UKRAINIAN REAL ESTATE

UKRAINIAN REAL ESTATE: Essential guide to Kyiv apartment hunting as property market attracts interest

Key issues to look out for if you are seeking to enter the exciting but challenging Ukrainian residential property market in 2016

UNIAN: Kyiv is an attractive real estate option at present but as well as low prices buyers must also navigate local nuances
Tim Louzonis
Sunday, 10 January 2016 01:26

There are a number of key questions every potential apartment buyer in the Ukrainian capital must ask. Is now a good time to buy an apartment in Kyiv because of currency devaluation? Are we near the market bottom? (Answers: yes for the savvy buyer, and yes, we’re probably approaching the bottom). Where to buy in Kyiv? What is the investment story for Kyiv real estate? (Many factors make residential real estate attractive, chief among them are the structural housing deficit in living space per person in Kyiv and that real estate is by far the most trusted asset class for the majority of Ukrainians.) And what will be necessary to restore Ukraine’s mortgage market? (Analysts don’t expect the market to revive in 2016 mainly due to the unstable hryvnia exchange rate and high interest rates, so cash sales will continue to represent nearly all of home purchases). All of this is helpful background information for those considering whether to begin a property search in Kyiv.

In our real estate practice we’re often contacted by foreign buyers who have decided to buy something but are new to Kyiv’s market. While these buyers bring with them varying levels of knowledge. However, few are aware of the market’s many nuances. Below we’ve attempted to distill our experience into a brief Kyiv apartment hunting guide that will provide you with insight on some Ukraine-specific aspects of buying property here, especially the housing search and due diligence processes.

 

There’s no Soho in Kyiv

On the surface, the home buying process in Ukraine seems just as straightforward as in most Western countries, and many would-be buyers begin their search without engaging the services of a real estate agent. Usually during our first contact with buyers, we encounter people who are frustrated or confused – they are having trouble finding what they are looking for and advertised price information does not seem to make sense to them. Our initial conversations often start with educating the buyers about Kyiv’s neighborhoods. Many Western notions of what constitutes the city centre or downtown do not really apply to Kyiv. You will not find the equivalent of London’s Soho or New York’s Theatre district in the Ukrainian capital. There is a government district - leafy Lipki in Pechersk. Golden Gate is home to Kyiv’s unofficial diplomatic quarter. Sofiivska Square is the city’s most historic district, with many five-star hotels and government ministries, making it something like Washington DC’s Georgetown minus the shopping options. Podil is an upcoming and coming district that is popular with a young and artsy crowd.

After introducing client to Kyiv’s neighborhoods, we help them understand the different types of housing stock in Kyiv. We strongly suggest that foreign buyers avoid Khruschevkas, Brezhnevkas and other post-Stalin period Soviet buildings due to their size and poor construction quality. Instead, we encourage buyers to consider properties in Stalinkas and Tsarsky (Pre-revolutionary) buildings, which offer apartments that are usually spacious with quality construction. These solidly built buildings are clustered in the city’s central districts, and many pre-revolutionary buildings are historical monuments with original designs. Of course, not all buyers are looking for an older building. To those Western buyers who want to buy in a new building, we often spend considerable time explaining why despite the economic crisis in Ukraine, sale prices for new buildings in Kyiv’s central districts remain higher than they would expect (this is due to strong local demand and a deficit of living space in the city). One specific note about lofts. Foreign buyers frequently ask us to help them find loft-style apartments. These are hard to find in Kyiv, and even though the city has many buildings that would be good candidates for loft conversions, this real estate product isn’t really being widely developed for Kyiv’s market – at least, not yet.

 

Navigating the Kyiv property market

Background briefings on neighborhoods and available real estate products help home buyers refine their search requirements, informing them about what exists on Kyiv’s market and what types of properties are within their budget, so they can begin or relaunch their property search. Screening properties in Ukraine that are advertised online is an art form in its own right that’s usually best practiced by locally-based real estate agents. There is simply no substitute for experience and local knowledge. Unfortunately, online property listings in Ukraine are a minefield filled with scams. Problems can include listed properties that are not available or listed at the wrong price, and often you’ll find fictional properties that are advertised just to gain a buyer’s contacts. In general, real estate information in Ukraine is fragmented and often incomplete. There is no such thing as a multiple listing service (MLS) along the lines of resources you’ll find in Western countries. This means that the property search process in Ukraine can take much longer than in more developed markets. When sorting through initial property search results we often advise clients to avoid already-renovated apartments as they are rarely suitable for Western tastes; such apartments often feature a heavy-handed Baroque ‘classic’ style and the materials quality used to renovate bathrooms and kitchens often leaves much to be desired. In most cases, it is preferable to find to find a fixer-upper or an unrenovated ‘shell and core’ option in a new building.

It is also important to keep in mind that Ukraine is a low-trust society, which means that your real estate agent will often need to contact many people just to arrange a single viewing of a property. Often seller’s agents do not have access to a property’s keys without the owner being present. This whole situation can create numerous headaches since many interested buyers will often want to view a property several times, and arranging each visit can often seem like trying to gain an audience with the Pope.

 

Ukraine-specific due diligence

After a buyer has selected a property for purchase, a home inspection report will often reveal any potential problems with an apartment’s infrastructure or construction, such as standard problems with water or electricity, including insufficient wiring to support the appliances of a modern home. These reports can also uncover things like the existence of original wooden floor beams in pre-revolutionary buildings and Stalinkas that can add to renovation costs since they would need to be replaced prior to any renovation. Alternatively, a buyer may discover that he is buying an apartment in a protected building (an ‘architectural monument’). This can also make renovations more complicated and expensive. Protected elements can vary from a building’s facade to its balconies, or even its interiors (for example, an apartment might have original ornate ceilings and so on).

Other elements of the due diligence process for home buying in Kyiv are much more Ukraine-specific. Your agent should check that everyone has unregistered from the property. Ukraine has a ‘propiska’ administrative system under which residents must register their residency at a physical address. Often it is possible that someone registered at the property could be living abroad. All owners should sign off on a property’s sale. Multiple ownership can often exist as a legacy from housing privatization after Ukraine gained its independence and it is possible that an owner could be living aboard. We have also seen cases when.an owner was mentally incapacitated and lacking the ability to provide legal consent. There should be no liens or debt against the property, and all ownership documents should be in order. One example of a problem here is when the current owner is unable to prove how he/she paid for the property. An apartment’s floor plan should in order. Like some other European countries Ukraine has a system of official registered floor plans--this means that additions and certain changes/renovations to a property must be registered in the official floor plan. Strange as it may seem, even changes to non-load-bearing walls must be registered. Privatizations of attics, ‘technical floors’, and other elements that have been added to a property must also be recognized in the official floor plan. Often floor plans must be brought into compliance prior to completing a sale.

 

Final words of advice

The search process for property in Kyiv can be exhausting and the due diligence process must be exhaustive to avoid painful surprises. After completing due diligence, the next steps include assembling documents, opening a bank account in Ukraine to deposit money for your purchase, transferring funds, making payment, and registering the sale. A word of caution here - to avoid currency losses, don’t transfer money to your bank account in Ukraine until you’ve completed the due diligence and you’re certain the sale will close. Due to currency controls, 75% of transferred funds are converted to hryvnia the day they arrive in your bank account. To avoid a nasty tax surprise, buyers should make sure to find out whether the seller has owned his/her property for three or more years. Often a buyer will agree to cover part or all of the taxes on a home sale. Usually these taxes amount to 2% (1% government tax and 1% pension fund). However, there is a 5% anti-speculation tax on properties owned less than three years and currently there is also an extra 1.5% temporary war tax on top of this tax. So in cases where a seller has owned his property for less than three years it is perfectly reasonable for the buyer to insist that the seller cover all or most of these taxes. It is much better to address this issue earlier in negotiations instead of having things collapse at the last minute.

 

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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