Investment properties in Ukraine

In July 2022, construction works resumed in most of the Ukrainian regions. Meanwhile, despite the sales rates on the market being very low, the average prices per square meter for newly built apartments are higher now as compared to February.

Construction companies give two reasons to explain the high prices. First, the cost of construction is on the rise; second, the start of new stages of construction has been postponed. However, developers are willing to offer special payment terms for resolute investors.

Construction recommenced: the “safe” regions are topping the list

“To some extent, our data confirm this. As we see from the dynamics of visits to the LUN website, the interest in investment in construction in Western regions is averaging 60%, which is higher than the pre-war level. At the same time, the regions close to the battlefield are only beginning their restoration, and their visit rate is 20-30% of that in February,” the expert explained.

As he said, those developers who have returned to work and sales understand that the interest of customers doesn’t mean they’re willing to buy, and so they try to invoke demand by offering special propositions, such as long-term installment plans for ready-built or nearly ready-built apartments.

He told that today, only key market trends can be outlined in broad strokes using numbers.

According to LUN, the average price per sq. meter in Kyiv for a newly built apartment was $1310 in June, which is $40 higher than in February. In the Kyiv region, the average price was lower than in February: a new apartment is $800 per sq. meter.

The smallest newly built one-room apartment in Kyiv will cost an average of UAH 1.7 mln. The price for the smallest two-room apartment will average at UAH 2.5 mln before applying any personal discounts. In the Lviv region, the average dollar prices show a 10% increase compared to the propositions of sales departments in February. The smallest newly built one-room apartment in Lviv itself will cost an average of UAH 1.6 mln. For the smallest two-room apartment, a sales department will ask an average of UAH 2.4 mln before applying discounts.

The Odesa region, after a minor sag in previous months, has returned to the February prices, and across different classes of housing complexes, the prices for the most affordable options have even increased. The smallest one-room apartment in

Foreign citizens have the right to buy and to own any kind of apartments in Ukraine. There are no restrictions on buying any kind of property in Ukraine, except agricultural land. Also, the number and size of apartments that a foreigner can own are unlimited. You can acquire an apartment in Ukraine for personal use, as an investment, or for rent. Foreigners in Ukraine do have the same rights in buying apartments as Ukrainian citizens. In this article, we will inform you about the particulars of the Ukrainian apartment acquisition process. Generally, there are two legal ways to buy a flat in Ukraine:

• Acquire already registered real estate from an owner (so-called secondary real estate);

• Buy an unfinished apartment from a developer company (so-called primary real estate);

Now you’re probably wondering, why buy an unfinished apartment when it is inconvenient to have to wait sometime before moving in? Well, Ukrainian tax law heavily favors the purchase of “primary” (unfinished) apartments. Basically, when you buy a primary property you pay a fixed tax of 0.5-2%. When you buy a secondary (move-in ready) property, you must pay between 3.5% and 8.5% in tax and notary fees. So, there is a real tax incentive to buy an unfinished apartment in Ukraine.

In most of the developed world, investing in a construction project entails some waiting, but at the end of the process, you can expect to receive a finished apartment. However, in Ukraine, an apartment is considered finished once the bare walls have been put up and the building has been officially approved by the State Architecture and Building Inspectors of Ukraine. This means that after you have made the full payment for your property, you will still need to hire a contractor to finish the interior of your flat. If you do decide to purchase a primary property in Kyiv, we at Pelekh Estate will assist you with finding a reputable and reliable contractor for this end.

Very important thing is that all foreigners for property acquisition must have Ukrainian tax id number and certified translation of passport. Anyway, it is strongly recommended that the procedure of buying property in Ukraine is conducted by a qualified solicitor (legal adviser).

The Ukrainian housing market is growing very fast. In Kyiv, the capital of Ukraine, you will find really various buildings that are being constructed. Dozens of developers in Ukraine offer you a variety of apartments in Kiev. During this type of purchase, the buyer is named as an investor in Ukrainian apartment. You are not buying the apartment itself at the very beginning because from a legal point of view there is no official real estate meanwhile such property is being constructed.

In Kyiv alone, there are more than 15 000 apartments in more than 50 residential buildings that cannot pass the process of commissioning due to the problems with documents. Some houses have been constructed with no land ownership documents and investors can not get the property rights for apartments in such cases. Anyway, please consider that it is a bit riskier to purchase a flat at the stage of construction in Ukraine. But does not mean at all that you should avoid such an option. So if you have decided to buy a flat in a building under construction, you need to check property documents first. Legal due diligence of the construction company and of the needed permissions and available documents is strongly recommended. Consider also, that when you will come to the sales department of a Ukrainian developer or a construction company, the documents issued on the name of the house will be on the name of the company that is different from the name of the developer. It is normal in Ukraine. 

Despite some of the potential issues we have highlighted, we would like to stress again that investing in property in Ukraine can be both a profitable and rewarding process. Good apartments can be found in the center for less than $100k and the typical rate of return for rental properties is from 5% to 10%… in cash! If talking about smaller cities like Uzhhorod you can buy good apartment for $50k and rent it for $500/month which gives you a 8-10 years return of investments.

Investing in real estate is one of the most profitable ways of passive income. Since the beginning of 2019, the price of an apartment in Kyiv in dollars has increased by almost 10%. In 2018, the volume of investments in real estate became a record for the last decade. Pelekh Estate has figured out where it is better to invest in order to make a profit.

Purchase of real estate in the initial stages of construction for resale

This model is popular on the market, as the profitability of it is about 30% of the invested amount. The only point is not to be afraid to invest already at the foundation stage. And then forget about this money for several years until the price per square meter increases.

For example In Kyiv outside the center, the price per square meter can start from $800, and in the center from $1,500.

When investing in the early stages of construction, it is necessary to thoroughly study the market, the history of the developer, and get to know yourself with future construction projects in the selected area.

Buy an apartment for rent

This option is most suitable for those who did not have time to invest in the “jam phase” or are in no hurry to make a quick profit. The rental is suitable for investors looking for long-term passive income. Here are the pros and cons:

against:

• in the new apartment you need to spend money on repairs,

• unforeseen situations may arise during repairs — which are unnecessary worries and expenses,

for:

• permanent passive income,

• then the apartment can be sold with huge advantage.

An apartment outside the center, but in a prospective location with good infrastructure, will cost the investor cheaper, but its rent will also cost less. Such an investment will return in 8-10 years. Ultimately, when the residential complex grows and shops, offices, gyms are built around it, such an apartment will only become more expensive and can bring even more income than a regular resale.

Buying an apartment from the old housing fund for rent

It is absolutely not worth counting on the successful sale of an apartment from the old housing fund after 5 years. Over time, such apartments only lose their value.

Old housing stock may cost less or the same as a new building at the time of the start of construction – the pit stage. The advantage of such an investment is that it is risk-free. In this option, the main thing is the successful selection of an apartment that will be the most profitable for rent. The apartment should be located near a historical, cultural or commercial center. And even in the very center. They can be both old houses, so-called pre-revolutionary ones, and housing funds from the 1970s.

When buying an apartment, the following must be taken into account: location, infrastructure and popularity of the place, the general condition of the building and the surroundings. The condition of the building itself is also worth paying attention to – after all, a complex repair of an apartment for rent is not profitable from an investment point of view, because it leads to an increase in investments.

Consider that the most popular apartments for rent are 1-2-room apartments from 30 to 60 square meters. meters in old buildings, near the subway or the city center. This means that an apartment worth $40,000 will pay for itself in 9-10 years if rented for 8,000-10,000 UAH. However, the property itself will lose 25-40% of its original value during this time.

Investing in commercial real estate

Investing in a business is more complex – there is a different pricing process and different amounts. Offices, shopping centers, warehouses and large spaces are large capital investments. Investors should have between $50,000 and $14,000,000 in reserve.

The cheapest option is office or small commercial properties in shopping centers and residential buildings located in residential areas. Such areas cost the same as an apartment in a new building, but the rent for them is one and a half times higher.

Everything is easier with warehouse real estate: larger area means higher costs. Price segment: from $600,000 to tens of millions of dollars. For example: a space with an area of 29,000 square meters in the sleepy Dnipro district of Kyiv costs 4.5 million dollars, of which almost all the space is already filled with tenants.