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 Property
market description
Thanks to the Ukraine’s strategic position, it’s recent record
economic growth rates, the nation’s commitment to the improvement of
legislative framework for businesses and the huge internal scope for
economic expansion, foreign investor interest in the Ukraine remains
intense.
According to some like Jacek Kedzior who’s a partner at the Tax
Advisory Unit at Ernst and Young in Ukraine, those who are considering
market entry but who are not yet committed risk leaving it too late
because both commercial and residential property in Ukraine is booming…
Why Invest in Ukraine?
Without question there are many reasons to invest in Ukraine; the
nation is strategically located bridging the divide between the
Commonwealth of Independent States, Eastern Europe and the European
Union, it has a population of fifty million citizens eager and willing
to work, to learn, to spend and to embrace capitalism, the country is
independent, economically stable, labour resources are strong,
economical and qualified and there is a housing deficit.
Add to this a construction deficit, increasing residential and
commercial property prices which are being driven up by demand, a
population keen to rent but eager for interest rates to drop so they can
buy, and a retail sector that US consulting company A.T. Kearny
places in the top five in the world in terms of prospective growth and
you have a country that is so hot right now for international property
investor interest.
Retail Property Market Potential in Ukraine
Starting with the retail market – it was already underdeveloped for
the size of the nation when consumer spending activity began surging
ahead following on from five consecutive years of double digit economic
expansion. Leading European retailers such as Germany’s Metro Group and
France’s Auchan Group seized upon the opportunity going begging in
Ukraine and began establishing a presence largely centred around Kiev
and in the past twelve months Metro has doubled its already impressive
Ukraine profits proving that there is substantial room for expansion in
this market still.
Indeed, today the chasm between demand and supply is ongoing and it
has resulted in mega consumer and construction activity across the
country. Malls are going up, retail space is being developed and as
quick as centres reach the final construction phases all but a few units
are being snapped up by domestic and international retailers keen to
have a presence with which to attract the hungry population!
Retail business across the Ukraine has been witnessing double digit
growth rates for the past few consecutive years, three new mega malls
are in the planning stages for construction by 2010 in Kiev, Odessa and
Lviv with construction on the latter’s mall expected to break ground
next year for completion in 2008. The Leopolis mall as it will be
called, will also incorporate a hypermarket, cinema, bowling alley and
skating rink proving just how keen the Ukraine population is to enjoy
its new found, slowly but surely increasing personal wealth.
Ukraine Residential Property Market Activity
Moving on to the residential market – a housing deficit and a
construction sector restricted by high material costs and an environment
not currently conducive for business expansion means that Ukrainians
looking for properties have to spend more and more to buy and to rent.
Demand exists but supply is limited with the vice president of the
Union of Real Estate Specialists of Ukraine predicting that the demand
is ten times greater than the supply in Kiev alone for example.
Naturally enough apartment prices in Kiev have gone through the roof
with the median price now topping USD 1,500 per square meter for just an
average apartment in the city with prices predicted to keep ramping up
for at least the next three years - last month alone Kiev property
specialists Kyiv Zhytlo-Invest announced that their own findings pointed
to between an 8.6% and a 9.5% increase in property prices in the
preceding two months in Kiev.
Property investors already priced out of Kiev are quickly entering
other popular town and city markets across Ukraine where demand is also
increasing all the time as more and more citizens move from the country
to the cities to work.
The Commercial Property Market in Ukraine
This is also the case in the commercial property market with cities such
as Kharkiv or Odessa offering property investors greater opportunity to
reap higher returns for example as established businesses look to expand
and new international commercial interest in Ukraine looks to
alternative areas of the nation where there still exists an opportunity
to tap into the affordable and educated, hard working local labour force
but where prices for commercial premises are still affordable.
In conclusion – property in Ukraine is booming and Ukraine is
currently a country of great opportunity, but an investor keen to
examine the market must look at the sustainability of demand and the
sustainability of local affordability relating to any investment that
they are about to make.
Ukraine Property Buying Guide
Despite the fact that the free real
estate market in Ukraine is relatively young and immature, the property
buying process in Ukraine is quite well documented and a foreign buyer’s
rights are protected; having said that, the lack of sophistication in
the marketplace means that it is not a place for the risk averse.
If a potential property investor follows the
general rules and guidelines as laid out in this article, most should
avoid the well documented traps and pitfalls associated with buying and
owning land and property in the Ukraine.
As stated the property market in the Ukraine is
immature and there is a lack of transparency to it which restricts a
buyer from easily valuing property and assessing the potential of a
particular piece of real estate – but with sufficient due diligence and
a good estate agent and solicitor, foreign buyers in the Ukraine can
make a successful investment.
In 2004 Ukraine adopted a new Civil Code, this
together with the Constitution, the Law of Ukraine on Property and the
Land Code govern the rights of a foreign citizen wishing to own
residential or commercial property and land in the Ukraine.
Currently foreigners are not restricted in their
purchase, ownership, use and resale of property and certain types of non-agricultural
land. Some foreign buyers prefer to purchase in the Ukraine by means of
a local limited company type structure to protect their privacy and
assets from unwanted attention. Whether or not this approach suits the
individual investor is something to discuss with a lawyer in the Ukraine.
The services of a decent lawyer should be secured
as soon as an investor sets foot in Ukraine and well before any offer to
purchase real estate is made. The next person an investor will need to
assist with the property buying process is an estate agent. Ukraine is
a country where there are both incredibly good estate agents and
incredibly corrupt agents who attempt to charge both the buyer and
vendor and potentially resell the same piece of property repeatedly.
If at all possible a property investor should seek
the advice and recommendations of trusted sources over which agents can
be trusted. Decent estate agents in the Ukraine are well worth doing
business with as they will know about properties that are for sale
before they are ever marketed, but their fees and who actually pays them
should be negotiated in advance.
Once a piece of property or land has been
identified as meeting an investor’s objectives an offer to purchase it
can be made which, if accepted, will result in the buyer and vendor
entering into a conditional preliminary sale-purchase agreement. This
contract should be checked by the buyer’s solicitor and then signed in
front of a notary and notarized.
At this stage a non-refundable deposit should be
paid by the property investor and the investor’s solicitor should begin
doing their due diligence on the property, the vendor and the title
deeds of the real estate. There is usually at least a 14 day gap
between the preliminary contract being signed and the signing and
registration of the final contract to allow searches and surveys to be
carried out.
To aid the buyer’s solicitor in his searches the
vendor should offer the following documents up for scrutiny: -
1) the certificate of privatization or a previous
purchase contract or proof that the vendor owns the property as a result
of inheritance
2) a certificate from the Unified Register of
Prohibitions on the Disposal of Immovable Property to prove that there
are no outstanding debt or legal issues against the property being
offered for sale
If all is found to be in order with the investment
property in Ukraine the final sale-purchase agreement will be signed and
notarized and the notary will register the document with the State
Registry. This process can take a few days and it is at this point that
occasionally an unscrupulous agent or vendor will resell the property on
to another third party before the registration of the sale appears in
the public records. To get around this issue an investor should insist
that a final balance of money is withheld until the registration process
is complete.
In terms of the fees, charges and taxes that a
property investor in the Ukraine may incur these include the solicitor’s
fees, estate agent’s fees, property registration fees, pension fund duty
and notary fees. Those who allow for between 5 and 7% of the purchase
price for these extra costs should find themselves well covered.
Vit Klima
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