Why do foreigners buy real estate in Ukraine

Victoria Bereshchak

Real estate market columnist

Interest in profitable real estate in Ukraine from foreign citizens has grown lately—a noticeable spike has taken place over the past two years. If we compare with the figures of 2018, then in the total structure of demand in Kyiv, the share of foreign buyers has grown to 8%. In premium properties or high-quality business segment in the central business districts of the capital, the share of foreigners can be 10-12%. Earlier we talked about 3-5% of foreigners in the total cohort of buyers.

Lviv and Odesa are still competing to gain the upper hand in the issue of buying housing by foreigners. And so far Lviv is winning, but with a much smaller margin. In Lviv, the percentage of foreign rentiers increased to 18%, in Odesa—15%.

Kyiv and other Ukrainian cities attract foreigners, first of all, by a low entry threshold compared to the cost of real estate in their countries of residence. We are talking primarily about investors from Turkey, Israel, Azerbaijan, as well as citizens of Germany and China. The rental yield in their countries is sometimes 1.5 times lower than the Ukrainian one (let me remind you that here you can count on a yield of up to 15% per annum, on average 10-12%), and the return on investment takes two to three times longer. These are decades! Whereas in Ukraine it is possible to hit a deadline of 10-13-15 years, depending on the amount of investment, the quality characteristics of the pro[erty and the level of demand for it.

As a rule, the bet is made on daily rent. Usually, either lots in the historical center, or high-quality formats of complex residential projects with a high level of service, privacy and security, and diversified amenities are bought. That is, properties, where all the basic needs of residents are covered.

In Kyiv, Pecherskyi, Shevchenkovskyi, Podilskyi, and Obolonskyi districts are in special demand for investment purchases. One-room apartments of 50-60 square meters are usually chosen, as well as three-room lots with good view characteristics, a private terrace or patio area. Floors from 12 to 25 are in demand.

The initial investment threshold is on average $100,000. Foreigners usually do not join at the start of construction, but hang on to the initial stages, hoping in this way to save money at the expense of a lower price. Usually they join a new building when there is a minimum readiness—from 25% and above.

New buildings are more popular because they allow one to save or earn money due to the increase in the cost per square meter during construction: 30-35% in the comfort+ segment (in the formats of a mini-city, ecopolis, recreational residential complexes), as well as up to 40% in a business class (in the formats of multifunctional complexes, service residential complexes, multifunctional districts). Buying for the purpose of resale is also found among foreign citizens, and over the past year and a half, even more often than a rental investment.

Before the transaction, due diligence and full support are ordered, but unfortunately clients do not always receive a high-quality service. This is due to the chaotic nature of the residential real estate consulting market.

At the moment, foreign rentiers do not really "rule the roost" in the housing market, so it is not worth talking about a significant increase in prices for apartments due to the feverish demand. Rather, there has been a tendency towards an increase in interest and readiness to invest in Ukrainian real estate due to high profitability, an understandable procedure for acquiring and registering property rights.