Ukraine Partnership Agreement.  Meanwhile, Ukrainian Presidential and Parliamentary elections loom on the horizon in 2019 and most observers expect momentum for reforms to stall until after elections. So the conventional wisdom is that foreign investors who are considering Ukraine will also hit the pause button and wait for election results. But what do all these developments mean for a investor who is considering Kiev’s property market? This article will discuss several questions. Where are we now with prices?  Have Kiev property prices reached their bottom? Where are today’s best buying opportunities for investors? What factors will drive price increases in the future? And is the end of these buying opportunities near?

Buying Opportunities on Kiev’s Property Market

From 2015 to present-day 2018 Kiev has witnessed a building boom that many are calling a “bubble.” But for property investors this is a moot point–today if you’re looking for the best returns, then investing in Kiev property remains a “niche play” where most of the best deals are to be found on the secondary market in historical buildings in the city center.  Prices for these investment-class fixer-upper properties have been stable/at the bottom for the past 1.5 to 2 years with prices of $1,500-2,000/m2 depending on an apartment’s condition. With sales prices for these flats reset to early 2000’s levels, a tight supply of premium long-term rental housing downtown, and rising demand, current yields can be 10-12%+ when you buy the right property in the right location and renovate it to suit expats’ tastes. Moreover, renovated flats in AAA locations have strong price appreciation potential.  In 4-5 years it’s likely that sale prices could reach pre-Maidan 2014 levels of $4,000/m2 for renovated apartments in prime locations.  This would mean that Kiev’s prices would reach about 50% of current prices in Paris–a fairly conservative forecast for prices in the center of a capital city of a European country where real estate is the most trusted asset and holder of value.

What’s the catch you might ask?  Well, while the quantity of unrenovated apartments in prime locations in Kiev remains sizable due to low carrying costs for property owners (low communal charges and minimal property taxes), and sale prices that are well below historical highs, the quantity of good buying opportunities at any one time can be quite low with an extremely short time on the market, sometimes it’s just a matter of days before a quality property is “under contract.” So investors need a broker with excellent market intelligence and should be prepared to move quickly when good deals appear on the market.  Here it should also be mentioned that Kiev has many derelict historical buildings in prime locations that would be excellent candidates for conversions to luxury apartments, but today virtually all of these buildings are subject to legal disputes among multiple owners, and Kiev’s government currently doesn’t have the legal tools to force a sale of these properties, and so excluding one-off opportunities for savvy buyers with good legal teams, investors will probably need to wait at least another year or two before overall conditions improve for the purchase and renovation of these buildings on a mass scale.

But what about investing in new buildings? The vast majority of new apartment buildings are not investment grade properties for several reasons: prices for apartments in new business class are much higher than fixer-uppers resulting in unattractive purchase price to rent ratios, there are virtually no new buildings in the small area that represents the prime location for premium rentals. While it’s theoretically possible to get attractive returns if you buy in a quality new building at pre-construction prices, current rents are much lower outside the city center, and there’s a growing supply of new buildings outside the center that will hold down rents in those districts. It is true that prices for elite apartments in some new buildings have appreciated slightly with some developers starting to ask for $2,500/m2 during the pre-construction phase,  these developers are feeling more confident about the pickup in the economy, but their target buyers are “locals with money” and these apartments are not necessarily investment-grade properties due to their locations in Pechersk and Holosiiv districts.

When Will Mortgages Return to Ukraine?

Now that Ukraine’s economic recovery is already well underway, many are asking when will mortgages return to the housing market.  But as of August 2018, it’s difficult to predict exactly when mortgages will again become a viable option in Ukraine. The key roadblock remains inflation–Ukraine’s National Bank has targeted 8.9% inflation for 2018, but so far it appears that inflation will be higher than that–in the low teens.  But in order for mortgages to return to Ukraine, annual inflation would need to come down to 4-7% and the NBU would need to decrease the refinancing rate (currently at 17.5%) to 7-10%, then we could expect to see lending rates of 9-14% on 10, 15, 20-year mortgages. It’s expected that many banks will begin lending in a conservative fashion by offering home equity loans to affluent borrowers who are existing customers (rather than offering new mortgages). In Ukraine there’s a pent-up demand for home equity loans that borrowers could use to refinance or repair their homes, or complete renovations of empty shell and core flats. Western banks would look to offer variable-rate loans; however, Ukraine currently lacks a benchmark for variable rate loans like LIBOR in the US and so the NBU would need to solve this problem.  Note that Ukraine’s national banking regulations forbid hard currency lending and this is not expected to change. It’s theoretically possible that some banks could lend to foreign buyers. However, based on their experience in Central and Eastern Europe, the Western banks that operate in Ukraine have been far stricter with investor lending (as opposed to owner-occupier lending) in order to clamp down on speculation and to manage risks. What does all this mean for foreign buyers? For now and in the near future–very little. Only in the medium term, will credit return to Ukraine’s housing market and push up property prices on Kiev’s broader housing market.

Key Drivers for Kiev Real Estate Prices

While it’s unlikely that mortgages will return in 2019, many other positive market developments in the near term should begin to improve the overall investment climate in Ukraine and exert upward pressure on Kiev’s real estate prices.  As previously mentioned, current economic growth is steady and is expected to continue and improve slightly in 2019. With the market entry of low cost behemoth RyanAir this fall and expanding routes of established low cost carriers, the quantity of Kiev visitors it set to take off, expanding social and business ties between Ukraine and the West; this should also drive demand for short-term rental apartments and affordable accomodations (in Kiev occupancy rates for 3-star accomodation are above 90%).  In early 2019 real estate investors can also expect to see the benefits of an escrow law that passed in 2018–some banks are planning act as escrow agents and this will help with counterparty risk mitigation during real estate transactions. Currently in Ukraine this role is performed by notaries, but it’s an imperfect, cumbersome process that requires a good broker who is capable of managing the “human factor” to minimize risks. And on February 7, 2019 Ukraine’s law on currency liberalization will be implemented, further relaxing Ukraine’s existing currency controls, which should ultimately improve conditions for foreign direct investment.

What about the effect of Ukraine’s exchange rate on real estate?  Well, despite worries about a falling hryvnia in the late summer of 2018, as of the end of August, the exchange rate is essentially where it was when 2018 began at around 28.15 hryvnia to the US dollar. It’s helpful to keep in mind that since the beginning of 2018 the US dollar has risen about 5% against major currencies like the pound and Euro. For many analysts the strengthening of the hryvnia in the first half of 2018 was unexpected and according to them now we’re just going through a readjustment (indeed, Ukraine’s 2018 budget is based on an average rate for 29.1 to the $USD). Even if the hryvnia should start to fall, buyers should be aware that historically Kiev real estate prices decrease on a percentage basis far less than the hryvnia during a devaluation. For example, typically a 20% devaluation can translate to about a 5-7% drop in real estate prices; and so if the hryvnia devalues by less than 10% don’t expect to see a significant impact on real estate prices.

Gentrification and urban renewal are another medium term price driver that buyers of fixer-uppers downtown should take into account. In Ukraine the global urbanization trend is just beginning and today’s buyers of Kiev apartments in historical buildings are at its vanguard. But for gentrification to gain momentum it will require the renovation of derelict buildings in the historical center, improvements to infrastructure and services downtown (e.g. big supermarkets, etc.) and a cultural shift in local attitudes towards life downtown and living in older buildings.  Currently, affluent locals in Kiev overwhelmingly prefer to live in new buildings, but in the coming years we can expect the emergence of prosperous Ukrainian yuppie class that will value the vitality and convenience of life in a revitalized downtown.

Buy Now or Pay Later?

Does it make sense for property investors to wait on the sidelines until after Ukraine’s 2019 elections?  Well, many Ukraine observers are predicting a general continuation of the political status quo even if a new president is elected, with a resumption of incremental reforms after the election cycle. Current levels of modest economic growth are expected to continue or slightly improve in 2019 even without aggressive reforms. And Kiev’s tourism promotion agency is predicting a record number of visitors in 2019 and more than half of these visitors will be business travelers, including investors investigating the market.  So, if you’re already considering investing in Kiev property, then you don’t have much to gain by waiting. Current yields are attractive, prices for fixer-uppers have been at their present levels for almost two years, and a price increase looks imminent. But should you decide to wait until after elections you might find yourself competing with a lot more buyers in a market where the number of good deals at any one time is limited. The choice is yours.

(A special thanks to Robert Kossmann at Raiffeisen Bank Aval for his contributions to this article.)

About the author: Tim Louzonis (tim@aimrealtykiev.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.

A version of this article first appeared in the August 2018 issue of Business Ukraine Magazine.

The post Kiev Real Estate: Is the End of Buying Opportunities Near? appeared first on AIM Realty Kiev.

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People invest in overseas properties for all kinds of reasons from diversification to rental income and capital returns to lifestyle considerations such as obtaining foreign residency in another country. More and more investors are choosing to do this without traveling overseas to make their purchase.  Of course, there are some countries that require your physical presence in order to buy property in their country. But what about Ukraine? Can you buy investment property in Ukraine remotely? Believe it or not, yes you can, and here’s how to do it in 9 steps:

  1. Educate yourself about Ukraine’s real estate market.
  2. Select a capable broker whom you can trust.
  3. Sign a power of attorney (“POA”) for your broker’s legal partner to obtain a Ukrainian tax ID on your behalf and get it notarized and apostilled in your home country (or get it notarized at a Ukrainian embassy or consulate).
  4. Send the original authenticated POA to your broker by courier such as FedEx or DHL.
  5. After obtaining a Ukrainian tax ID, repeat the notarization, apostille/authentication and shipping process for a second POA for your broker to purchase property on your behalf, and if necessary, to open a bank account to effect your purchase.
  6. Effect the purchase of your investment property.
  7. Renovate your property to maximize your yield.
  8. Rent your property to a tenant.
  9. Have your property managed and collect investment yield.
Learning About Ukraine’s Real Estate Market and Selecting a Broker

Ukraine’s residential real estate market is a long way from being a place for do it yourself-investors–finding quality price and market information is not a straightforward process that’s easily done online. And Ukraine’s real estate agents are not legally required to obtain licenses, nor are they bound by a formal code of ethics, so their knowledge and level of professionalism can often leave a lot to be desired. So you’re not just looking for a broker to effect a mechanical transaction, instead you’ll need to find someone whom you can trust to be your real estate investment advisor in Ukraine, who will help educate you about Ukraine’s economy and the outlook for its real estate market.  A good broker will take the time to understand your requirements and investment goals and will help you find opportunities and avoid the potential minefields of buying an investment property in Ukraine. Your broker should also have broad and deep knowledge of the local rental market. For example, Kyiv is Ukraine’s No.1 real estate market and Lviv has emerged as the country’s No.2 real estate market, but these markets offer different opportunities. In Kyiv long-term rental apartments downtown in the premium segment rented to diplomats and corporate clients provide the best investment returns. But if you’re thinking of buying an investment property in Lviv, then short-term rental apartments in the Old Town usually offer the best returns.

Legal Matters – Documents and DHL

In Ukraine it’s not possible to use an electronic notary and digital signatures when buying property, so instead you’ll need to send original documents to your broker in Ukraine by a courier such as DHL and FedEx. Once you’ve selected your broker his legal partner can send you a draft power of attorney to authorize him to obtain a Ukrainian tax ID on your behalf (registration of ownership title in Ukraine requires an owner to have a tax code). You’ll need to get this POA notarized and apostilled in your home country. An apostille is used to authenticate your notarized document so that it may be accepted in other countries that are parties to the Hague Convention. Different countries have different procedures for obtaining apostille, so you’ll need to investigate the procedures in your home country.  Alternatively, if you live near a Ukrainian consulate or embassy, you can take the POA there and have it authenticated by a Ukrainian notary and skip the apostille step. If your country is not a party to the Hague Convention and you don’t live near a Ukrainian consulate or embassy, then you’ll have first to submit the document to your country’s department of foreign affairs, and after that submit this document to the consulate of your country and only after that to the ministry of foreign affairs of Ukraine. After obtaining your Ukrainian tax ID, you will need to repeat the notarization, apostille/authentication and shipping process for a second POA to authorize your broker to purchase property on your behalf, and if necessary, to open a bank account to effect your purchase. When agreeing upon a power of attorney, you’ll want to avoid to granting wide and ambiguous lists of powers to your broker–the more specifically it’s written, the more secure you will be. You’ll also need to consider whether you want to grant your representative the ability to transfer any of the rights under the power of attorney to any other person (this must be indicated directly in the POA); and the validity term is another the key provision of the power of attorney.

Buy, Renovate, and Manage Your Property and Collect Income

Since you’ll be investing remotely, you’ll need to a find a real estate agent who can offer you a complete, turnkey solution that includes legal and tax support, due diligence, buying a property, renovating your property in a manner that will maximize its investment yield, finding tenants, and managing the property. Here it should be noted that investment-grade properties in Ukraine with attractive yields almost always require some form of renovation (partial or complete), so investors should bear this expense in mind when budgeting their property investments in Ukraine. You should also keep in mind that Ukraine currently has currency controls and strict banking regulations, so you’ll want to find a broker who has experience working within these rules to help foreign clients buy property by overseas bank wire transfer and can advise you on the best way to structure your purchase to allow you to repatriate rental income, pay your Ukrainian taxes, and sell your property in the future. Very few brokers in Ukraine have this experience, since most apartments in Ukraine change hands in exchange for physical cash ($USD or Euro).

If it Were Easy…

Well, there you go–buying property in Ukraine remotely is possible–it isn’t necessarily easy, but it’s not incredibly difficult either.  As with many things, the biggest steps here are the initial ones–getting comfortable with the investment case for real estate in Ukraine and finding a broker who can act as your trusted advisor, someone who you feel will be capable of delivering you an investment asset and income stream on a turnkey basis no matter where you are.

(A special thanks to attorneys Vasyl Cherednichenko and Tetiana Yashchenko at the law firm ExpatPro for their contributions to this article. Please note that this is article not intended to replace qualified legal advice; you should also bear in mind that your specific circumstances may differ from the assumptions used here.)

About the author: Tim Louzonis (tim@aimrealtykiev.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.

A version of this article first appeared in the May 2018 issue of Business Ukraine Magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post Can You Buy Investment Property in Ukraine Remotely? Yes, Here’s How. appeared first on AIM Realty Kiev.

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If you are unfamiliar with Ukraine, renting an apartment for the first time in Kiev or buying an investment property here can seem risky.  But does reality match this perception? Tenant rights can be a key concern for foreign investors from EU countries or US states where tenant rights can be quite strong and fraught with risk for landlords. This article discusses tenant and landlord rights in Ukraine and provides real world broker tips for renting, letting and investing in property as well as an overview of legal issues connected to these rights.

Let’s Be Practical, Tenants

Unlike Western countries, Ukraine does not have a strong legal system, where plaintiffs and defendants can reliably expect swift and expeditious justice. So, in most cases using Ukraine’s court system to resolve disputes between tenants and landlords is not a practical solution that can be worth the time and expense. When it comes to rental agreements between tenants and landlords, it’s best to think of these documents as a “gentleman’s agreement on paper” for a personality-based transaction. For example, if you’re a tenant looking to rent a flat in Kiev, instead of approaching this transaction with a legalistic mindset based on your tenant rights according to Ukrainian legislation, it’s more pragmatic to rely on your intuition and a solid pre-rental checklist. First, go with your gut, do you like the owner or does he or she leave you with a funny feeling? If you’re a little unsure about the owner, but think that he or she would be a “pain in the neck” consider the owner as an additional expense if you think you’d be getting a really good deal, but be careful. Second, before signing a rental agreement, make sure that you or your broker checks the online registry for scans of the apartment’s ownership documents to make sure that the owner’s info matches that of your potential landlord. These checks can be done online for a nominal fee, just keep in mind that brokers in Ukraine are not legally bound to perform these checks, and not all Kiev brokers are overly concerned with their reputation and won’t go through the trouble of checking ownership documents, even if they tell their client that they did. If ownership documents for the flat of your potential landlord are unavailable online, this could be a potential red flag, so be careful. Third, sometimes landlords will engage a representative to act on their behalf; in this situation, check that the owner’s rep has a valid power of attorney, that this individual is included in the rental agreement, and that the owner’s representative provides his/her passport for inspection. Note that if you or your organization will be renting an expensive flat in Kiev (and perhaps paying several months rent in advance), then it’s also a good idea to check if whether the apartment you’re considering is pledged as collateral, has any liens against it or is subject to any court decisions in Ukraine’s legal system.  Whether or not a flat is pledged as collateral can be checked by your broker in the online property registry, a notary can check whether a property has any liens against it, and verifying whether a property is subject to court decisions can be a bit trickier to check, but can be done by capable lawyer.

If you’re renting an apartment in Kiev, watch out for scams. It may seem obvious, but don’t ever pay for an apartment before viewing it. Don’t accept copies (instead of originals) of ownership documents from someone claiming to be an apartment’s owner. Insist that the owner bring his/her passport to a lease signing. You don’t want the actual owner of an apartment to show up after you have already paid the first and last month’s rent. Oftentimes, an disreputable broker and an owner can even collude in such scams, then “Ivan Ivanovich” the broker disappears across the Dnipro to Kiev’s Left Bank never to be heard from again–a majority of brokers in Ukraine use emails without their first name and surname and “disposable phone numbers” are cheap and easily obtained. Sometimes scams of tenants can be hard to imagine; one acquaintance of mine shared his experience of renting a flat in Obolon, where after signing an agreement he moved in to discover that all of the household appliances (refrigerator, TV, etc.) had been replaced with much cheaper ones. It should be mentioned that your risk of being scammed as a tenant drastically increases as your budget decreases and as you move further outside of Kiev’s center, but everyone should be careful.

Rental Contract Tips for Tenants

While tenants in Kiev should consider their rental agreement as a written expression of their verbal agreement with their landlord, to avoid misunderstandings in the future, certain areas should be specifically defined in your rental agreement, which should be a dual language agreement. For example, it can be a good idea to include a clause like “upon mutual agreement the tenant’s deposit can be used as the last month’s rent.” In Ukraine there is no legal requirement for landlords to put your security deposit in escrow, and often a landlord may not have the money to return your deposit when you move out. Many rental agreements allow for tenants to move out by giving 30 days notice, but also see if you can include a clause that obliges the landlord to return to you any pro-rated, unused rent. Some landlords may try to include clauses that require tenants to pay for deep cleaning and repainting their apartments, make sure that you or your broker resist the inclusion of such unreasonable terms. It’s also a good idea to get a signed receipt from your landlord each time that you pay the rent (if you’ll be paying in cash), since there have been cases when unscrupulous owners demanded a repayment of the rent, because they knew that the tenant did not receive a receipt. If your landlord requires any payments other than rent (damages, increase of fees), then contact a lawyer for advice.

Quick Summary of Tenant Rights and Obligations in Ukraine

Tenant rights in Ukraine are pretty standard, including: the right to lodge others for permanent residence with the consent of the landlord; to lodge others for temporary residence, with prior notification of the landlord–consent by the landlord is not stipulated but Ukraine’s Civil Code contains provisions that require the tenant to evict those persons permanently residing with him from the premises within 7 days from a demand for eviction by the landlord; a tenant has the preferential right to sign/extend the lease agreement for a new term; and he has the right to sublease the property (with the landlord’s consent). Tenant obligations in Ukraine are also straightforward, including: not renovating the flat without the landlord’s consent; making timely rental payments and for utilities/communal charges (unless otherwise specified in the rental agreement); specifying in the agreement those persons who will be living with the tenant (such persons have similar tenant’s rights and obligations regarding use of the property); carrying out maintenance of the housing (unless otherwise stipulated in the agreement). One tenant obligation in Ukraine that can have tricky real world consequences is that tenants are obliged protect the housing and maintain it in good condition–in fact, in the same condition that is was at the time the rental agreement was signed. Kiev landlords are not always reasonable when it comes to taking into account the effects of the normal “wear and tear” on their apartment and may try to aggressively overcharge you for “damage” that did not result from your negligence. As a tenant, the best way to mitigate this and other possible risks is to use your intuition before you sign a rental agreement with a landlord–ask yourself, “Does this person seem reasonable?”

If a conflict with your landlord does arise, it’s is always better to negotiate with him or her to resolve it. Negotiations with your landlord can be based on the non-disclosure your dispute (in order not to damage your landlord’s reputation) and not reporting your dispute to the tax authority (it’s not a secret that Ukrainian landlords often do not pay taxes on their rental income). If your dispute with your landlord goes to court, then it won’t be cheap–it’s necessary to pay the court fee (at least 1 percent of the amount of the claim) and for the work of your lawyer. Also, the court process will take a lot of time–at least half a year.

Landlord Rights, Tips for Landlords and Would-Be Owners

In everyday conversation landlords get about as much sympathy as bosses and just a touch more than politicians. But consider this, in Kiev a nicely-renovated small flat in the center that rents for $600 per month can be worth $100,000 to $150,000. And in Ukraine it’s rare that a tenant pays first and last month’s rent AND a security deposit. So in this situation a negligent tenant could potentially cause far more damage and lost income to landlord than could be covered by the prepaid last month’s rent. And negligent expat tenants can just leave Ukraine, leaving landlords with zero legal recourse to recover their losses.  Often landlords will insist that tenants are not allowed to smoke in their apartments, or live with people who are not listed in the rental agreement, but these things and other tenant behavior can be hard to control. On paper, landlords in Ukraine do have certain rights. For example, a rental agreement may be terminated by a court: (a) if a tenant fails to pay the rent for six months if the lease does not set a longer period, and in the case of short-term rentals, if the tenant fails to pay more than twice; or (b) in the case of destruction or damage to the property by the tenant or other person for whose actions he is responsible. In such cases, eviction from the housing in the event of termination of the lease agreement can be made only by a court decision. But as a practical matter, in Ukraine there’s a greater risk of a tenant not paying, damaging a property and disappearing than there is of him or her continuing to live there while acting in bad faith.

Background checks of potential tenants that include proof of employment and employer information can be a good idea for landlords. In Kiev one way to filter out potentially unsavory tenants can be to insist that rental payment be made by bank wire transfer. Many Kiev landlords don’t declare their rental income for tax purposes, while several international organizations are required to pay for housing by bank transfer for their employees. So Kiev landlords with nice flats downtown who insist on payment by bank transfer can often demand a 5-10% premium over market rental rates, which could be more profitable for them depending on their tax structure (i.e., they are registered as a private entrepreneur or “FOP” in Ukraine).

If you will be letting your flat in Ukraine to a foreign citizen who will be registering in your apartment for his/her residence permit, then always include a clause in the rental agreement that provides for the right to cancel the tenant’s registration upon termination of the lease agreement. In the agreement it should also be noted that in the event that the tenant’s residence permit is cancelled, he or she must immediately notify the landlord and the landlord may then terminate the lease. Otherwise, a landlord may be threatened with assisting a foreigner who is illegally staying in Ukraine. Also, as sponsor for your tenant’s place of residence, you as his landlord can demand a power of attorney from your tenant’s employer to unregister him from the place of registration. Having implemented these simple steps, the owner of an apartment can safely register a foreign citizen as a tenant in his apartment and there are no negative consequences for doing so.

The Bottom Line for Tenants, Landlords, and Investors

For investors who are considering buying investment properties in Kiev, you should be aware that while rental agreements in Ukraine can be moderately “tenant-friendly,” most risks can be mitigated by carefully screening your tenants, and tenant rights in Ukraine do not resemble the strongly tenant-friendly rights in found many EU countries and US states. Like most things in Ukraine, whether you are a tenant who is considering signing a rental agreement with a Kiev landlord or an owner who is considering letting out his or her flat, never forget to take into account the “human factor” and make this the chief basis for your decision-making.

(A special thanks to attorneys Vasyl Cherednichenko and Tetiana Yashchenko at the law firm ExpatPro for their contributions to this article. Please note that this is article not intended to replace qualified legal advice; you should also bear in mind that your specific circumstances may differ from the assumptions used here.)

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for 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.

A version of this article originally appeared in the April 2018 issue of Business Ukraine magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post Tenant and Landlord Rights in Ukraine – Tips for Renting, Letting and Investing in Property in Kiev appeared first on AIM Realty Kiev.

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It’s a fact that there’s a severe lack of multi-bedroom apartments with western-style renovations for lease in the very center of Kiev, as most apartments in this area are occupied by two main groups of people who are not investing in the properties. The first group consists of elderly/retired people without the financial means to refurbish their apartments. The second is people who acquired these apartments more than a decade ago and renovated them back then, but now they are unwilling or unable to invest in order to update the interiors and/or the engineering infrastructure. When it comes to newly developed residential buildings with apartments that meet expats’ standards, there are few in Kiev’s center due to a lack of vacant land plots and in any case such apartments are usually occupied by wealthy local owners, or left empty by these owners who often have unreasonably high asking prices and don’t want to rent them out “for cheap.” Meanwhile, Kiev has scores of derelict historical buildings in prime locations that could be excellent candidates for redevelopment as premium housing. This article explores the investment case for redeveloping Kiev’s historical buildings as residential housing and discusses market demand, potential yields, redevelopment strategies, and legal issues that potential buyers should bear in mind.

(Please note that this is article not intended to replace qualified legal advice, but instead to introduce readers to general strategies for foreigners wishing to invest in real estate in Ukraine; you should also bear in mind that your specific circumstances may differ from the assumptions used here.)

Kiev’s Expat Housing Deficit and Market Opportunity

In Kiev landlords were spoiled by the good times of pre-2008 financial crisis and pre-Maidan prices and many haven’t updated their price expectations to present-day realities. Meanwhile, many embassies have strict and lengthy housing requirements for safety and security covering everything from electrical load capacity and grounding to the dimensions of stairs and handrails, to elaborate requirements for entrance doors and locks. While diplomats can make excellent tenants (large budgets, often sign leases for 2-3 years), local landlords already depressed by “low” prices are reluctant to take on additional expenses to retrofit their apartments to make them compliant with embassy housing requirements. Thus, Kiev’s deficit of housing that meets expat tenants’ requirements pushes up prices–even non-diplomat expats can’t understand why they should “pay more for less” when compared with rental prices in other Central and Eastern European capitals. And with Ukraine’s economy just starting to grow again this deficit is expected to become more acute in the short and medium terms if more premium rental housing is not brought online downtown quickly.

Redevelopment Strategy for Premium Rental Housing

Unlike much of the world, Kiev has almost no purpose-built rental housing; and nothing like this exists for the premium segment. In Ukraine it’s not considered “prestigious” to live in rental housing. And local developers, who are interested in the potentially higher returns offered by apartment sales, don’t want to trouble themselves with renovating, furnishing, and managing apartments–why bother with all these details when you can sell a buyer an unrenovated “shell and core” with decent margins?  Besides, these developers lack the experience and expertise to develop and manage premium rental housing to meet the needs of premium expat clients–thus far they haven’t shown the ability to conduct even rudimentary market research to create a housing concept that meets a clear market need for any segment. A farsighted foreign investor with redevelopment experience could fill this gap in the market with a housing product tailored to the needs of expat tenants. For example, an entire building could be redeveloped taking into account all of the safety and security requirements of embassies together with foreign tenants’ preferences for design and functionality. What about investment yields? Today in Kiev savvy buyers have been able to achieve 10-12% gross yields on apartments in older buildings in the prime rental district (Golden Gate-Universytet-L’va Tolstoho-Teatralna), and similar or higher yields could be achieved by an investor who buys and renovates the right building in the right location.  Foreign investors who are concerned about currency risk should keep in mind that prices for premium rental apartments in Kiev are fixed to the dollar or EURO.

Legal Considerations for Buying an Historical Building in Kiev

Here’s a brief introduction to some of the key legal issues for foreign investors who are considering buying an historical building in Kiev.  In Ukraine your acquisition could be structured as either an asset or share deal. Unlike a share deal, an asset deal may be VAT-able. In a share deal, it is important to analyze and structure the legal and corporate presence of a buyer, taking into account investment protection and profit repatriation considerations. Debt or equity financing of acquisitions can be used, and each has a particular impact on cash flow and taxation. A foreign entity without permanent establishment or a foreign individual who owns a building in Ukraine should register with the tax office through an agent, who will on its behalf pay the real estate property tax. Lease payments paid by a Ukrainian resident lessee to a foreign entity or individual are subject to withholding tax at the rate of 15%, unless a relevant double tax treaty provides for either a lower tax rate or tax relief. For some deals, antimonopoly clearance might be needed where parties to a deal have turnovers which exceed the established financial thresholds. Some leases associated with a change of control can also call for antimonopoly clearance. Recently introduced in Ukraine, escrow bank accounts can be used to allocate and mitigate risks during the acquisition of a building.  Thus far this tool has mainly been used for large capital projects, but it can also be used for the acquisition of smaller assets such as buildings or apartments if the parties are prepared to incur the related costs. Today escrow can only be used through the banks and under Ukrainian law, notaries and attorneys are not yet eligible to serve as escrow agents.

Since Ukraine’s online public register of real estate has only been operating since 2013, for checking title and encumbrances a thorough due diligence is recommended, including investigation into the history behind the target property and previous transfers of title to it, as well as an assessment of any ongoing disputes which might prevent a sale or affect the title of a new owner (many derelict buildings have ongoing disputes that would need to be resolved). The general statute of limitations in Ukraine is three years, but it does not provide an absolute guarantee against third-party claims against a new owner; in certain instances the courts can renew the statute of limitations. To secure the legal ownership of a property against future claims by third parties, legal due diligence is strongly recommended. Ideally, not only should the current title be checked, but also the history of the property including previous transfers of title. Some unusual practices have developed in Ukraine to protect ownership; for example, registering a mortgage on such a property in favour of a related party, and reselling a property through a chain of related buyers. A buyer should also check the title to a land plot underlying the target asset and identify whether it provides for ownership, lease or permanent use. The cadastral number of an underlying land plot should be indicated in a sale and purchase agreement for a building or premises. However, this does not entail the automatic transfer of title to the land, and the buyer of a building also needs to acquire and register rights to this land plot, if possible. This is because separate title documents each certify rights to a plot of land or building, and the procedures for each may differ.

Renovations or reconstruction that have been performed without proper permits, or are otherwise illegal, can affect or prevent a deal even where both parties are interested in it being completed. A buyer should check the technical passport for a property, and ensure that it is updated to reflect renovations (reconstruction). It is difficult to sell real estate which has been illegally renovated, and a court ruling may be necessary before a buyer and a seller can proceed with a deal. Whether a particular renovation requires any permits and changes to a technical passport and title document needs to be checked on a case-by-case basis. This depends on the nature and scope of the works as well, as the effects on a building. When buying real estate you should check it for compliance with the purpose of its use as set out in its title document, as well as the urban development plans and limitations, zoning plans, and other city planning documentation. This is not always systematized and publicly available online, and checks may need to be made with the local authorities. The purpose of real estate may be changed (for example, from residential to commercial) in accordance with the procedure established by local authorities, which varies from city to city.  When buying an older building in Kiev it is especially important to check whether the target property is a monument of architecture–such cultural heritage sites have a special legal status which aims to protect and enhance their integrity. Various restrictions and/or requirements can apply on the transfer of ownership, a change in the mode of use, or renovations of the property which can or cannot be undertaken on it and the surrounding area. It may be necessary to enter into special “protection” contracts with relevant state authorities which manage the protection of cultural heritage. Renovations can either be entirely prohibited, or allowed subject to strict procedures and requirements, depending on the status of a property and the terms of a protection agreement.

If it Were Easy…

As the saying goes, “if it were easy, everyone would do it” and this certainly applies when it comes to buying and redeveloping a derelict, historical building as premium housing in Kiev’s center.  And yet market demand and potential investment yields are enticing. It’s certainly not an easy prospect, but a savvy foreign investor teamed with experienced real estate and legal advisors should be up to this challenge.  We’ll see.

For their contributions to this article, a special thanks to attorneys Svitlana Teush and Robert Shantz with Redcliffe Partners.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for 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.

A version of this article originally appeared in the February 2018 issue of Business Ukraine magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post The Investment Case for Redeveloping Kiev’s Historical Buildings as Housing appeared first on AIM Realty Kiev.

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As 2017 draws to a close, the hopeful signs Ukraine’s nascent economic recovery that we first saw in 2016 have borne fruit and now as we look forward to 2018 there are even more reasons for guarded optimism–various economic forecasts for Ukraine project economic growth at 3% or more in 2018 and Ukraine topped a list of planned travel destinations among hedge funds investing in the EMEA region according to a summer 2017 survey by Institutional Investor Magazine. So with these positive signs in mind, what can we expect from Kiev’s housing market in 2018? This 2018 forecast reviews 2017 trends for Kiev housing including pricing for rentals and sales, how Ukraine’s currency could affect Kiev real estate prices, political and economic risks for Ukraine, and includes some predictions for 2018.

Quick Review of Kiev’s Housing Market in 2017

To quote Quaithe from Game of Thrones, “to go forward, you must go back” and so let’s quickly review Kiev’s housing market in 2017 as we look forward to 2018. In late 2017 rental prices for apartments in Kiev’s center in the $1,000 to $3,000/month price range have begun to creep back up since the supply of expat-suitable housing is very tight and many companies have begun to bring in expat employees and mid-level managers. At the same time, demand remains relatively soft for premium rentals of $5,000/month and higher which are typically rented by ambassadors and country directors. But if the optimistic economic forecasts for Ukraine in 2018 will be realized, then at long last we could expect to see a gradual return of big-budget country managers to Kiev’s rental housing market in 2018. And if these managers do return, then they will find that Kiev has a woeful undersupply of high quality 3 and 4-bedroom apartments that will meet their requirements. Since 2015, rental rates for Kiev apartments in the middle and lower segments have been fixed in hryvnia and fluctuate with the hryvnia exchange rate and this practice will continue in 2018.

Among foreign buyers in Kiev the second half of 2017 marked a decided shift in sentiment and activity–if in 2015 and 2016 interested buyers typically asked brokers “have we reached the bottom yet?” Now in late 2017 more and more potential buyers are asking “How much longer will the buying these opportunities last?” While sales of downtown apartments on Kiev’s secondary market continue to be relatively soft when compared with 2016, foreign buyer interest and purchases sharply increased in 2017 and it’s expected that this trend will continue to strengthen in 2018. In late 2017 sale prices of downtown apartments on the secondary market remain stable and if Ukraine’s hryvnia continues to fluctuate then we can anticipate that prices will not rise much in 2018 even if demand keeps picking up.  And who are these foreign investors who are buying Kiev apartments in 2017? Well, if the hryvnia’s plunge in 2015 attracted amateurish wannabe vulture investors seeking “fire sales” and quick profits, then 2017’s foreign buyers are typically clear-eyed veteran value-investors, who have prior experience investing in Central and Eastern Europe and other emerging markets, and take a long-term view towards their investments and are ready to do the hard work of investing in an emerging market.

And what about sales of new apartments on Kiev’s primary market in 2017, 2018 and beyond? For several reasons, and with few exceptions, Kiev’s new apartment complexes offer few promising opportunities for foreign investors who are seeking to maximize their returns. First, in all price segments new apartment buildings in Kiev are commissioned with completely unrenovated apartments, which depresses potential rental yields (few tenants want to live in a construction zone for 3-5 years). And second, few new complexes are located inside the tiny area for premium rental apartments preferred by Kiev’s expats. By some accounts, Kiev had more than 70,000 unsold new apartments by the late summer of 2017. This situation creates the impression of a housing bubble in Kiev. But is this actually the case? And even if this does represent some kind of bubble is it something that foreign investors should worry about as we look towards 2018 and beyond? The answer is “no.”–the bulk of these unsold apartments represent budget housing and are located well outside the prime rental area of Kiev, so they won’t depress rents downtown. And why are there so many unsold apartments in Kiev? One big reason is the utter lack of proper market research and planning by Kiev’s oligopolistic developers prior to construction which has led to generic, undifferentiated products that are built without any clear target market in mind. For example, IT is the one of the most dynamic sectors of Kiev’s economy, but if you’re a senior IT developer, then who is building apartments with you in mind in 2017? The answer is nobody.

What Could Go Wrong? Putting Ukraine’s Rosy Economic Forecasts in Context

As we close 2017 the business headlines for Ukraine are decidedly more upbeat than the political headlines. But show me a country where this isn’t the case in any year. At any rate, it’s a general rule that enthusiasm among politicians for deep economic reforms tends to wane as they get closer to the next election cycle. The energy and pension reforms being pushed by IMF would hit pensioners the hardest and Ukrainian politicians have been proven reluctant to antagonize these voters; so it wouldn’t be surprising if reforms were to slow down in 2018 as politicians look towards 2019 elections. Stalled economic and anti-corruption reforms could undermine support of the EU, US and IMF, the latter is especially important to maintain stability of the hryvnia in 2018. But the mostly likely scenario is that Ukraine’s current economic growth will continue to accelerate in 2018 based on growing domestic demand and Ukraine’s politicians will do just enough to retain US, EU and IMF support. In 2017 Ukraine’s currency has depreciated against both the US dollar (a bit more than 3%) and the Euro (a much more significant 14+%)  Currency instability is certainly a potential risk for Ukraine’s overall economy in 2018. But property investors should also keep in mind that rental rates for premium rental properties in Kiev’s downtown are fixed in dollars or Euro. As for external risks to Ukraine’s economy in 2018, we cannot forget about Russia with its “genie, please kill one of my neighbor’s cows” political culture that’s based on envy and schadenfreude–Putin and his supporters will continue their efforts to hold Ukraine down and discourage foreign investment. But in 2017 far fewer potential foreign investors have seemed concerned about the situation in the Donbas as compared to prior years. And the global economy is again awash in liquidity and the current Bitcoin bubble reminds one of the 1999 Internet bubble and the 2008 Housing bubble, today’s party will end at some point, but it’s uncertain whether that will happen in 2018.

Bottom-Line Predictions for Kiev Real Estate in 2018

To sum up, in 2018 we can expect an acceleration of the 2017 trends that we see for Kiev housing on the secondary market–increasing numbers of expats seeking rental housing and the supply of premium housing will grow even tighter in downtown Kiev, and more and more foreign investors, property funds and “big budget buyers” will enter Kiev’s housing market in 2018 to address this need.  If this were a holiday wish list instead of a forecast, then we’d ask Santa to bring a foreign investor with an appetite for risk and a long-term view who would buy a derelict historical building in Kiev’s downtown, redevelop it as premium residential housing, and start a new trend. We’d also ask Santa to help a local developer to discover modern marketing or to bring an enlightened foreign developer to Ukraine’s market and offer homebuyers an innovative housing product that’s based on market research, targeted to a specific market niche and sold with turn-key renovations instead of unrenovated apartments. While we’ll probably have to wait beyond 2018 to get these “gifts,” for certain segments of Kiev’s housing market, 2018 has the makings of a good year.

(A special thanks to Yaroslav Ploshko and Alexander Smirnov at CMS Group for their marketing insights for Kiev real estate.)

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for 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.

A version of this article originally appeared in the December 2017 issue of Business Ukraine Magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post What Can We Expect from Kiev’s Housing Market in 2018? A Forecast appeared first on AIM Realty Kiev.

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Ukraine’s laws “On the legal status of foreign citizens and stateless persons” and “On immigration” state that a foreign citizen who invests the equivalent of at least $100,000 USD in the Ukrainian economy has the right to apply for permanent residence in Ukraine. Yet despite this relatively low threshold for obtaining permanent residence in Ukraine, this approach remains one of the lesser used methods to apply for a permit. Perhaps this is because many expats who might otherwise use this approach also have local spouses and use marriage to apply for their Ukrainian permanent residence. However, marriage to a Ukrainian is not always an option for many foreigners who wish to reside in Ukraine permanently.  Moreover, recently the procedure for obtaining permanent residence on the basis of investment has been simplified.  This article discusses how to obtain permanent residence in Ukraine by buying property, the potential benefits of permanent residence, and things that foreign buyers should keep mind if they are considering this approach.

(A special thanks to attorneys Vasyl Cherednichenko and Tetiana Yashchenko at the law firm ExpatPro for their contributions to this article. Please note that this is article not intended to replace qualified legal advice, but instead to introduce readers to general strategies for foreigners wishing to invest in real estate in Ukraine; you should also bear in mind that your specific circumstances may differ from the assumptions used here.)

Ukrainian Permanent Residence Through Foreign Investment

Previously, the process of using foreign investment to get a Ukrainian permanent residence permit (“PRP”) was much more difficult because a foreign investor was obliged to register his investment with the local executive authority. But now this step is no longer necessary, and Ukraine’s legislation stipulates that the main document that a foreign investor must submit to the State Migration Service Office is a certificate from his bank that confirms the inflow of foreign investment into the Ukrainian economy in foreign convertible currency for an amount not less than the equivalent of $100,000 USD.

The procedure for obtaining a Ukrainian permanent residence permit through investment is as follows:

  1. Obtain a “no criminal record” certificate from the country of your current residence with an apostille.
  2. Pass a local medical examination and get a document that shows that you are not addicted to drugs or alcohol and do not suffer from any infectious diseases.
  3. Open a private investment bank account at a Ukrainian bank. (Before doing so, you will need to obtain a Ukrainian Tax ID, which is a fairly simple process that your lawyer can assist you with.)
  4. Transfer your money (not less than the equivalent of $100,000 USD) from your private overseas account to your Ukrainian investment account.
  5. Open a legal entity in Ukraine in your name. For real estate investment, this should be a limited liability company (“LLC).
  6. Transfer the money from your investment account to the LLC`s account in form of a share capital contribution into the authorized capital of the LLC. After this stage, the amount of the investment will appear in the LLC’s bank account.
  7. Obtain a certificate from your Ukrainian bank, confirming the inflow of your foreign investment into the Ukrainian economy.
  8. Submit your application for an immigration permit and permanent residence. A foreign investor must provide the migration service office with the following set of documents:
    • passport and its notarized translation into Ukrainian;
    • Certificate from the bank, confirming your investment;
    • Notarized copy of the foundation document of the LLC (evidencing its shares and amount of the shares held by the foreign investor in it). Usually, this is the charter of the LLC;
    • 8 photos 35 mm* 45mm on matt paper;
    • document evidencing the your place of residence overseas. (This can be a driver’s license);
    • Information about your close relatives (a marriage certificate if the you are married);
    • Medical certificate;
    • “No criminal record” certificate with an apostille.

According to Ukrainian legislation, the procedure to obtain permanent residence may take up to one year, although in practice many lawyers are able to complete this process in 2-4 months. But to be able to stay in Ukraine legally more than 90 days in a 180 period, it is advisable for a foreign investor to apply for a work permit as the director of his Ukrainian LLC and then obtain a temporary residence permit while he waits for his permanent residence application to be processed. Permanent residence in Ukraine offers certain benefits such as no longer needing a work permit, the ability to reside in Ukraine permanently, and Ukraine’s relatively low personal income tax of 18% which can be advantageous for foreigners from “high tax” countries. Also, for citizens from some countries, having Ukrainian permanent residence can simplify the process for obtaining visas to EU countries.

Buying Ukrainian Real Estate to Obtain a Residence Permit

So if you plan to use foreign investment in real estate to apply for permanent residence in Ukraine, then you must use a Ukrainian limited liability company (“LLC”) to buy your property. You would need to open your LLC with charter capital that is of equal value to the target property, followed by acquisition of the property. Eventually, after you have obtained permanent residence, it is possible to liquidate your Ukrainian company and transfer the property to your name.  While in theory the above steps for buying property through an LLC to obtain permanent residence in Ukraine may seem straightforward, in practice due to Ukraine’s existing currency control regime and banking regulations, as of 2017, very few foreign investors use LLCs to buy property in Ukraine. Moreover, the vast majority of real estate transactions on Ukraine’s secondary market  involve the exchange of “physical cash” between local buyers and local sellers, so few local real estate agencies are capable of or interested in helping foreign buyers acquire property through foreign investment into an LLC by overseas bank transfer. So foreign investors should make sure to find out if their broker has experience with such transactions before engaging his services.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes 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.

A version of this article originally appeared in the November 2017 issue of Business Ukraine Magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post How to Get Ukrainian Permanent Residence by Buying Property appeared first on AIM Realty Kiev.

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The warm weather has arrived in Kiev, the city is empty of students, and soon everyone else will be gone for their late summer vacations. Late July through August in Kiev can be an especially quiet time, but not for real estate brokers who work with expats during peak relocation season. Often such clients have big budgets, sign rental contracts for 2-3 years, and prefer to live downtown in the most sought-after neighborhoods. Their search is a mad scramble for expat-suitable housing that meets their extensive list of requirements for location, size, layout, style, renovation quality, amenities, and of course price. It’s during this “hot season” that the supply deficits and shortcomings of Kiev’s rental housing market for expats really come into focus. So if you’re thinking of investing in Kiev’s residential real estate market, then the relocation season can provide a useful lens for analysis when considering which investment properties might offer you the best annual yields and total return. This article will discuss hot neighborhoods for rental apartments, supply deficits and market inefficiencies, and possible opportunities for foreign investors.

Golden Gate–Expat Central

The area around Golden Gate (Zoloti Vorota metro) is the location of choice for many relocating expats in the upmarket and premium segment in Kiev. More than 60% of embassies and international organizations are located in this historical neighborhood, which is also home to scores of charming, upscale restaurants and cafes. Foreign tenants prefer the flatter streets closer the metro station such as Yaroslaviv Val, Reitarska, Lysenka, and Zolotovoritska. But even though many expats may have cars and/or rely on taxis, often they’re not keen on being too far from Golden Gate metro. For example, for picky tenants 28 or 30 Yaroslaviv Val, which is close to the Italian Embassy, may already be “too far” away; something to keep in mind if you’re a property investor who’s considering buying, renovating and letting out an apartment for rental income in that neighborhood.

Many apartments in Golden Gate area are in historical Tsarsky buildings (dating from the pre-Revolutionary period) and have lots of character.  But some tenants prefer the comforts and modern amenities that you can find in new buildings, such as a concierge, secure underground parking, etc. However, there’s less than a dozen new buildings in the prime rental area in Shevchenko district about a ten-minute walk from Golden Gate. These are luxury buildings (or “elite” buildings as locals would say) and rental apartments in them are pricey and in very short supply.

Green Space in the Heart of Kiev

If you’ve got the budget, it’s possible to find rental housing near green space in the very heart of Kiev.  Close to Golden Gate and extending outward from the exit of Universytet metro is the Fomin Botanical Garden; apartments on streets like Pyrohova and Leontovycha can offer especially good views of the Botanical Garden (Note that the Fomin should not be confused with the much larger, but more remote Hryshko Central Botanical Garden.) And opposite National University and close to L’va Tolstoho metro is small, but lovely Taras Shevchenko Park; L’va Tolstoho Street and tiny Tereshchenkivska Street have apartments that look out onto this park.

In terms of total green space Kiev is one of the “greenest” capital cities in Europe and it boasts several more parks and green areas, including beautiful Mariyinskyi Park (near extremely pricey Pecherski Lipki neighborhood that’s close to many government buildings), the aforementioned Hryshko Central Botanical Garden–it’s a good 1.5km+ from Druzhby Narodiv metro, however this area has modern luxury and business class complexes, particularly along Zverynetska Street that offer views of the Garden. And northwest of Kiev’s largest park. Holosiivskyi National Nature Park, are many new complexes of mid-priced and premium-class housing, some of which are built along the metro’s blue line and are about a 15-30 metro minute ride from downtown Kiev. But today these areas just aren’t as popular as the neighborhoods around Universytet and L’va Tolstoho among expats who are looking for rental housing in near green space; the other areas are either too pricey and/or too remote.

While it’s true that many Western companies extracted their expat country directors due to concerns over events in the Donbas in the past 2-3 years, there was a time when many more expat directors, who wanted sufficient living space for themselves and their families, looked for detached houses in green areas such as Nyvky (near one of the British International School campuses) or close to Pechersk School International, for example. However, at least anecdotally since 2015 there seems to be much less demand for houses in a “green areas” among relocating expats. Perhaps this is because in recent years it’s been possible to find a 200m2 apartment in the center of Kiev near a park for $2,500 to $4,000/month, when such apartments used rent for $5,000 to $6,000/month.

Other Neighborhoods for Kiev Expats

Readers familiar with Kiev might ask, “What about apartment rentals near Maidan and Khreshchatyk? Although some expats do choose to live on relatively quieter side streets close to Maidan and Khreshchatyk, generally, the noise, traffic and parking problems that come from living “where the action is” make these neighborhoods more suitable for the daily/short-term rentals market. Short-term renters are usually much less interested in peace and quiet and are looking to party, or at least not to waste too much time getting to and from the city’s sights and entertainment spots. (The reader should note that advice on investing in Kiev properties for short-term rentals is beyond the scope of this article.)  Since it’s an area that’s adjacent to Golden Gate, some expats elect to live near the Teatralna metro and the Opera House, however living here can often be a bit louder due to traffic and proximity to Khreshchatyk. Of course, expats are sprinkled all over many other parts of Kiev such as charming Podil (Podol), which can be a bit less expensive than Shevchenko, Pechersk, and upper Holosiiv district. But the concentrated demand for rental housing in all these other areas, the future rental rates, and therefore expected investor returns are far less certain than they are for the close-in neighborhoods within the prime rental area of the Universytet-Zoloti Vorota-L’va Tolstoho corridor.

Shortages, Constraints, Inefficiencies and Market Opportunities

Believe it or not, in 2017 there’s an absolute shortage of expat-suitable 90-100m2 two-bedroom apartments in the prime rental area of Kiev’s Old Town (the Golden Gate-University-L’va Tolstoho). As of late June, the supply of housing already looks to be much tighter than it was in 2016 and the full rush of the relocation season has yet to begin. While it would be overstatement to say that the big budget expat country directors are returning to Kiev en masse, today there are noticeably more expats who are looking for housing than in 2016. So what does this mean for prices? As a general rule of thumb, you should budget at about $1000 per bedroom in the prime rental area, and as of yet, prices in 2017 for rental apartments in this area haven’t increased since 2016. (For a detailed discussion of what constitutes “expat suitable housing” see the section “Renovation Missteps and Other Shortcomings” in Are Expats Being Overcharged for Housing in Kiev?)

So why is there a shortage premium and upmarket rental housing in the center of Kiev? For several reasons. First, the carrying costs for holding property in Ukraine are quite low–communal charges are small and property taxes haven’t been implemented– a law on relatively modest property taxes was passed some time ago at the federal level, but its implementation has been left to local municipalities, who thus far have shied away from the inevitable backlash that these taxes would generate from pensioners and other people in lower income brackets. Second, much like gypsy cabs parked outside a train station, many owners of apartments that haven’t been renovated in several years will hold out hoping to find some unsuspecting fool who’s unfamiliar with current market prices in downtown Kiev and is willing to overpay them; a broker who attempts gently reason with such owners about the opportunity costs of a vacant apartment, will often be met with an emotionally gruff rebuff; although the number of these “holdout” owners is gradually decreasing and the percentage of owners who are willing to pay a broker’s commission for finding a tenant is now far higher than it used to be. Third, other apartment owners will “waste” money on expensive “designer” renovations not suited to the tastes of expat tenants, then use their high renovation costs to justify an offering price that is well above the current market rate. And fourth, many apartments in central Kiev are being used as offices by small businesses or as short-term rental apartments.

So if there’s unmet market demand for quality rental properties in Kiev’s Old Town, why aren’t more investors acting upon this investment opportunity? 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; although at least anecdotally Kiev’s secondary market is seeing a gradual increase in motivated sellers, who for whatever reason can no longer wait for a strong recovery in prices. Sometimes you’ll see prices as low as $1,200/$1,300/m2 for “walk-ups” (apartments in historical buildings with no lift) that are being offered by motivated sellers; when properly renovated such properties can deliver annual yields of 10-12% or more.  When told about such opportunities, many surprised foreign investors will ask, “Why such a low price? Aren’t location and demand already priced into the market?”  The answer is “yes” and “no.” Kiev’s residential real estate market can be inefficient in many ways, but savvy local buyers will quickly jump on a property that is offered by a motivated seller at an attractive price. Local buyers are usually far less concerned with imperfect ownership documents, illegal/unregistered renovations, etc. than foreign investors, figuring that they can “fix” such problems after a sale. Moreover, the vast majority of local buyers are comfortable with grey market transactions in physical cash, which also appeals to many sellers.

Instead of buying individual apartments on Kiev’s secondary market, many foreign real estate investors are seduced by the ostensible opportunity presented by the large number of derelict historical buildings in Kiev’s Old Town. Luxury condominium conversions of such buildings with Western-style renovations would greatly increase the supply of quality housing for expats, while preserving the character of these historical neighborhoods. Alas, today most of these buildings have complicated legal histories, disputed ownership, etc. while other buildings have owners who are attempting to get their properties condemned, so they can demolish them and build a luxury high rise on prime real estate. This does not mean that conversions and renovations historical buildings are impossible, but they are only for patient and determined investors who are prepared to work with local experts to overcome significant obstacles.

Advice to Foreign Investors – Use an Investment Process Built for Speed

Despite many of the natural advantages enjoyed by local buyers, sophisticated foreign property investors can bring a lot of much needed expertise to Kiev’s residential real estate market. Currently, there’s a mismatch between what local owners are offering the expat rental market and the preferences of these tenants. Foreign investors are better equipped to meet this market demand by improving the quality of offerings and property management. But attractive deals on Kiev’s secondary sales market have an extremely short half-life, so foreign investors need an investment process that’s built for speed, so that property search, due diligence, and closing are performed swiftly. This can be done with a coordinated local team that includes trusted real estate advisors who can consult on both the sales and rental markets and assist with property management, legal and tax experts who can structure deals, as well as notaries and bankers, who can assist with closings and overseas bank wire payments, and architects, designers and builders, who can deliver high quality renovations that are on-time and meet market demands.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for 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.

A version of this article originally appeared in the July 2017 issue of Business Ukraine Magazine.

Are you interested in buying or renting residential property in Kiev? Do you own an apartment in Kiev and need help selling it, finding tenants or with property management? See these related articles.

How to Buy Property in Kiev?
How to Rent an Apartment in Kiev?
Where to Live in Kiev? Everything You Need to Know About Kiev’s Neighborhoods
Let Your Apartment in Kiev
Sell Your Property in Kiev
Property Management Services in Kiev

The post Kiev’s Prime Rental Market Offers Opportunities for Investors appeared first on AIM Realty Kiev.

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