NAVIGATING THE UKRAINIAN PROPERTY MARKET

UKRAINIAN REAL ESTATE: Investment guide - old vs new residential properties

Property investment in the Ukrainian capital city: the pros and cons of older buildings and modern apartment purchases

UKRAINIAN REAL ESTATE: Investment guide - old vs new residential properties
Old vs New: Investors looking to enter the Kyiv property market must decide whether they prefer to gamble on one of the Ukrainian capital's many Tsarist era properties or a modern development
Tim Louzonis
Monday, 17 April 2017 18:50

Kyiv is a place for resilient, determined property investors who are willing to invest time in learning the nuances of the city’s local market and to employ an investment strategy that is adapted to local realities and investment opportunities. For many investors, a key decision is whether to seek out property in old buildings or new development projects. This choice is often the key fork in the road before investors chose their ultimate investment path. Anyone thinking of investing in the Ukrainian capital city’s real estate market needs to do their homework on the many nuanced differences between old and new properties.

 

The basics

There are two basic types of old buildings of interest on the Kyiv real estate market: Tsarist (also known as “Tsarsky” or “pre-Revolutionary”) buildings, and Stalinist (“Stalinkas”) buildings. Tsarist buildings were generally built in the late 19th to early 20th centuries. This category includes a range of architectural styles such as Neogothic, Neoclassic, and Art Nouveau. Tsarist properties are usually five stories tall. The apartments in them have high ceilings (up to 4.5 meters). They come with thick brick walls. Most were originally quite large, with a typical layout featuring four to six rooms and totaling up to 150 square meters in size. These buildings can be quite beautiful, especially when contrasted with the mass of identikit Soviet-era buildings in Kyiv. Due to their age, Tsarist buildings generally lack elevators. However, some renovated Tsarist buildings have had elevators installed. Many of the city’s Tsarist-era creations enjoy legal protection as architectural monuments.

Stalinkas date from the 1920s to the 1950s. They can be much taller than Tsarist buildings (eight or more stories tall), but individual apartments tend to be slightly smaller, featuring three to four rooms and up to 85 square meters of total floor space. However, they generally feature the same high ceilings as their Tsarist predecessors. These solidly built and functional buildings often have a classic, square-shaped design with spacious corridors, stairwells and apartments.  Stalinkas are not as beautiful as Tsarist buildings, but apartments in them are still valued for their spaciousness and construction quality. Most Stalinkas are located in Kyiv’s central districts.  The city’s main street, Khreshchatyk, is a classic example of Stalinist architecture.

New apartment buildings in Kyiv tend to be high rises that range from economy to luxury (or elite) class. Pricing for such apartments is based the building’s location and other factors such as amenities and views. With very few exceptions, apartments in new buildings are usually sold completely unfinished (“shell and core”). Apartment renovations will often continue for three or four years after a building is completed. It is therefore crucial to determine the status of nearby units before buying an apartment in a new building in Kyiv. Otherwise, you could be looking forward to hearing renovation works for a long time. In addition to modern utilities and infrastructure, there are many pluses to living in new buildings. These typically include underground parking and grocery stores, dry cleaners, and cafes that are often on the first floor of the building.

 

The politics of prices

Many property investors in Kyiv limit themselves to the city’s central districts (Shevchenko, Pechersk, Podil, and the upper and central parts of Holosiiv district). These districts have the highest rents and the greatest potential for price appreciation. It is possible to find Tsarist buildings in neighborhoods outside the center near to the Lybidska, Demiiska, and Lukyianivska metro stations. However, at this time, there is no critical mass for the renovation and gentrification of these relatively distant historic gems.

Residential real estate prices can be especially confounding for those unfamiliar with Kyiv’s market. Price information is highly asymmetric and the market is generally inefficient. For example, in the heart of downtown Kyiv, there is not a major gap between sale prices for apartments in Tsarist buildings and Stalinkas. Instead, the price usually has more to do with how motivated the seller is.

It is simply not possible to calculate prices in Kyiv based on some kind of spreadsheet template as you probably could do in some more transparent markets. This represents both an opportunity and a challenge. In practice, it is often best to discuss prices downtown in anecdotal terms, while also researching specific cases of recent sales. For example, Kyiv’s Golden Gate area is one of the prime locations for upmarket and luxury rentals, given that approximately 60% of embassies and international organizations are located in the vicinity. In this neighborhood, an investor with high appetite for risk recently purchased a 108 square meter apartment in a Tsarist building for about USD 1,200 per square meter. The buyer now plans to privatize the attic space and create a mansard, almost doubling the apartment’s size while spending an additional USD 900 per square meter on a massive renovation before letting it out as premium rental apartment.

Sale prices of apartments in new buildings in the heart of Kyiv usually range from about USD 4,000 to USD 6,000 per square meter for business and luxury class units. However, few units are selling at such prices these days. You may occasionally see deals on a nice business class apartment in the very center for USD 3,500 per square meter. Some lower-floor units in new buildings at the lower end of the business class segment may sell for around USD 2,500 to USD 3,000 per square meter. Such bargains generally come in new building developments located outside the narrow area that represents the desired location for upmarket and luxury rentals. Virtually nothing new is under construction inside this prime area at present. If you do discover an opportunity to buy into a new apartment building at pre-construction prices, then make sure you do your homework on the reputation of the developer.

 

Size matters

If you are buying to rent, it is crucial to have a clear understanding of local availability and pricing policies in different segments of the rental market. Small and cozy 30 to 40 square meter studio apartments are generally not available for rent in the newer buildings in the Kyiv city center, but they are available in older buildings in the central districts. Studio apartments in centrally located new buildings tend to be a bit larger. One-bedroom apartments are widely available in both types of buildings. Rents for such one-bedroom apartments tend to be 10-15% higher in new buildings, with the exception of central Pechersk, which has many new luxury apartment complexes that carry much higher luxury price tags. The rental premium enjoyed by new vs. old properties increases significantly in the two- and three-bedroom apartment category, where top-end rents for luxury apartments can be 25-33% higher than luxury rentals in older buildings.

If you are considering buying an apartment as a future rental property, then keep in mind that as a rule, apartments that are very small (less than 55 square meters) tend not to provide the best rental yields on Kyiv’s market. However, they typically enjoy greater liquidity given their lower price, which could be helpful when you move to sell them. For larger apartments in Tsarist buildings and Stalinkas, it is possible for buyers who carry out Western-style renovations to attain yields of 10% and higher. However, this requires a lot of time. You will need to search the market and sift through large volumes of false or misleading information online. 

If your intention is to let out your investment property for rental income, then before undertaking any renovation, it is a good idea to consult with a broker who has extensive experience with the type of tenants you wish to attract to see if there is a market for your planned property. For example, the very center of Kyiv currently has a deficit of apartments that are suitable for expats. There is plenty of construction work underway in Kyiv, but most of this new housing is located well outside the prime rental market and of little interest to expat audiences. Meanwhile, numerous empty apartments in Tsarist buildings and Stalinkas in the city center would be potentially attractive rental options for expats.

 

Patience vs Profits

Is buying an apartment in a new Kyiv building a better investment than buying an apartment in an old building? If you can persevere and find the right deal, and if you can avoid the many potential renovation pitfalls, then buying an apartment in an old building in the heart of Kyiv and renovating it in a style suitable for an upmarket rent offers the best total return. This is because purchase prices are significantly higher in new buildings than for older buildings, but the rents these newer properties can expect to generate are usually not sufficiently higher to offset your total investment. In fact, if you buy a new apartment outside downtown Kyiv, the rent you will be able to charge could end up being even lower than for a property in an old building in the city center. The key is to ask yourself what level of risk you are prepared to tolerate as an investor. You must then reconcile your tolerance with your return requirements and the realities of Kyiv’s market. Once you have made these calculations, you will be ready to begin your Ukrainian property treasure hunt.

 

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 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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