Ukraine's housing market is stabilizing, but is still very weak
August 01, 2017
Secondary market apartment prices in Kiev fell by 3.3% during the year to Q2 2017, to an average price of US$ 1,131 per square metre (sq. m.). Newly-built apartment prices fell by 3.3% y-o-y to an average of US$ 1,016 per sq. m., down 61% from their peak of US$ 2,638 per sq. m. of June 2008.
This followed a massive decline in house prices in 2014 and 2015, attributable to the Ukrainian hryvnia's loss of value due to a series of devaluations over the past two years due to the war. House prices are 68.8% below the September 2008 peak of US$3,627 per sq. m, according to S&V Development.
"Despite the year-on-year drop, available figures indicate that apartment sales actually picked up in 2016. Registered sales-purchase agreements for the first six months of 2016 were about 15% higher than in the same period in 2015," says AIM Realty Kiev's co-founder Tim Louzonis.
There has also been increased interest in Kiev's properties from foreign investors, although many have postpone their purchases until 2017.
"There are no obvious reasons to expect a significant rise in rental rates or sale prices in 2017, but much will depend on the hryvnia exchange rate," says Louzonis. "The Ukrainian real estate market is not particularly hot right now, but there are reasons to be cautiously optimistic about the prospects for the coming year."
The Ukrainian economy is recovering from a deep recession, with GDP rising by 2.3% in 2016, according to the State Statistics Service. This followed economic contractions of 9.8% in 2015, 6.6% in 2014, and 0.03% in 2013.
In 2017, properties with sizes exceeding 60 square metre (sq. m.) (for apartments) and 120 sq. m. (for houses) will be subjected to a real estate tax rate of up to 1.5% of the minimum monthly salary for each exceeding sq. m., down from the previous maximum rate of 3%. The reduction was due to the impact of the increase of minimum wages from UAH 1,378 to UAH 3,200 in the beginning of 2017. Thus, for an extra 1 sq. m., the property owner will now pay a maximum annual tax of around UAH 48, up from a maximum tax of UAH 41.34 in 2016.
While the new tax rate applies this year, the property taxes due for 2017 will be paid by Ukrainians in 2018.
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.
Yields in Ukraine are excellent
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.
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.
Taxes in Ukraine are moderate to high
Rental Income: Gross rental income of nonresident foreigners is generally taxed at a flat rate of 18%. Leasing a property is also subject to 20% VAT.
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%.
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%), state duty (1%) and registration fees.
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.
Trade blockade in Donbass has hindered Q1 2017 growth; economy to slow in 2017Ukraine's outlook remains positive, and the National Bank of Ukraine (NBU) expects 3.2% growth in 2018. In April 2017, the country was able to obtain funds from the International Monetary Fund (IMF), after the latter approved a US$ 1 billion loan payment to Ukraine.
However these economic forecasts are highly subject to revision. Earlier this year, the NBU expected 2.8% GDP growth in 2017, but has now reduced its growth forecast to 1.6% due to a cargo blockade on the separatist-held eastern regions, Donetsk and Luhansk.
The blockade arose because separatists had seized control over steel and coal companies in the East, prompting Ukraine's anti-terrorist operation (ATO) in January 2017 to prevent freight trains from delivering commodities to these areas. Two months later, President Petro Poroshenko suspended trade links to the eastern Donbass region: “It is to be in effect until the occupiers return stolen Ukrainian factories to Ukrainian jurisdiction,” the President declared.
The blockade pulled down GDP growth to only 2.5% y-o-y in the first quarter of 2017, half the 4.8% y-o-y growth achieved the previous quarter. Exports contracted by 0.4% y-o-y, which was very disappointing after a sharp rise of 9.7% y-o-y in Q4 2016.
Inflation is rising again, and stood at 15.6% in June 2017, significantly higher than 6.8% in June 2016. The NBU projects inflation of 9.1% in 2017 and 6% in 2018.
Unemployment worsened in the first quarter of 2017, rising to 10.1%, up from 9.9% in Q1 2016, according to the State Statistics Service, after unemployment of 9.1% in 2015, 9.3% in 2014, 7.2% in 2013, 7.5% in 2012, and 7.9% in 2011.
In December 2015, Ukraine defaulted its US$ 3 billion debt to Russia. However the dispute was taken to the High Court in London, and was won by Russia in March 2017, which might actually force Ukraine to repay the defaulted debt.
“We take the decision with respect but we have grounds to consider that it doesn’t take into consideration economic and military aggression against Ukraine and its people that Russia has constantly done since 2014,” said Finance Minister Oleksandr Danylyuk. The Finance Minister also stated that Ukraine will appeal the decision and will continue to defend its position.
Ukraine is pushing for North Atlantic Treaty Organization (NATO) membership by 2020, and is aiming to complete the necessary reforms required for its application. "Today we clearly stated that we would begin a discussion about a membership action plan and our proposals for such a discussion were accepted with pleasure," said President Petro Poroshenko in a joint press conference with NATO secretary general Jens Stoltenberg in July 2017. Inevitably, this move has been strongly opposed by the Kremlin.