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Ukraine Real EstateHow to participate in Ukraines burgeoning real-estate marketMain materials written November 2005Many foreign visitors to Ukraine are well aware that Ukraines real estate market has been developingrapidly. Apartment prices in Kiev and other major cities of Ukraine have "gone through the roof" in thepast several years. Happy indeed are the investors who purchased real estate (apartments) in Ukrainiancities in the early 90s for a few thousand dollars and have seen their property rise in value an average of20-40% a year ever since. Add to that revenue from apartment rental and you have a very profitableasset!Many investors made their decision to enter the Ukrainian market after the Orange Revolution (Nov-Dec. 2004), which demonstrated that the country has strong democratic and European leanings and willlikely continue moving in this direction. As you will see below, acquiring real estate in Ukraine is notdifficult at all.Property appreciation patternsProperty appreciation began in the early 1990s after Ukraines economy hit bottom and has been mostpronounced in Kiev, Odessa, Lviv, Dnepropetrovsk and other large cities. Soon afterwards prices inresort areas of Crimea began climbing, and now real estate prices in Yalta are often even higher than inUkraines capital Kiev. In the late 90s property values began rising in the Carpathian region and in otherdesirable vacation areas around the country. There are very few places in Ukraine where no price actionhas occured since the post-Soviet economic collapse, but in general property prices in villages and smalltowns around Ukraine remain very low.Property values show no sign of halting their growth, and real estate analysts generally agree that thefundamental causes of the growth in prices in Ukrainian cities will continue to push up prices for severalmore years at the least.Read my special report on real estate in CrimeaCauses of Ukraines real estate boomAmong the causes of the rise in price of real-estate in Ukraine are the following:low levels of housing per capita in Soviet timesSoviet system kept people from moving to big cities, but now they are allowed to
opportunities and capital concentrated in big citiesrising income levels in cities and resort areaslack of investment alternativesmistrust of banks after losing life savings during the inflation and banking crisis of the early 1990sincreasing accessibility of bank loans and mortgagesThis boom has occured in spite of very high interest rates. When these rates finally lower, demand forreal estate will likely rise further.Documents needed for purchasing real estate in UkraineAny foreigner may purchase real estate in Ukraine regardless of residential status or visa type.Foreigners may buy any real estate other than non-privatized property and agricultural lands, however,almost all foreign investors are interested in residential real estate. Just a few documents are needed totransfer residential property in Ukraine:passportUkraine taxpayer identification code certificate; this can be obtained in Kiev (find out how to do thishere), or a representative (for example, uaproperty.com) can do this for you with your passport and apower of attorneyif buyer is married and comes to Ukraine without his or her spouse: copy of marriage certificate, copy ofspouses passport, and notarized copy of spouses consent to buy property in UkraineUkrainian property can be bought through some real estate agencies without the buyers physicalpresence. However, for obvious reasons almost all buyers of expensive property prefer to make the dealin person.Getting money into Ukraine to buy property. Opening a bank accountUp to $15,000 USD may be brought into Ukraine without special documents (until recently it was$10,000). Most foreign property buyers open a bank account in Ukraine and transfer money fromabroad. Then money can either be transferred to the sellers bank account or taken out in cash. Openinga bank account in Ukraine is easy and requires these documents:passporttaxpayer code certificateproof of foreign origin of money (if foreigner puts cash in account after opening); a customs declarationfrom entering Ukraine, a bank receipt from exchanging cash or travelers checks, or a bank receipt fromreceiving cash with a credit or debit card
A good bank to open an account in is PrivatBank. In addition to an easy account opening procedure theyhave and hundreds of branches across Ukraine and have a convenient Internet transfer system thatallows you to transfer money to your account online. Other banks are starting to catch up withPrivatBank in online banking, too.Costs incurred while acquiring Ukrainian real estateWhen buying real estate a 1% tax is paid on the sales amount and another 1% is paid to the UkrainePension Fund. Buyers and sellers settle on who is to pay these fees and state this in the sales agreement.Real estate agencies typically charge 3-5% of the property price for their services. Finally, buyers maybuy an insurance policy on the property for 1% from their real estate agency.Real estate investors are closely watching politics and the upcoming 2006 parliamentary election inUkraine. There has been talk of implementing a property appreciation tax of 13% for residents and 26%for nonresidents, effective at time of sale, which could significantly affect the market. This tax would bepaid on the difference between the price the property was originally acquired for and the price it wassold for.Real estate improvement and maintenance costsIn most cases foreign buyers immediately renovate their newly acquired residential property, typicallyspending $10-15 thousand USD on repairs and construction. Some real estate agencies offerconstruction overseeing services. uaproperty.com, for example, charges 6% of construction costs fortheir services.In order to build new structures on property acquired, all real estate owners must obtain a buildingpermit. Many locals and foreigners opt to pay building firms (usually around $500 or more) to do thewhole process for them — from drawing up architectural plans to standing in line in all the governmentoffices that put their stamps of approval on the plans.Property maintenance costs in Ukraine are generally very low. Utilities usually amount to $15-30 permonth for an average apartment, and there are no property taxes (other than the tax paid when sellingreal estate).Foreign owners of real estate in Ukraine often install security systems, especially if they are not rentingout their property.Property that is consistently rented out usually requires periodic repair, which may add up to 5-20% ofrent.Renting out property in Ukraine
Typical rental prices in Ukrainian cities are usually 5-10% of the property value per year, or 0.8% permonth. In other words, an apartment that would currently sell for $40,000 USD would probably cost$160-320 per month to rent (closer to the middle of this range would be most typical).Many real estate agencies offer rental and property care services, allowing foreigners owners to nothave to worry about their property at all. Owners can agree to pick up rent from the agency periodicallyor have the money deposited to their Ukrainian bank account.Taxes on property rentMoney earned from renting out real estate is taxable in Ukraine. If owners are not Ukrainian taxresidents, they must pay 26% on earnings from real estate rental — twice the rate of 13% (flat tax onincome) for residents.Owners of higher-end apartments or multiple properties may find it worthwhile to register as privateentrepreneurs and pay a fixed monthly tax instead of percentage-based income taxes on money earnedfrom rent. This standard tax of around $40 USD does not change for any level of income related toentrepreneurial activities that amounts to less than 500 thousand UAH (nearly $100,000) per year.Foreigners can also create a Ukrainian firm that will be a tax resident of Ukraine. This firm will paydifferent kinds of taxes on earnings and, in addition, will be able to legally acquire non-privatized andagricultural land which non-residents are not able to acquire by law. After land has been privatized anddeveloped, ownership may be transferred to the foreign owner through legal means.Money that can be proved to having been legally earned in Ukraine may be transported or transferredout of the country with the necessary documentation. However, most foreigners prefer to leave theirearnings in a Ukrainian bank and use it inside Ukraine.