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Ukraine: Overview

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Ukraine: the boom has paused

Ukraine's house price boom has suddenly stopped. Prices decreased by around 5-8% during the second quarter of 2007, in the used dwelling market. The new apartment market was more vibrant, with small increase in prices on of around 5% in the second quarter.

The past year saw house price rises in Kiev (pop. 2.6 million) by around 70%, following rises of 65% in 2005, according to Kiev real estate agents In Real. These extraordinary price rises followed 30% price growth in 2004, and 35% price increases in 2003.

Strong economic growth is taking place, partly due to the pegged currency system. The initial under-valuation of the hryvnia six years ago fuelled strong economic growth and strong price rises. Because interest rates have been held down to sustain the peg, the price rises have fuelled a borrowing boom which has been channeled into the housing markets, which anyway face severe supply constraints.

There are no major restrictions on foreigners buying property in Ukraine.

All secondary residential transactions (i.e., resales) are in US dollars, while primary sales are in hryvnia.

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RENTAL YIELDS

Ukraine yields are moderate

Yields in Kiev range from 7.50% - 10.2%, by Global Property Guide estimates. The average price per square metre (sq. m) of apartments is around €2,930.

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TAXES AND COSTS

Taxes in Ukraine are moderate to high

Rental Income: Gross rental income of non-resident foreigners is taxed at a flat rate of 15%. No deductions and allowances are available to non-residents. Leasing a property is also subject to 20% VAT.

Capital Gains: Capital gains are taxed at a flat rate of 1%.

Inheritance: Inheritance tax is imposed at a flat rate of 30% if the successor is a non-resident and the benefactor of Ukrainian property is also a non-resident.

Residents: Residents are taxed on their world-wide income at a flat rate of 13%.

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BUYING GUIDE

Buying costs are low in Ukraine

Roundtrip transaction costs, i.e., the total cost of buying and selling a property, are around 5% to 7% of the property value. The agent's commission is around 3% to 5% of the property value. Other costs include pension fund levy (1%), stamp duty and registration fees.

Read Buying Guide  »

LANDLORD AND TENANT

Ukraine's tenancy law is pro-landlord

Rent: Rent and rent increases can be freely negotiated. The parties may agree on the procedures for periodic rent increases (i.e. depending on inflation). This must be stipulated in the lease contract.

Tenant Eviction: A landlord can terminate a lease without prior notice and without application to the courts, if the tenant has failed to pay rent for three consecutive months.

Read Landlord and Tenant  »

ECONOMIC GROWTH

On track for growth

A former Soviet republic, Ukraine has a population of 48 million and GDP per capita of US$2,021, the second lowest in Europe.

Economic growth has recently been strong. Average growth was 7.74% annually over the five years between 2001 and 2006. This is a dramatic turnaround, because after Ukraine's independence in 1991, it experienced no economic growth until 2000. Growth of 7% is believed to have taken place in 2007.

Yet political instability during the past couple of years has been restraining structural reforms.

After fraud-ridden elections in late 2004, the previous corrupt government was voted out and President Yushchenko was confirmed by the Supreme Court. But alas, the current leadership has failed to implement the changes desired by most Ukrainians: the elimination of cronyism, and the clear separation of business from politics. In 2006 former leader Viktor Yanukovych's party topped the polls in parliamentary elections. President Yushchenko's estranged prime minister Yuliya Tymoshenko took second place, leaving President Yushchenko's trailing in third. There has since followed a continued political crisis. A parliamentary election is set for 30 September

Ukraine is vulnerable to Russian pressure. It imports 85% of its annual energy requirements, particularly natural gas. A dispute with Russia regarding pricing led to a temporary gas cut-off. By agreement, from January 2006 Ukraine's gas payments to Russia almost doubled.

 

  • High yields in Kiev
  • Pro-landlord rental market
  • Low transaction costs
  • Moderate rental income tax rate
  • Corruption & instability woes

RESIDENTIAL PROPERTY FACTS
Price (sq.m): €2,807 For a 120 sq. m. property, usually an apartment. Rental Yield: 9.09% For a 120 sq. m. property, usually an apartment.
Rent/month: €2,550 For a 120 sq. m. property. Income Tax: 15.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 12.5% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 26.0% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice.
APRIL 2008
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