Ukrainian real estate sector

UKRAINIAN REAL ESTATE: Property prices and hryvnia woes - is now the right time to buy?

Does Ukraine’s currency devaluation make now right time to invest in Kyiv residential real estate?


UKRAINIAN REAL ESTATE: Property prices and hryvnia woes - is now the right time to buy?
Tim Louzonis
Wednesday, 29 July 2015 01:00

Ever since Ukraine’s hryvnia plunged earlier this year it seems like a day doesn’t go by without someone asking if now is a good time to buy property in Kyiv. This is a result of both the unstable economic situation and of the non-transparent nature of the Ukrainian real estate sector. Unlike more developed real estate markets, Ukraine does not have a Multiple Listing Service that enables real estate agents to share property information with other agents who represent buyers, and for buyers’ representatives to obtain detailed information about a property from a shared database.

While Ukraine has many large real estate portals, property information for existing homes is often fragmented, incomplete or inaccurate. As a result, potential buyers often look to locally-based real estate professionals for insider tips on real estate pricing to help them find the best deals in Kyiv. Since Ukraine’s political and economic crisis became a major story in the Western media, we also have been seeing an increased interest from property funds and individual foreign investors who are looking for deals.


Currency crisis impact on real estate sector

Since Russia’s annexation of Crimea, Ukraine’s national currency, the hryvnia (UAH), has undergone a series of devaluations. In early February 2015, the National Bank of Ukraine removed the peg for the country’s currency and the hryvnia immediately fell almost 30% in a couple of days. Later in February, the Ukrainian hryvnia reached an all-time low against the US dollar, down almost 50% since the beginning of the month and almost 75% since the beginning of 2014. In mid-July 2015, the hryvnia was trading at about 22-24 to the dollar (down about 60% since 2014). With the threat of a possible default hovering over the Ukrainian economy, further drops in the value of Ukraine’s currency cannot be ruled out.

The February 2015 devaluation of the hryvnia set off a wave of rent renegotiations between tenants and landlords. Prior to this devaluation, many Kyiv residents were paying their apartment rent at rates linked to US dollars or euros. After the devaluation, many Kyiv landlords were forced to set their rents in hryvnia with no link to the US dollar, leaving them with the devaluation risk. However, landlords with premium properties and/or apartments in the city center can still set their rents linked to the US dollar or euro, even though in many cases they must settle for lower rents.

As noted above, real estate pricing information in Ukraine is highly fragmented and price information is asymmetrical. So even for experienced real estate professionals in Ukraine, determining ‘fair’ prices based on market standards can be the result of gut instinct and intuition rather than digesting analytical reports. That said, there a number of clear pricing trends in evidence on Kyiv’s residential real estate market.

Rental prices in Kyiv’s center continue to drift downward as more expats leave Ukraine and as local landlords become more willing to negotiate on price. Rents for properties that were priced in 2014 at up to USD 3,000 have decreased approximately 50%, and in many cases without a link to US dollars. The elite and business class segments in Kyiv’s center of about USD 5,000 - 10,000 per month in 2014 have condensed to a range of USD 4,000 - 8,000 per month in 2015 (this represents an exchange rate adjusted decrease of about 20-25%, but still tied to the US dollar). Similar pricing trends have also been observed for elite properties outside the city center in such new residential complexes as Dragomyrova, Park Avenue, and Bulvar Fontanov.


Purchasing power and the hryvnia decline

In July 2015, a 100 sqm apartment with a recent renovation in an old building in Kyiv’s center would be expected to sell for approximately USD 2,000/sqm to USD 2,200/sqm; in 2014 that same apartment would get about USD 2,500/sqm to USD 3,000/sqm (a decrease of about 20%-25%). Today, a 100 sqm unrenovated apartment (‘shell and core’) in a new downtown business class complex sells for about USD 2,500 to USD 2,700; in 2014 that same apartment would get about USD 3,000/sqm to USD 3,200 sqm (down about 20%).

In July 2015 a 100 sqm apartment with recent renovation in an old building located outside Kyiv’s center would sell for approximately USD 1,300/sqm to USD 1,500; in 2014, that same apartment would have been priced at about USD 1,800/sqm to USD 2,000/sqm (down about 25%). Prices on unrenovated apartments in business class buildings outside the city center have dropped by around 10-20%. The influx of displaced people from the Donbas region has helped boost prices and demand in this segment, especially in new housing complexes outside Kyiv’s center for family-size apartments from 100 to 200 sqm in size.


Opportunities for investors

Despite the absence of widespread fire sales, there are some motivated Ukrainian sellers. In our practice we have seen deals for USD 2,800/sqm for unrenovated properties in new elite buildings (this is at least 50% below the average price asked by many sellers). We have also seen deals in older buildings in Kyiv’s center with renovated apartments selling for USD 2,700/sqm (this is about 30% lower than prices quoted during the first quarter of 2014). There are also numerous examples of properties in good locations in older buildings, but where the apartment requires a full renovation, selling for USD 1,500/sqm (this is about 30% lower than in the first quarter of 2014).


Risks remain

In addition to the risk that Ukraine could default on its debt obligations, there is always the possibility that the Minsk II agreement could collapse and the conflict in the Donbas region could flare up once again. If you’re a real estate investor from a foreign country, then Ukraine probably looks pretty scary to you right now. This is especially true if you are getting your news exclusively from Western media outlets, which do not always do a good job of vetting stories for Russian propaganda.

Ukraine is all over the news and much of the coverage is negative. However, there are several factors that should give investors reason to be cautiously optimistic when considering Ukraine. Firstly, it is important to note that together with other Western countries, EU member states have remained united and recently renewed economic sanctions against Russia, which increases the chances of a peaceful resolution to the conflict in east Ukraine. Secondly, many argue that today’s Ukraine has the most pro-reform government in place since it gained independence in 1991. Thirdly, Ukraine continues to make gradual progress towards implementing the Ukraine-European Union Association Agreement, which should pave the way for increased trade and investment.

Other examples of good news include the first ever US-Ukraine Business Forum, which took place in July in Washington DC and which underscored the strong US commitment to supporting Ukraine’s efforts to reform its economy. Following the Forum, the US signed an Open Skies Agreement with Ukraine, which should promote increased trade and travel between the countries, while Canada and Ukraine concluded a free trade agreement.


Key points for foreign investors

If you are a foreign investor who is considering investing in Kyiv’s residential real estate market and if you are new to this market, then there are a few local specifics that you should keep in mind. Many Ukrainians, use real estate as a form of savings instead of holding assets in bank accounts, financial markets, or investing in a small business. Property taxes for residential property have only recently been introduced in Ukraine. Many municipalities still have not implemented them, and taxes are relatively low by global standards. Most real estate transactions in Ukraine are ‘cash sales’. Mortgages are rarely available from local banks and interest rates can be quite high. Most new residential properties are typically sold as ‘shell and core’ construction and require a full renovation by the buyer. Additionally, taxes and bank requirements for non-residents should be taken into account by foreign buyers. However, as with many investments, it’s possible to structure an investment in Ukrainian real estate in a more tax-efficient way and to address banking requirements with the help of experienced real estate professionals.

Can a savvy investor or buyer find deals in Kyiv’s residential real estate market today?  The simple answer is ‘yes’. Have we reached the absolute bottom of the market? Probably not, but many signs indicate that we are getting close to the bottom.

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 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.

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