Ukraine's housing market improving, as country normalises
Lalaine C. Delmendo | October 27, 2020
Existing apartment prices in Kiev were up by 0.39% during the year to Q2 2020 (steady in real terms), to US$ 1,035 per square metre (sq. m.), following y-o-y declines of 3.34% in 2019, 4.03% in 2018, 6.02% in 2017, 1.61% in 2016, 2.31% in 2015 and a huge 36.62% drop in 2014, according to S&V Development.
During the latest quarter, existing apartment prices rose by 0.39% (0.93% in real terms).
Likewise, newly-built apartment prices in Kiev increased 0.43% y-o-y in Q2 2020 (0.1% in real terms), to US$930 per sq. m.. On a quarterly basis, newly-built apartment prices rose by 0.43% in Q2 2020 (1% in real terms).
Residential property prices had been falling for more than six years, particularly in 2014 (with prices plunging 36.6%) because of the hryvnia's devaluation due to the Russian war.
Ukraine's economy grew by a healthy 3.2% in 2019 from a year earlier, following y-o-y expansions of 3.3% in 2018, 2.5% in 2017, and 2.4% in 2016.
This year, Ukraine's economy is projected to contract by a 7.7% before bouncing back with a 3.6% growth in 2021, due to the economic fallout from the COVID-19 outbreak, according to the International Monetary Fund (IMF).
Despite the pandemic, the National Bank of Ukraine (NBU), the country's central bank, remains positive on the outlook of the housing market.
“The pandemic has had a noticeable impact on the housing market, albeit short-lived and limited,” said the central bank in its June 2020 Financial Stability Report. “Unlike in previous crisis episodes in Ukraine, this time no large-scale market transformation is expected. The market will go back to equilibrium as quarantine restrictions are gradually relaxed. Despite the crisis, housing demand will remain high but is unlikely to return to growth in the near future.”
“Analysts project that prices will continue to rise, spurred by a weaker hryvnia and low developer margins. Developers also are optimistic. A survey of developers conducted in May showed that almost half of them – twice as many as in February – expected an increase in housing prices,” noted the central bank.
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.
Economy to contract, unemployment risingThis year Ukraine’s economy is projected to contract by 7.7% due to COVID-19 before bouncing back with 3.6% growth in 2021, according to the International Monetary Fund (IMF).
In June 2020, the IMF approved an 18-month US$5 billion standby arrangement for Ukraine to help cope with the coronavirus outbreak.
“The new program aims to help Ukraine to cope with COVID-19 pandemic … while safeguarding achievements to date and advancing a small set of key structural reforms, to ensure that Ukraine is well-poised to return to growth when the crisis ends,” the IMF said.
Unemployment is expected to peak at 11.5% in Q2 2020, sharply up from 8.2% a year earlier, according to NBU Governor YakivSmolii.
Annual inflation was 2.4% in June 2020, up from 1.7% in the previous month but sharply down from 9% a year earlier, according to the State Statistics Service of Ukraine. For the full year of 2020, inflation is expected to be around 4.7% - close to the central bank’s target of 5%. Inflation averaged 18% in the past six years.