Investing in Kyiv real estate can be profitable. But in a market without transparency, it is a potential minefield for the uninitiated.
Properties in the Ukrainian capital come in all shapes and sizes, from the older pre-revolutionary and Josef Stalin-era buildings to the new high-rise developments which are popping up all over the city.
According to local agents, rental demand is strong for the right properties and yields can be extremely high. What’s more, compared to other European cities, Kyiv is still relatively cheap, meaning equity growth is likely.
But, unlike in more developed markets, buying property in Ukraine is still by and large a cash business. Extremely high interests rates on mortgages and an untrustworthy banking system mean very few transactions are undertaken through debt financing.
Other potential stumbling blocks come in the form of political and macroeconomic shocks, of which Ukraine has had more than its fair share in recent years.
The Kyiv Post took to the the streets to see what’s on offer on the market today for those investors willing to take the risks.
The downtown fixer upper
A view of the kitchen inside a Stalin-era apartment in central Kyiv. Local estate agents say with good renovations, properties such as these can yield 10 percent annual return on investment. (Oleg Petrasiuk)
What’s on offer: A fifth-floor, 52-square meter apartment in need of renovation
Price: $69,000/$1,300/square meters
Address: 25 Saksahanskoho St.
Agents say this type of apartment is typically what investors look for in Kyiv’s property market: a “Stalinka” — which means features like 3.4-meter high ceilings — in a highly desirable city center location. This flat is located in close proximity to Kyiv’s Olympic Stadium and Lva Tolstogo.
It’s a prime target for an investor looking to make rental income. It requires a full renovation, which could cost around $30,000. But even factoring that in, and without negotiating on the sale price, local agents say it could generate an annual rate of return of up 10 percent when rented for around $900 per month. Potential tenants are both Ukrainians and expats at the higher end of the market, where the economic turmoil of recent years has had less of an impact on incomes.
“Believe me, people will grab it,” said property consultant Artyom Tikhonov. “Once it’s renovated, everyone will want to rent this apartment. The average rate of return on places like this is between 7 and 9 percent, but with this apartment it could be 10.”
According to Tikhonov, the quality of the renovation is key. Modernization, which is only cosmetic, or renovations done more than a few years ago are unlikely to be able attract high rents. But as long as the work in an apartment is done well and is in a good location, it is likely to be quickly rented even if the building it is located in is poorly maintained.
In the case of the apartment seen by the Kyiv Post, the seller will no doubt be hoping that the availability of off-street parking and a communal lift in the building will add to their chances of a quick sale. At the time of writing the property had been on the market for three weeks, with Tikhonov saying that as it was advertised at below-market price, it would go quickly.
The luxury “shell and core”
Artem Tikhonov (R) shows the Kyiv Post an empty apartment in the Royal Tower residential complex in central Kyiv. Local agents say such properties see high rental demand after being furnished. (Oleg Petrasiuk)
What’s on offer: A 16th floor, 64 square meeters apartment offered in “bare walls” condition
Price: $160,000 /$2,500 per square meters
Address: 34B Horkovo St. — 37D Saksahanskoho St.
This apartment is located in Royal Tower, a brand-new development in central Kyiv. It’s very much aimed at the luxury sector of the market. With a bar on the ground floor, a spa and a roof garden, it is reminiscent of a five-star hotel.
The price of an apartment here reflects the desirability of such properties, especially among locals who see them as preferable alternatives to the older Stalinkas. They are also used as safe havens for cash, with many people buying an apartment during the construction phaseand keeping it empty, with a view to selling it in future at a profit.
“This is where Ukrainians put their money,” said Tim Louzonis of AIM Reality Kyiv. “It’s rational behavior. It keeps prices higher than you would expect for income levels.”
The apartment seen by the Kyiv Post was offered in “bare walls” condition, a standard feature of many new developments. This means it is sold without and furniture, fixtures orfittings and is little more than bricks and mortar.
Equity growth on such apartments, say local agents, is expected to be higher in the long-term when compared to older properties. In terms of investment, once renovations have been done at a cost of $500 per square meter, such apartments can typically yield seven to eight percent annual return.
Igor Rubinstein, of Kiev International Realty, says if buying for the rental market, there’s no need to go for something on a high floor with panoramic windows, as this will make little difference to the rent which an apartment can command. For a apartment of about 64 square meters, $1,500 per month is the going rate.
“Instantly it will get rented. Snatched up, right away. Once it’s listed it will be gone in two weeks,” said Rubinstein.
New developments in central locations are among the most desirable types or real estate in Kyiv. In Royal Tower, only about 10 percent of units remain unsold. But as Louzonis warns, the gradual trickle in of new residents will mean some potential renters will look elsewhere “Tenants don’t want to hear renovation for three years,” he told the Kyiv Post.
The out-of-town package
Olena Hlyvynska stands by the window of her apartment on Kyiv’s Dnipro River left bank. Having bought the property in August 2015 for $35,000, she has spent $15,000 on renovations. She hopes that she’ll be able to sell the apartment at a profit and use the proceeds to move to something “bigger and better” on the right bank, closer to the center of the Ukrainian capital. (Oleg Petrasiuk)
What’s on offer: A 13th floor, full-furnished, 50 square meter apartment
Price: $55,000 ($35,000 initial purchase plus $15,000 for renovation)/ $1,000 per square meters
Address: 2 Drahomanova St.
This apartment, on Kyiv’s left bank, was bought in August 2015 for $35,000 whilst still in the construction phase. For the owner, Olena Hlyvynska, part of the attraction was that prices were much lower in this part of the city compared to the right bank.
Hlyvynska did her research thoroughly, including looking into the reputation of the developer. She had herself earlier almost become the victim of fraud when trying to buy a place to live.
“I almost bought an apartment on the right bank,” she told the Kyiv Post. “It was in a good location, close to the metro. But then I checked all their documents. They only had permits to build up to the ninth floor. I put down a deposit but didn’t got through with it.”
The apartment she eventually purchased came in the standard “bare walls” condition. To date, she has spent around $15,000 on the fit out. All the money, including the initial $35,000 for the purchase, has come from savings or help from friends and family. Hlyvynska says mortgage rates are simply too high to consider a viable option, but she had to find a way to realize what was a long-held ambition.
“I was interested for many, many years,” she said. “When you live in the city for 16 years, renting an apartment every month, you spend a lot of money on it. So one day you just decide to buy your own apartment.”
As an owner-occupier Hlyvynska is less interested in rental income and is instead banking on equity growth. For the moment, she is the only one living on her floor. The other apartments have been sold but remain empty. She expects that in the coming years as they fill up and the area around her building is developed further, the value of her property will rise accordingly.
“When I was buying this apartment I was thinking, I’ll buy it, I’ll do the renovations, then I can resell it and buy a bigger, better one on the right bank, once I’ve saved some more money,” she said.
