Yet surprisingly, inflation is down and Ukraine's economy is growing again. Despite the recent armed conflict, despite continued extensive government corruption, Ukraine is doing better than expected.
"While no one would confuse today’s market with a housing boom, if you take a quick walk around Kiev’s center, you will see lots of construction activity," says Tim Louzonis of AIM Realty Kiev. The volume of construction in Ukraine rose by 12.5% to UAH 57.5 billion (US$ 2.24 billion) in 2015, according to the State Statistics Service. Residential construction was up by 23.2% to UAH 13.9 billion (US$ 542.6 million), while non-residential construction rose by 10.6% to almost UAH 15 billion (US$ 585.1 million).
"Due to the hryvnia devaluation, material and labor costs for developers (mostly based in UAH) have decreased in dollar terms much more than housing prices (which are priced in dollars). So development projects continue despite the current economic malaise – instead of relying on bank financing, most of these developers are able to finance their projects with proceeds from “pre-sales” of apartments fueled by Ukrainians’ in trust in real estate and Kiev’s housing deficit."
In the primary market, i.e., newly-built, the average apartment prices also dropped by 2.04% y-o-y to US$ 1,055 per sq. m.. The current average price is 60% lower than June 2008's peak price of US$ 2,638 per sq. m.
The massive decline in Ukraine's house prices, which occurred in 2014 and 2015, is attributable to the Ukrainian hryvnia's loss of value due to a series of devaluations over the past two years, due to the war. This period has been a headache for realtors, with some contracts being cancelled due to buyers' inability to convert currency, while sellers refuse to accept hryvnia.
"I think that the downward trend for prices would remain and it will be seen in 2016," said Viktor Nesin, Chair of the Chamber of Realtors of Ukraine. "This will not be a slump, but I think that we will see a fall of 3-5% a month." Nesin added that the predicted price decline is due to low demand, pointing out that Kyiv's property market currently has 300 to 400 transactions per month, compared to 4,000 transactions per month in 2012 and 2013.
In December 2015, Parliament passed new tax laws, complying with Ukrainian's agreement with the IMF. This includes new amendments to the real estate tax:
- The maximum threshold for real estate tax rates of the minimum statutory wage were raised to 3% from 2%. Local authorities will establish the exact rates.
- A new flat rate of UAH 25,000 (US$ 992) will be applied to apartments of more than 300 sq. m. and living houses of more than 500 sq. m.
- Payers of Corporate Profits Tax (CPT) are allowed to reduce the amount of real estate tax paid for commercial properties. However, in accordance to the Law's amendments, they cannot carry forward non-deducted amounts of real estate tax.
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 quoted in hryvnia, but still paid in dollars.
Analysis of Ukraine Residential Property Market »
Please note however that our yields data for Ukraine is now very old. They were last updated in January 2007, and the recent price rises mean that these figures may no longer be accurate.
Capital Gains: Capital gains gains realized by nonresidents from selling real estate property are generally taxed at 18%. The sale of buildings or premises is also subject to 20% VAT.
Inheritance: Inheritance tax is imposed at a flat rate of 30% if the successor is a nonresident and the benefactor of Ukrainian property is also a nonresident.
Residents: Residents are taxed on their worldwide income at a flat rate of 18%.
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.
The result of the split in the pro-Western party was the election of a pro-Russian president, Victor Yanukovych who decided to put off an association agreement with the European Union (EU), which would have provided funds contingent on reforms. Instead, Yanukovych signed an agreement with Russia, which led to civil unrest and eventually to his ouster as president in February 2014. He was temporarily succeeded by Oleksandr Turchynov.
Following the Ukrainian revolution and Yanukovych's ouster, protests by pro-Russian and anti-revolution activists ensued in Crimea and eventually in other cities across eastern and southern Ukraine. In February 2014, Russian soldiers gradually started to take over Crimea until it eventually annexed the region on March 18, 2014.
The protests escalated into an armed conflict between the Ukrainian government and the separatist forces of the self-declared Donetsk and Luhansk People's Republics. A ceasefire, called the Minsk Protocol, was reached in September 2014, and both camps agreed to pull back heavy weaponry from the front lines. However the agreement completely collapsed in January 2015. In February 2015, a new ceasefire agreement, Minsk II, was signed.
Amidst the conflict, Ukraine held elections on May 25, 2014, with current president Petro Poroshenko emerging as victorious. Poroshenko, a pro-European chocolate tycoon, won the elections with 54.7% of votes, defeating his closest competitor former prime minister Yulia Tymoshenko, who got 13% of the votes. A snap parliamentary election was held on October 26, 2014, later than the earlier announced date of August 25, due to the ongoing war and the annexation of Crimea. In this election, the majority of seats (132 seats) were obtained by the Petro Poroshenko Bloc, it was followed by the People's Front (82 seats), and Self Reliance (33 seats).
As a result of the civil war, the currency collapsed and the Ukrainian economy contracted by 9.9% in 2015, according to the State Statistics Service, following earlier contractions of 6.6% in 2014 and 0.03% in 2013.
On February 5, 2015, the central bank announced that it would scrap its foreign currency auctions, letting the hryvnia to float more freely. This resulted in a plunge of the UAH's value by more than 30%, with hryvnia closing the day (February 5, 2015) at UAH 24.35 per USD, from UAH 16.78 per USD in the previous day. Financial and insurance activity dropped by 27.7% and retail trade by 16.8%. Likewise, the general services sector declined by 24.4%. The economy was also affected by stricter trade controls imposed by Russia, Ukraine's former largest trading partner.
In 2016, however, the National Bank of Ukraine expects a real GDP rise of 1.1% in 2016, followed by 3% growth in 2017. This positive outlook seems to be affirmed by the slight GDP increase of about 0.1% during the year to Q1 2016, based on the figures from the State Statistics Service - a huge improvement on the 17% y-o-y GDP decline in Q1 2015.
Ukraine's inflation significantly decelerated in April 2016, posting a single-digit annual inflation rate of 9.8%, a sharp decline from 20.9% in March 2016, and the lowest rate recorded since April 2014. The recent inflation figure also pales in comparison to 2015's inflation record of 43.3%. The steep inflation hike in 2015 was due to the currency devaluation earlier that year, and a sharp rise in communal tariffs, according to Ukrainian Finance Minister Natalie Jaresko.
The finance minister also stated that the Ukraine's inflation target of 12% in 2016 was "very realistic". "That [out of control inflation] won't be repeated this year. We have shrunken the budget deficit tremendously and we have shrunken the state oil and gas company deficit to zero and so the inflationary pressures have receded tremendously," said Jaresko.
Unemployment in Ukraine worsened in 2015 to 9.5%, the highest since 2002, based on the figures from IMF. It followed unemployment rates of 9.3% in 2014, 7.3% in 2013, 7.5% in 2012, and 7.9% in 2011.
In order to secure IMF's next loan tranche under Ukraine's US$ 17.5 billion loan, the government approved its 2016 budget with a deficit of around 3.7% of GDP, a figure agreed upon with the IMF, and a reduction from 2015's budget deficit of 4.1% of GDP. A four-year loan program worth US$ 17.5 billion, which will be given in eight tranches over 2015 and 2016, was agreed upon by IMF and the Ukrainian government in March 2015.
In December 2015, Ukraine defaulted its US$ 3 billion debt to Russia. "Considering that Russia has refused, despite our efforts, to sign an agreement on restructuring and to accept our proposals, the cabinet is imposing a moratorium on payment of the Russian debt worth $3 billion," according to Prime Minister Arseny Yatsenyuk.
"According to IMF rules, a moratorium by the Ukrainian government on the $3 billion debt repayment to Russia is in fact a declaration of Ukraine's default," said Konstantin Kosachev, chairman of the Federation Council International Affairs Committee.