Investing in real estate in Ukraine

Ukrainian real estate market

After the rapid fall in prices during the 2014 crisis, the Ukrainian real estate market is well on track to recovery. Prices for new apartments in Kyiv increased by 0.39% in the second half of 2020 compared to the first half. The average square meter cost rose to $ 1,035 after 3.34% declining in 2019 and 4.03% in 2018. Huge growth is noticeable in comparison with 2014, when the real property market fell by 36.62% according to S&V Development.

“The COVID-19 pandemic has had a noticeable impact on the housing market, albeit a short-term and limited one,” says the 2021 Ukrainian Financial Stability Report. “Unlike previous crises in Ukraine, large-scale market transformations are not expected this time. The market will return to equilibrium as quarantine restrictions are gradually eased. Despite the crisis, the demand for housing will still remain high.” Analysts predict that prices will keep rising, fueled by a weaker hryvnia and low developer margins. This means that for investors – both Ukrainian and foreign – there are favorable conditions for investing in real estate in Kyiv and other large cities of Ukraine.

Along with the rise in the cost of purchase of a residence, rental rates, which have fallen by almost 30% since the beginning of the crisis, are now growing. In early 2021, the growth in rental rates in Kyiv is as follows:

• one-bedroom apartments – USD 276 per month, which is 1.5% more than in the early 2020;
• two-bedroom apartments – USD 374 per month, which is 1.9% more than in the early 2020;
• three-bedroom apartments – USD 444, which is 1.8% more than a year ago.

Shevchenkivskyi district, with the rent for a three-room apartment is about $ 590 per month, is still the most expensive in Kyiv, followed by Pecherskyi ($ 560 per month) and Obolonskyi ($ 457 per month). In recent years, most rental rates have switched to the national currency, hryvnia, to protect landlords from currency fluctuations. This plays into the hands of Ukrainian investors, relieving them of being pegged to the US dollar exchange rate.

Investing in residential or commercial real estate: differences and features

The choice between residential and commercial real estate is an inevitable crossroads faced by an investor. Each option has its own features, pros and cons, which ultimately determine the profitability of the investment in a particular case.

The advantages of investing in commercial real estate:

1. It is easier to estimate profitability. The market value of residence is determined by demand, average price in the area of its location, class, number of rooms, type of finishing and other factors, based on which it is difficult to make a short-term or long-term forecast of growth in value. It is easier to calculate the market value and estimate potential profitability of a commercial space because it is largely a matter of the income generated from the property itself. Therefore, the price of commercial real estate usually rises more proportionally, making it possible to estimate the approximate profitability in the future.
2. Long lease terms. Commercial leases are longer than residential leases. Housing rent usually starts from 12 months, while the term for commercial space lease is usually at least 3 years, more often 5 and 10 years. The advantages of a longer rental are as follows:
   - stable cash flow;
   - decrease in the share of vacant premises;
   - predictability of income and expenses in the long run.
   Longer lease periods definitely also have disadvantages, for example, renting out space at a price lower than the current market price based on a previously concluded contract.
3. A reliable way to invest. Despite the fact that the real estate market is sensitive to changes in the economy, it remains more predictable and reliable for investing money in comparison with shares, bonds and other financial instruments.

Advanrages of residential investments

1. Stable results during the economic downturn. Residential real estate is much better off with economic downturns than commercial retail spaces. When the market is in a downturn, retail stores, restaurants, cafes, salons and food service establishments usually suffer first and hardest. Even in good economic conditions, small business owners have a high percentage of risks and a strong cost loading. The COVID-19 pandemic and the restrictive measures introduced in this connection, which mostly hit small enterprises with rented space, demonstrated the vulnerability of small businesses. No matter what happens in the economy, people need a place to live, so when a downturn hits, landlords do not suffer as much and do not feel the crisis as quickly as small and medium-sized businesses do.
2. Low barrier to entry. It's easier to start investing in a residence, because it requires a minimum of experience and much less money compared to investing in commerce. Commercial transactions are much more complicated, and buying commercial space often requires much more money than buying a multi-room apartment. And the risks are higher. First, there is a lot more funds at stake. And all this money is invested in a real estate asset, which, in the event of a crisis, cannot be physically moved or quickly liquidated.
3. Large pool of potential buyers and tenants. After the first two lockdowns in Kyiv and other cities of Ukraine, there are thousands of empty retail spaces, there are simply not enough tenants for all of them, which significantly reduces the cost of rent and the investor's profit. On the other hand, residential lease is in steady demand in Kyiv, Lviv and other cities. It takes less time to find a tenant for an apartment, and the terms of obligations between the parties are shorter than in the case of a commercial lease. This allows the owner of the square meters more flexibility to change the lease terms, taking into account market environment.

In residential real estate, it may be helpful to understand the general ratios and to know key concepts such as ROI and capitalization rate. With regard to commercial real estate, it is important to understand and evaluate these and many other indicators. Investing in commerce is more like owning a small business. The most important here is the increase in net operating income. Except for other ratios, information such as service records, expenses and rental history, and profit & loss accounts must be handled.

Investments in apartments in Lviv and Kyiv

RIEL Real Estate Corporation offers apartments in Kyiv and Lviv:

• located in modern residential complexes;
• with additional amenities;
• with a landscaped adjacent territory;
• at a bargain price without intermediaries.

You can have a look at the offer in our catalog, where RIEL residential complexes with the most complete description are presented.

In Lviv

Lviv is a large tourist centre in western Ukraine, which largely determines the peculiarities of the local real estate market. Apartments are often rented on a per day basis in the centre, while on the outskirts – it’s usually long-term rent. Having said so, Lviv remains practically the only Ukrainian large city where real estate prices are growing at a stable pace, even despite the crisis. Here are some reasons why it is worth investing in apartments in Lviv:

1. Growing rental income. The cost of daily renting an apartment of 40 sq. m is around UAH 350. The monthly income from the apartment will be about UAH 10,500. Thus, in case of day by day rent, the apartment will pay off in 86 months or a little more than in 7 years, and the return on investment will be 13.9% per annum.
2. Growing cost per square meter. Today, Lviv is experiencing a building boom, which is associated with the growing demand for housing in new buildings, as evidenced by statistics. The average cost of an apartment in an economy class new building in Lviv in 2019 was UAH 12.5 thousand/sq. m, comfort class – UAH 14.5 thousand/sq. m, luxury housing – UAH 25.5 thousand/sq. m. At the beginning of 2021, the economy class grew on average to UAH 12.9 thousand/sq. m, comfort – up to UAH 14.7 thousand/sq. m, elite housing – up to UAH 28 thousand/sq. m. At the same time, the rise in price occurred against the background of the gradual dollar’s decline against the hryvnia.

The leader in the sale of apartments in new buildings remains the central district, Halytskyi, where the demand for housing and high prices is the highest. Frankivskyi and Shevchenkivslyi districts are the next in the price rating. The cheapest apartments are in Sykhovskyi and Shevchenkivslyi districts – there is the highest competition between developers and, accordingly, a greater housing supply.

In Kyiv

Kyiv is the ideal city for aspiring real estate investors who are willing to take the time to study the subtle aspects of the market and apply an investment strategy adapted to local realities and investment opportunities. New buildings in Kyiv are, as a rule, high-rise buildings from economy to elite class, where prices per square meter depend on the location of the residential complex, developed transport and social infrastructure nearby, as well as other factors. With minor exceptions, apartments in new buildings are sold completely unfinished (“Shell and Core condition”). Renovation of apartments often continues for several years after the house was built. That is why, before buying an apartment in a new building in Kyiv, it is very important to determine the status of the apartment so as not to wait for repairs. Except for the modern communications and infrastructure, new buildings have many other advantages. Usually it is underground parking, grocery stores, dry cleaners and cafes, which are often located on the ground floor of the building, along with a closed guarded area and a concierge service.

Many real estate investors are limited to the central districts of Kyiv (Shevchenkivskyi, Pecherskyi, Podil, as well as the upper and central parts of Holosiivskyi district). However, this approach limits the choice of apartments between elite new buildings with a very high square meter price and old buildings, the cost of which is determined by their historical or cultural value. Meanwhile, other districts of Kyiv, such as Darnitskyi or Solomianskyi, offer more apartments in residential complexes of different classes with a wide range of prices.

The selling price of apartments in new buildings in downtown Kyiv usually ranges from 4,000 to 6,000 dollars per square meter for business and luxury apartments. Some lower floor apartments in new buildings in the lower end of the business class segment can be sold for $ 2,500-3,000 per square meter. Such transactions are usually concluded regarding apartments in the new buildings that are situated far from Kyiv business centre or major transport interchanges. Despite this, such offers can be beneficial to investors looking for long-term profit from real estate by renting out. The average cost of renting an apartment in the primary market on monthly basis is as follows:

• one-room — UAH 14,732;
• two-room — UAH 23,671;
• three-room — UAH 42,150;
• four- and multi-room — UAH 80,800.

The growth in the rental price for one-room and two-room apartments in Kyiv amounted to 8 and 10% in comparison with the last year, and for three-, four- and multi-room apartments – up to 27%.

The forecast for 2021 Ukrainian real estate market is rather positive than negative, given the economic situation in the country is stable. The square meter price may be affected by inflation, the cost of construction and installation works and building materials, as well as the labour market condition. Over the course of this year, prices for certain groups of building materials have gradually increased by 8-10%, and for construction and installation work – by 10% at once. Under such conditions, reduction of apartments prices will hardly happen. Experts predict a 5-10% rise in value for all classes of housing, which is a good opportunity for investors to buy real estate now, while the price has not yet risen.

Contact us by phone or fill out the feedback form, and our specialists will help you to choose the right option and draw up the necessary documents for buying an apartment in Kyiv or Lviv at the developers’ price.