UKRAINIAN REAL ESTATE

Property investment guide: apartment renovations in older Kyiv residential buildings

Historical Kyiv residential properties can offer investors a potentially attractive return if skillfully upgraded to suit international tastes

Property investment guide: apartment renovations in older Kyiv residential buildings
Apartments in older buildings located in downtown Kyiv areas like the St. Sophia Cathedral district offer attractive investment opportunities but require thorough research
Tim Louzonis
Tuesday, 16 July 2019 01:18

Thousands of older apartments in central Kyiv have yet to undergo modern renovation. This has created a deficit of high-quality rental housing in Kyiv’s historical downtown despite rising demand for such properties and attractive current yields for investors. How can we explain this? If you ask a Ukrainian for his or her thoughts about buying and renovating one of these older apartments, you will typically hear a litany of reasons why this is a terrible idea. One of the most common arguments is that renovating apartments can be an expensive hassle fraught with risk.

Such fears are widespread but are they reasonable? Should you be so wary of buying an apartment in one of Kyiv’s historical buildings and tackling renovation work? This article will discuss the various reasons to buy or not to buy an apartment in Kyiv’s historical buildings. It will look at the real and imagined risks of renovating one of these apartments, before addressing how to manage such risks in order to earn an attractive return on your investment.  

 

To Buy or Not To Buy

There are a number of reasons to buy an apartment in an older Kyiv building rather than in a new building. Older apartments usually have prime locations that offer the convenience of urban living to those who appreciate walkable and centrally located neighborhoods. Older flats typically feature solid construction and much better sound insulation, along with more spacious layouts and higher ceilings than flats in new buildings. When well renovated, apartments in historical buildings can also compete with standard rents in some of the nicest new buildings in Kyiv. However, most apartments in luxury buildings are not available for rent from their Ukrainian owners. These new properties also usually provide much lower yields for investors due to higher purchase prices.

For both practical and cultural reasons, Ukrainians with the necessary financial means generally choose not to live in apartments in older buildings. One reason is a strong emotional desire to flee the perceived shabbiness Ukraine’s Soviet past. Kyiv’s historical buildings can often have rundown communal areas such as staircases and hallways. Local buyers will also frequently tell you that Kyiv’s center is “loud and polluted”. They will cite the lack of access to large supermarkets and other services, and the shortage of secure parking. Indeed, while city planners in many European cities are creating initiatives towards car-less futures, Ukrainians with money still prefer to drive everywhere if they possibly can. They rarely choose to walk and almost never use public transportation.

While living in renovated apartments in older buildings downtown may not be the lifestyle choice of many affluent Ukrainians, there is widespread recognition that foreigners with generous housing budgets are willing to pay top dollar to live in such rental apartments. So why are more Ukrainians not buying and renovating apartments in older buildings as investment properties? Why are thousands of apartments in Kyiv’s historical downtown still waiting for renovation? Part of the problem is the perception that such undertakings can easily get out of hand and run dramatically over budget.

 

Realistic Risk Evaluation

In addition to a lack of special tax incentives to renovate historical buildings, many in Ukraine are afraid of the perceived expense and risks associated with renovating an apartment in an older building. Yet to those with practical experience, most of the risks of renovating older apartments in Kyiv are no secret. In reality, competent contractors and engineers who have experience working with historical buildings do not find the solutions to these problems particularly challenging.

If you choose to renovate one of these apartments, a good contractor will know exactly what to do in most situations. For example, he and his team will probably replace the floor beams, pipes, heating, and electrical wiring. In some cases, in order to improve the structural integrity of your apartment, you may need to reinforce load-bearing walls and the floor above your apartment. While this may sound like a major undertaking, in Kyiv using steel beams provides very solid support and costs only a fraction of what it would cost in most Western countries. For example, one Kyiv apartment owner recently installed beams to support a load-bearing wall in the apartment above, and the cost was less than USD 2,000. An American engineer examining this work said it would have cost USD 12,000 to USD 14,000 in the US to do the same job.

Of course, none of this obviates the need to perform proper due diligence of the building before you buy. You will want to check that the water pressure is adequate (especially when buying top floor apartments), and that the building has sufficient electrical load capacity for modern appliances. Even though there are also engineering solutions that can increase water pressure and electrical load capacity, it is best to know about these issues prior to buying your apartment.

Buying and renovating an apartment in one of Kyiv’s older buildings offers clear-eyed investors opportunities to benefit both from the negative perceptions of local buyers who are spurning such properties, and from the comparatively lower costs in Ukraine versus Western countries. For example, the cost to purchase a larger fixer-upper apartment in Kyiv could be as low as USD 1200 – USD 1400 per square meter plus a further USD 1000 per square meter to introduce European-level design, appliances, and furniture. These prices are far lower than what you would pay for a similar renovation project in a Western European capital.

It is also helpful to keep in mind the costs of buying and renovating versus buying an already-renovated historical apartment in Kyiv. While buying plus renovating in Kyiv could cost you USD 2200 to USD 2400 per square meter, buying an already-renovated apartment could cost you USD 3000 or more per square meter. It is also highly probable that you and your prospective tenants will not like the design of this apartment and will need to spend more money in order to change it. Nor can you be sure that the necessary infrastructure works are reliable.

 

The Human Factor

While the engineering challenges of renovating an apartment in Kyiv’s historical buildings are obvious and manageable, the human factor still comes into play. Firstly, you need to find a trustworthy and competent contractor with the necessary technical expertise and experience of renovating similar properties. In addition to having the technical ability, this contractor must also have the resources to handle the scale of your renovation project. A lack of labor could lead to significant delays. If you buy the right property in a good location and renovate it to suit the style and tastes of premium international tenants, then the payback period on your property investment could theoretically be as short as eight years. However, if you opt to use a contractor who does not have the necessary team in place, it could take him a year or more to complete your renovation. This would significantly lengthen your payback period.

The cost of building materials, equipment and furniture can also materially affect your investment return. If you choose to cooperate with a small-scale contractor who does not have a number of parallel projects underway, you might find yourself paying retail price for materials instead of benefiting from the economies of scale offered by a larger contractor with higher purchasing volumes who enjoys wholesale discounts from good suppliers.

 

Beyond the Conservative Consensus

For many people, buying real estate can be a highly emotional experience. When it comes to the prospect of buying and renovating one of Kyiv’s older apartments, the fear of the unknown can be overwhelming for most local buyers, who usually choose the easier route of buying property in a new building. While not always devoid of their own biases, professional investors are often much better than the public at looking beyond conventional wisdom and making purely numbers-driven decisions. Groupthink can be slow to change anywhere in the world, and today in Kyiv it can be a friend to savvy property investors who are willing to do their homework and ditch their fears.

 

About the author: Tim Louzonis (This email address is being protected from spambots. You need JavaScript enabled to view it.) 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.

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