UKRAINIAN REAL ESTATE

Kyiv Property Investor Guide

How to get impressive returns on your investment in the Ukrainian capital city's opaque but exciting real estate market

Kyiv Property Investor Guide
Ukrainian property investors tend to favor the capital city's numerous new residential housing projects but many international investors see advantages in older properties located centrally
Tim Louzonis
Monday, 13 November 2017 00:56

All investors everywhere are searching for the best possible returns. Meanwhile, real estate is the most trusted asset class for Ukrainians. Nevertheless, for a variety of reasons, foreign investors investing in Kyiv real estate often find that getting the best returns is hardly a straightforward process. One of the key problems they face is the lack of easily accessible property and price information. This imposes a steep learning curve upon investors who are unfamiliar with this market. To help foreign investors find value in Kyiv’s real estate market, this article provides tips on everything from property searches to where to buy.

 

Online Expertize Required

In Ukraine, trying to search for a property online without the help of an experienced broker can often be a fool’s errand. Unlike parts of the US or EU, Ukraine does not have a Multiple Listing Service that enables real estate brokers who represent sellers under exclusive listing contracts to share property information with the brokers of potential buyers or with other brokers who may wish to assist a seller’s agent with finding a buyer. The information about properties in an MLS is usually far more detailed than the content you could typically find online on a real estate portal. The information available on Ukraine’s existing real estate portals is often fragmented, incomplete, and non-transparent at best. At worst, it can be false and full of scams.

 

Where Should You Buy?

Kyiv does not really have a downtown district in the classic sense of the word, although there are focal points for entertainment and public gatherings near the Khreschatyk/Maidan area. Unlike many major capital cities, Kyiv does not have a concentrated financial and commercial district either. Instead, business centers are scattered around the city. The most central and desirable neighborhoods include the Golden Gate area that serves as Kyiv’s unofficial diplomatic quarter. The Sofiivska Square neighborhood is the city’s most historic district and features many five-star hotels and government ministries, making it something like Washington DC’s Georgetown minus the shopping options. Near to Ukraine’s Parliament is the leafy and pricey Pecherski Lipki District. Just outside the center is Podil, an up-and-coming riverside district with lots of low-rise historical buildings, art galleries and hipsters. Many people now see Podil as Kyiv’s Brooklyn, where you can find all sorts of interesting buildings in various stages of reconstruction and gentrification. All these areas are prime Kyiv real estate locations where you can expect solid investment opportunities.

 

Rental Market Opportunities

There is currently an acute shortage premium rental apartments available in downtown Kyiv that have been renovated to the quality, taste, and style expected by relatively wealthy expat tenants. Expats in the premium rentals segment are usually seeking apartments that are light and bright with neutral colors, furniture and decor that evoke Scandinavian minimalism. Instead, in Kyiv they often find upscale apartments with garish, over-the-top renovations that scream of new money and general post-Soviet vulgarity. Bad design choices include things like baroque decor, overly fancy custom lighting, giant murals on the walls, excessively large jacuzzis, concept showers that are difficult to climb in and out of, and space-eating bidets in otherwise small bathrooms. The owners of flats with garish but overly expensive renovations are usually anxious to recover their costs, so they often set rental prices far above the market rate for such apartments, and are then baffled when advised to lower their offering price. Ostentation is not the only common problem in this segment of the rentals market. Sometimes an apartment can have a decent renovation for the most part, but it is clear that its owner ran out of money while trying to finish his renovation and ended up cutting corners to save costs. These typical shortcomings mean there is room on the market for sensible and stylish offerings that meet the needs of international clients.

  

Ukrainian Buyers Favor New Buildings

Perhaps it is only to be expected, but after years of living in poorly maintained buildings with dank, dark and dreary entrance areas, many Ukrainian buyers have a strong emotional bias in favor of apartments in new buildings. This bias is so strong that many local buyers in Kyiv are fully prepared to accept incredibly long commutes in return for the opportunity to buy into a new building instead of buying and renovating in an older building or deferring their home purchase until they can afford something closer to the city center. To many expats, this can seem a puzzling choice. The net effect of this local preference is that per square meter prices of new housing in and near Kyiv’s center are often far above the per square meter price of a fixer-upper in an historical building in Kyiv’s center. This is especially curious since apartments in new buildings are sold completely unrenovated (“shell and core”).

The advantages of investing in older property are potentially considerable. Even after renovating a new apartment in the center of Kyiv, most investors can expect gross annual yields of just 5-8%. By contrast, if you buy and renovate the right fixer-upper in an older building in the Golden Gate district of Kyiv, you could achieve gross annual yields of 10-12% or more. These figures make this option an especially attractive opportunity for individual buyers and small property funds.

 

Renovation Challenges

The lack turnkey renovations in Kyiv’s new apartment buildings creates numerous challenges for investors. If you are an investor who prefers to invest in new buildings, then you should keep in mind that virtually no new apartment buildings in Kyiv are offering units with turnkey renovations. Instead, nearly all new apartments are totally unfurnished and come as “shell and core”. Due to this practice, new apartment buildings in Kyiv can remain construction sites for three to five years following initial completion, as apartment owners are often very slow to complete their renovations. Often, many Ukrainian buyers do not have sufficient funds to complete their renovation when they buy their flats. Additionally, some buyers are speculators who are hoping to flip “shell and core” units on the secondary market, especially if they managed to buy-in at pre-construction prices. These drawn-out renovations can make life unpleasant and noisy for residents of new apartment buildings. The constant movement of builders in and out of buildings can also damage entrance areas and elevators, degrading the experience of living in a new building.

Buildings with competent facilities management personnel can help mitigate damage to common areas and control noise. They usually try to restrict renovations to business hours during the working week, and forbid work on weekends. However, fewer and fewer people work nine-to-five jobs anymore, and so it is very likely that if you live in a new building in Ukraine, you will hear the renovations of your neighbors. So if you’re considering buying an apartment in a new building to offer as a rental property, it makes sense to check whether your immediate neighbors have completed their renovations, especially those above and below the apartment you are considering buying.

 

Derelict Opportunities

There is an astounding quantity of derelict historical buildings in prime central locations in Kyiv. If you are an investor who is looking for bigger and more challenging projects, then you should know that Kyiv’s Old Town and Podil district have scores of derelict historical buildings, many of which are vacant and in various states of advanced disrepair. These buildings generally date from the late nineteenth to early twentieth centuries. Many are street facing with prime locations and would be perfect for luxury condominium conversions, boutiques, art galleries and other mixed residential-commercial projects that would preserve the historical character of these attractive neighborhoods. Conversions and renovations of these buildings are challenging but they are not impossible. However, such opportunities are only for doggedly determined investors who are prepared to hire a crack team of legal and real estate experts and spend several years working through numerous obstacles. Before you embark on such an exciting but Herculean task, you should know that Ukraine’s current regulatory environment does not make it easy to remove potential blockages. For example, if two or more powerful parties are involved in a dispute over a property in Ukraine, the government does not have the adequate legal mechanisms at its disposal to force a sale or reclaim the disputed property.

  

Old Apartments Remain Best Bet

To find the best returns on Kyiv’s real market, property investors should find an experienced broker to help them navigate the pitfalls of the property search process. The quickest way to secure solid returns on your real estate investment remains the purchase of a fixer-upper apartment in Kyiv’s city center (preferably in the Golden Gate area). Investors who are not interested in buying apartments in older buildings will have to content themselves with lower returns on their initial investments unless they somehow get lucky and are able to buy at pre-construction prices in the right location. Meanwhile, the investment potential for the urban renewal of historical buildings in Kyiv’s downtown is immense, but so are the challenges facing investors who are ready to take on this considerable challenge.

 

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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