Ukraine's housing market still struggling
Lalaine C. Delmendo | August 11, 2019
Existing apartment prices in Kiev fell by 3.73% during the year to Q2 2019 (-5.47% in real terms), to an average price of US$ 1,031 per square metre (sq. m.), following y-o-y declines of 3.98% in Q1 2019, 4.03% in Q4 2018, 3.79% in Q3 2018, and 5.31% in Q2 2018, according to S&V Development. During the latest quarter (Q2) existing apartment prices fell 0.67% (-1.87% in real terms).
Likewise, newly-built apartment prices in Kiev fell by 3.74% y-o-y in Q2 2019 (-5.47% in real terms), to US$926 per sq. m. During the latest quarter (Q2), newly-built apartment prices dropped 0.64% (-1.84% in real terms).
Residential property prices have been falling forfive years, particularly in 2014 (with prices plunging 36.6%) because ofhryvnia devaluation due to the Russian war. Newly-built and existing apartment prices are down 65% and 72% respectively, from their peak in Q3 2008.
Ukraine's housing market is expected to remain subdued during the remainder of the year, as homebuyers and investors adopt a wait-and-see approach after the recently concluded April 2019 presidential elections.
The Ukrainian economy grew by 2.2% in Q1 2019 from a year earlier, following y-o-y expansions of 3.4% in Q4 2018, 2.8% in Q3, 3.8% in Q2 and 3.1% in Q1, according to the State Statistics Service of Ukraine. Recently, the National Bank of Ukraine (NBU) raised its forecast for the country's economic growth for 2019 from 2.5% to 3%, and for next year from 2.9% to 3.2%, due to stronger domestic demand, better terms of trade and the expected increase in grain harvest.
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.
Economic outlook is positive, amidst renewed peace talksUkraine’s outlook remains positive and recently, the NBU raised its forecast for Ukraine’s economic growth for 2019 from 2.5% to 3%, and for next year from 2.9% to 3.2%. “Compared with the April macroeconomic forecast, the National Bank improved its forecast for the economic growth pace…due to a stable domestic demand, better terms of trade and the expected increase in the grain harvest,” said the central bank.
However these economic forecasts are highly subject to revision, 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, then President Poroshenko suspended trade links to the eastern Donbass region. But newly elected President Zelensky is determined to end the insurgency and in June 2019, restarted peace talks. This positive development gives renewed hope for a ceasefire to millions living in the embattled Donbass region of eastern Ukraine.
“For the first time the meetings of the working groups were held in a constructive way,” said Ukraine’s new chief negotiator Leonid Kuchma. “All sides wanted to find a solution.” Kuchma also hinted on the possibility of lifting the trade blockade on Donetsk and Luhansk.
Annual inflation was 9% in June 2019, from 9.6% in May, 8.8% in April and 8.6% in March, according to the State Statistics Service. The IMF projects inflation of 8% this year and 5.9% in 2020, a slowdown from 10.9% in 2018, 14.4% in 2017, 13.9% in 2016 and 48.7% in 2015.
Unemployment was 9.2% in Q1 2019, down from 9.3% in the previous quarter and 9.7% a year earlier. Jobless rate is projected to fall to 8.5% this year and to 8.1% in 2020. There were about 1.65 million unemployed people in Ukraine in Q1 2019.