OPINION

Reforms and real estate

Ukraine’s improving economy highlights how reform agenda is creating a better business environment

Reforms and real estate
About the author: Natalia Kochergina is a Partner and Head of Real Estate and Construction at DLA Piper Ukraine LLC
Natalia Kochergina
Tuesday, 19 March 2019 19:32

Over the last few years, global investments into the real estate sector have increased by around 18%, according to the latest “Winning in Growth Cities” report. Can Ukraine play a greater role in this growing international real estate investment trend? That largely depends on the vision and expectations of potential investors, as well as international awareness of changes taking place in the Ukrainian legislative environment that are helping to create a more attractive investment climate.

While the Ukrainian market cannot yet provide the variety of investment instruments that are commonly found in the more mature investment markets of Western Europe and North America, today’s Ukraine is currently demonstrating stable economic growth and can offer numerous interesting opportunities for active and adventurous investors. The latest developments in the country’s legal framework offer particular encouragement for anyone considering the Ukrainian real estate market as a possible investment destination.

One of the first things for any potential investor to note is that Ukraine ranks highly among European markets in terms of undervalued real estate prices. At the same time, the country’s key financial and economic indicators reflect a market that is both relatively stable and positioned to continue along the current trajectory towards further growth. According to the National Bank of Ukraine, the country’s GDP grew by more than 3% in 2018, an increase that was in line with the expectations of most ratings agencies and international financial institutions.

This stability is even more noteworthy given the external aggression the country continues to face. Towards the end of 2018, an escalation in this aggression forced the Ukrainian government to temporarily impose martial law in maritime regions and parts of the country bordering Russia. In practical terms, this month-long period served as a stress test for the Ukrainian economy and highlighted the localized nature of the conflict, while also demonstrating the ability of the country’s financial system and real estate market to remain stable in such conditions.

It is possible to identify numerous positive indications in the Ukrainian real estate sector. Indeed, some industry experts regard 2018 as the most successful year in the past decade for the Ukrainian property market in terms of both investment volumes and the number of transactions on the market. This progress is also being felt in the country’s retail sector, with global brands such as H&M and Under Armour entering the Ukrainian market over the past year. Swedish furniture giant IKEA has also confirmed plans to open its first Kyiv outlet in 2019.

The relative stability and sustained recent growth of the Ukrainian economy are partly down to the country’s reform agenda. This has included measures broad measures such as government decentralization and the removal of grounds for the abuse of office, along with specific improvements to Ukraine’s title registration and protection system and more modern approaches to the management of state-owned property. Ukraine continues to modify its legal framework to make the business environment for investors safer and more attractive. Significant changes have been introduced to corporate governance rules, currency regulations, real estate finance, the regulation of construction, and the use of agricultural lands.

On 7 February 2019, Ukraine introduced sweeping new changes to the country’s currency regulations, repealing a range of obsolete rules that dated back to 1993. These new regulations cancelled existing currency restrictions on things like exchange controls, the mandatory sale of revenue in foreign currency, and the registration of loan agreements with non-residents of Ukraine. This provides greater flexibility for businesses while making it easier to attract financing for real estate projects.

In June 2018, a new law on limited and additional liability companies came into force. Key changes include the introduction of shareholder agreements, an end to limitations on the number of participants in share capital of a limited liability company, and the cancellation of some formalities regarding the transfer of shares in the capital of limited liability companies. Also last summer, the Ukrainian parliament passed a law governing the renewal of loans in order to provide greater protections for mortgage borrowers. This is expected to help facilitate the granting of loans secured by mortgages, resulting in new capital entering the Ukrainian real estate market.

Construction sector reforms have been particularly significant, with more the 150 amendments introduced to the country’s construction industry regulations in 2018. Most of the obsolete requirements for road and residential construction have been abolished, opening the door for new projects. These changes also pave the way for the development of multifunctional complexes and are expected to have a positive impact on street-level retail thanks to the removal of restrictions on business activities in residential complexes.  

Over the past year, the Ukrainian business climate has already felt the positive effects of previously implemented and far-reaching reforms of the legal framework that underpins Ukraine’s investment climate. This has allowed the Ukrainian economy to remain stable despite hostile external impacts. At the same time, further steps were taken in 2018 towards the liberalization and harmonization of Ukrainian legislation with the best contemporary regulatory practices in the world. In the coming years, these measures should encourage further economic growth, which is why the current period may be the ideal time for investors to enter the Ukrainian real estate market.

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