Is it profitable to invest in real estate in Ukraine?
In Ukraine, real estate, bank deposits and domestic government bonds have always competed for the title of the most attractive and liquid asset.
In 2019-2020, the NBU reduced the discount rate. The average profitability of deposits dropped to the level of 8.5-9.5% per annum. In addition, tax was also required from the amount received. At the same time, housing in the primary market rose in price by an average of 21% for the first 11 months of 2020.
This growth was distributed as follows, in detail:
- comfort and business class — about 15%;
- economy class — 11-12%;
- exclusive properties — up to 41% in some cases.
Investors immediately reacted to the situation and redirected their capital to buy real estate. Not only citizens of the country began to invest in apartments, but also foreigners from near and far. The trend was further reinforced by the fact that with a smaller start-up investment, renting Ukrainian housing can bring in profits of up to 9% per annum, while in Europe larger investments have a return that ranges from 2-4%.
Reasons for the increased growth in prices for comfortable real estate
Vladimir Danilenko, commercial director of SAGA Development, believes that after the restrictions associated with the lockdown buyers have changed their attitude towards the quality of housing. In the first place in the assessment came out such parameters as:
- ergonomics of planning solutions;
- richness of the architectural concept;
- the presence of elements of increased comfort;
- the level of improvement of the local area.
Also, the growth in the cost of better quality housing has spurred numerous loan offers and installment programs. Due to these favorable conditions, apartments of the «comfort» class and above have become available to a wider circle of buyers.
Recommendations for choosing an investment object
In order not to face problems and not regret buying in the future, you should spend some time studying the current trends in the real estate market and pay attention to the following parameters:
- The reliability of the developer. You should not contact a company without a reputation that has just recently appeared on the market. It is not a sure thing that such an organization will be able to bring the project to completion. It is better to give preference to a company with work experience, which has not only unfinished buildings, but also houses that have already been commissioned.
- Investment budget. If the client has a minimum investment amount, it is not worth counting on the purchase of housing from a top developer in the prestigious districts of the capital and large cities.
- Attractiveness of the price. When a price offer looks too tempting, you should study it in detail. Most likely, there are pitfalls or conditions that are difficult to fulfill.
Then you should evaluate the area where the potential investment asset is located. If the area looks attractive, has good transport connections and social and commercial infrastructure, an apartment bought there will remain a competitive asset even several years after its acquisition.
The general concept of the project should also be taken into account. If a house is built taking into account modern technologies, looks aesthetically pleasing externally, fits harmoniously into the surrounding landscape and has its own «face», the cost of living space in it will not fall in the next 5-10 years. The same cannot be said about faceless skyscrapers built on wastelands or in industrial zones with poor ecology.
Particular factors of calculating the return on investment
It is most profitable to acquire an investment object at the initial stage of its construction. The price of demanded housing can grow by 10-20% already in the first month from the start of sales. An investment in a facility under construction at the start can bring 30-50% profit in two years.
You can abandon the project at any time. It is possible to sell the property even before the registration of ownership rights. If you have no such plans, it is worth registering as an owner, and receive 6-9% per annum from rent.
How to minimize risks
A risk-free investment is the purchase of a home with title deeds in an already operational building. It is rather problematic to purchase such an option from a developer. In popular buildings, 80-100% of apartments are bought out before being put into operation.
Options in the «secondary» market are often less attractive, but there is still a chance to find an interesting offer. Such real estate can be bought with a loan at a 13-15% interest rate. A rental yield of 7-8% and a general rise in market prices in the same volume will help to recoup the interest on the loan.
To get more income, you will have to take risks and invest in the project at the initial stage of construction. The key is to choose the right developer company. Don’t mess with pyramid-based developers. They can collapse at any moment, as happened with the major participants of the Ukrainian market Arkada and Ukrbud.