Video: Kyiv Real Estate Market update May 2023 – is now the time to speculate?

Video Summary

I had a chat with John and Alex, who are both very active in the Kyiv real estate market. One as a fund manager and the other as a private investor. We discussed the latest developments in the Kyiv real estate market, which are in many ways surprising.

This video is a comprehensive analysis of the real estate market in Kiev, Ukraine, focusing on the potential investment opportunities for foreign investors. It dives into the intricate aspects of the real estate market and its current state, accounting for the war’s impact and the resulting effects on property prices.

The video focuses on the current state of the real estate market in Kiev, discussing the impact of the war and potential opportunities for investment. The audience is likely individuals who are familiar with real estate investing and have some knowledge of the Kiev market. They are interested in understanding the market conditions, risks, and potential returns on investment.

Topics Discussed

• Kyiv Real Estate Market
• Impact of the war on property prices
• Opportunities for investment in residential and commercial properties
• Pre-war and post-war price trends
• Rental prices and demand in Kiev
• Challenges and risks associated with investing in the Kiev market
• Benefits of investing in larger properties and potential for subdividing
• Importance of due diligence and legal considerations when investing in Ukraine

Key Takeaways

Additional Topics Covered:

• 📉 Prices in the Ukrainian real estate market dropped by 30-40% at the start of the war, but smaller apartments have almost regained their pre-war prices, while larger properties are still 20-30% cheaper.
• 🏢 Buying bigger apartments in downtown Kiev’s historical buildings is where the play is IF you believe Ukraine with win the war and if there will be an influx of reconstruction aid.
• 🏡 Rental prices in Ukrainian currency (hryvnia) have already recovered to pre-war levels, and there is a high demand for small apartments from people relocating or returning from conflict areas.
• ⚖️ The real estate market in Kyiv is not solely governed by economic considerations, but also by hope and desire for a better future. Market downturns have been mitigated by the lack of holding costs and limited mortgage availability.
• 🚫 Foreign investors face challenges in buying real estate in Kyiv due to capital controls, lack of proper channels for money transfer, and risks associated with the current situation.
• 💼 Investing in larger properties, especially historical buildings, and splitting them into smaller units can be a lucrative opportunity due to high demand from internal migration within Ukraine.
• 📝 Thorough due diligence, having a good lawyer, and working with trusted agents are essential when investing in Ukrainian real estate to avoid legal issues, property damage, and dealing with unscrupulous agents.
• 💵 Cash payments are common in real estate transactions, but there are restrictions on cash withdrawals from banks. Transferring funds through the Ukrainian hryvnia or using investment accounts are some alternatives for foreign investors.
• 🛠️ Renovations and conversions of properties offer additional opportunities for investors, especially in downtown Kyiv where zoning regulations are relatively flexible.
• 📚 Reliable sources of information about the Ukrainian real estate market are limited, and seeking advice from experienced professionals is recommended. Proper research, understanding the buying process, rental potential, and potential resale value are crucial for successful investments.

Resources

🇺🇦 Contact John: john@thewanderinginvestor.com.

🇺🇦 Contact Alex: alex@thewanderinginvestor.com.

🇺🇦 My real estate lawyer in Ukraine: https://thewanderinginvestor.com/services/international-real-estate-services/real-estate-lawyer-in-kyiv-ukraine/

🇺🇦 More Videos on investing and living in Ukraine: https://www.youtube.com/playlist?list=PLW4EvJzvxM8hPfUL8M6R0qMS9Q8oyiABN

Transcript of “Kyiv Real Estate Market update May 2023”

LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from The Wandering Investor here. And today, we’re going to have a very interesting discussion with two experts about the real estate market in Kyiv and how it’s doing right now with the whole war situation. So we’re joined by two experts on the topic, the first one being John, who runs two funds in Kyiv, one being on residential focusing on embassy staff, and the other one being commercial, focusing on IT clients. And then Alex, who, prior to the war, was helping foreign investors enter the Kyiv real estate market. As soon as the war started, he ran and he’s still running a large manufacture of bulletproof vests, selling bulletproof vests to individuals and also to the Ukrainian army. And now he’s seeing opportunities in the real estate market. He still has his business running on the side, and he’s going back into real estate.

So, gentlemen, what are you seeing? Because that’s the question that everyone has, a lot of people like to think buy when blood is running in the streets. I know that’s a bit of a crude way of saying it. But the situation in Ukraine is a little iffy right now. So what are you seeing in the market? Are there opportunities? So Alex, would you mind starting?

Alex’s view on the Kyiv Real Estate market

ALEX: Okay, thank you. Hi, guys. So now we can see that Ukrainian real estate market, not Ukrainian, maybe Kyiv real estate market is rising. When the war started, prices dropped around 30%, 40%, that depends on the total area of the property and the neighborhood. And now the small apartments, they almost regained and their prices went back to the prewar prices. But the big properties now are still 20%, 30% cheaper than before war. And, in my opinion, it’s a good opportunity to buy bigger apartments downtown in old historical buildings.

And in my opinion, after the war, we will see markets increasing like 30%, 40%, probably even more percent in prices, because a lot of towns destroyed and people who returns to Ukraine, firstly, they choose Kyiv, or Lviv, or Odessa where to start their living after coming back home. And the rental prices now are in Ukrainian hryvnia, they’re the same as the prewar prices. So yeah, in USD, it’s lower but in Ukrainian hryvnia, they already recovered. So I see now, for next three, six months, not more, great opportunity to be one of the first who can catch that opportunity and earn money after all renting or selling.

John’s view on the Kyiv Real Estate market

LADISLAS MAURICE: So John, what are your thoughts? So I know it’s a very complicated market in the sense that like price discovery right now is quite weak.

JOHN: Right. So I think it’s very important to consider that the Kyiv market isn’t ruled by economic considerations, let’s put it that way. This is due to a couple of very important factors. Right now, on the sales side of things, there are simply no holding costs. There hasn’t been a mortgage since 2006, 2007. And I think we talked about this in previous videos. This results in a situation where, when you have market downturns, there are no forced sellers, property taxes are incredibly low, utilities even don’t have to be paid during the war. I think there’s a rule that they won’t turn off the electricity in anyone’s house. No one has a mortgage payment to make every month. So as a result of this lack of holding costs, prices didn’t fall as much as they perhaps should have.

I think that’s important when you’re going into buying things. I try to be. I am a value investor. So I need to understand the yields and the returns on a property at a specific price. I just want to say, as well with Oleksii, I think it’s important for people to know that we also concentrate only on the very center of Kyiv. So price comparison in this conversation can be difficult. I often, just for comparison purposes, it’s like the difference between Manhattan and New Jersey. Sure, it’s just across the river, but the prices difference is pretty substantial. So we’re dealing only with historical center of Kyiv.

I think the market, because of the lack of holding costs, is governed by kind of what Oleksii was saying in that there’s great hope for the future. And this is fine. This is wonderful. But I’m not a Bitcoin investor, as I said to someone just last week. So I would be cautious at this stage, where I feel that the, cautiously optimistic, I’m incredibly optimistic about Ukraine, let’s not confuse that. But I don’t see the risks. I see the risks outweighing the possible benefits in the future.

LADISLAS MAURICE: Cool. So–

JOHN: At this point. I mean, as soon as we have some clarity– and I’m sorry, just on the buy side, things aren’t covered by economic [inaudible 00:05:53]. And you’ve got to realize that the upside is governed by hope, desire. So if there is great news, that could be an opportunity to buy and renovate and rent and/or sell. But I would, especially at this point, in the current situation, I would be looking for more clarity.

LADISLAS MAURICE: So Alex, so when you’re talking about opportunities, can you describe us some opportunities that, for example, you, yourself, with your own money are working on, because you’re doing quite a few deals?

ALEX: Okay. First of all, I want to say that, for the last three, four months, we have probably one of the greatest air defense in the world. I mean, Kyiv. And the last three weeks showed that, not even one rocket missile hit Kyiv. So our air defense is one of the best. So that’s minimizing the risk, if you even buy it, building will not be destroyed. I’m for sure about that, yeah. About the selling price, last week, I sold 30 square meters’ apartment for the same price as it was before the war, for 50,000 US there. And that’s not the historical downtown. And that was the same price I could sell that apartment one or day before the war. That means that the prices for a small apartment now are the same as the prewar prices, just penny to penny.

Because we have a huge demand for small apartments, a lot of people relocating from the occupied cities or returning back from different countries from the West, and they look for opportunity to buy something small to live in a safe city. Because Kyiv is one of the safest in Ukraine, probably the safest. And I always search for the good opportunity for investments. And for last two, three months, prices really rise. And so, definitely, you can bargain. If you have money in your pants, you can bargain probably 10%, 15%. That depends. But you can bargain more for bigger properties for now, because not a lot of money and not a lot of people holding the needed amount of money for the historical buildings.

But the same friends of mine, they are also investing in such properties. They are Ukrainians, they live in Kyiv. And they bought two properties for last three months in historical downtown for very good money. That means that even Ukrainians starting to take the money from the pockets and investing because we all feel, as John said, that, yeah, there are big hopes about the victory. But I guess, in the end, that will happen. We can see that on the battlefields. And there is, I guess, there is that your building will be destroyed is minimal. And I guess that after the war will be finished, that will not be the best opportunity to buy because the prices will rise a lot.

And we will see that from June, starting from June, Ukrainians who live in Western Europe, they will return to Kyiv because their children finish in the schools, and kindergartens, and a lot of people, because I have a lot of friends Ukrainians here, that’s for sure, they are all waiting the finishing of the studying of their children to return back. So starting from June, I guess, like 100,000 people more will come back to Kyiv, and they will rent, either live in their own apartments, or will buy something new for them, because not all of them from Kyiv. They lived in eastern Ukraine before the war.

LADISLAS MAURICE: So Alex, I have a question. So, look, if on small surfaces, larger surfaces, different topic. If the prices are now the same as they were prewar, I don’t see how this is an interesting investment. So essentially, you’re paying the same price as before, but the difference being that you’re at war with a nuclear power. Like, I don’t find this an attractive proposition.

ALEX: The prices is the same for the small apartment. Apartments 30, 40 square meters’ apartment. Because there are huge demand for that apartments. And the prices for apartments something like from 80 square meters, they are still the opportunity. The opportunity is not in the small apartments. It was never an opportunity for me because they were always overpriced for me.

LADISLAS MAURICE: Okay.

JOHN: Yeah. Again, Ladislas, this is a function of no lending. And so, as a result, every purchase is 100% cash. And at this point in time, I mean, literally, 100% cash, suitcase of cash. Because under Ukrainian legislation, bank transfer payment can only be made in hryvnias, it cannot be made in foreign currency. And no one will accept a hryvnia bank-to-bank transfer at this point in time due to restrictions of converting it into euros or dollars and due to the fact that there’s also limits on withdrawing cash from the bank on daily, weekly, monthly. I think Oleksii brings up a lot of good points about internal immigration within Ukraine, that’s a massive factor. The population of Ukraine before 2014 was 3 million, now it’s 5 million, perhaps, 6 million–

LADISLAS MAURICE: You mean Kyiv?

JOHN: Yeah. Oh, sorry. Did I say Ukraine? Yeah, immigration within Ukraine to Kyiv is a major driving force. And there’s a massive shortage of supply, which we’ve also talked about. So yeah, these small apartments are in demand, and there is internal movement. But I think, just what you said, yeah, the upside is based on hope. And I think I would want to see something like a, rightly or wrongly, doesn’t really matter, massive foreign investment in the rebuilding of Ukraine, regardless of even how it’s spent, would result in massive trickledown in the economy. And as a result of lack of bank trust, and a lot lack of stock market or fund-investable opportunities in Ukraine, of which there’s literally zero, people invest in real estate. So I think that’s going to have a massive impact.

So I’m looking for possible NATO and/or security guarantees, possible EU or whatever association membership, and definitive pledges for the rebuilding an investment in Ukraine. And I just want to state that these aren’t political statements I’m making in any way or emotional. This is just this is what will drive the market and will result in this hope for price increases.

What are the opportunities?

LADISLAS MAURICE: So Alex, you’re currently looking at some investments in land, and housing, etc., and you can get some decent yields?

ALEX: Yeah, now I’m looking for lands in downtown, somewhere near botanical garden to build some townhouses, looking to the river, and it’s really downtown. And the prices for big houses and for land there dropped something like from 30% to 50%. So, if you have money in your pocket, you can buy something big for some good money. For example, last week, friends of mine, they sold a property that was like a ground floor, but really downtown, they sold property 240 square meters for 500 US there per meter. That’s really, really cheap.

JOHN: Let me know, I’m interested in that price.

ALEX: Yeah. Okay. And I’m also looking for such big apartments on first floor because that’s an opportunity to split them for smart apartments and rent them out fastly for good money. So now, I’m looking for property which is 100– No, no, no, it’s 200, 210 square meters, or $130,000 near the metro and near the universities. So I can split it for an eight smarts for like 20, 25 square meters, and then I can rent it out, even now, for 300, 350. Even now, I can receive more than 10% yield if I have more money in my pocket. Even now. And after our victory, the prices for rent will rise, and the prices for property will rise, and I can sell it like a running business, no problem. And even for that apartments I’m running for rent, I already receive more money in Ukrainian hryvnias than the prices before the war.

JOHN: Those yields that you mentioned, those are gross yields, right, before property management and all the expenses?

ALEX: Yes. Yeah, for those properties I talked about, that would be around 12%, 13% gross yields. Yeah. But it’s even now. After the war, it will be much more than 12%, 13%, because prices for rent will rise.

How to buy real estate in Ukraine and capital controls

LADISLAS MAURICE: So essentially, what I’m gathering from you two gentlemen is the opportunity right now is not in smaller units, it’s in being a liquidity provider in physical USD cash and buying large whatever, large houses, large apartments, and that’s where the discounts are, possibly even chopping them up into smaller units, because there’s a lot more demand for this with all the internal migration? So this is where one of the core opportunities lies.

JOHN: Yeah, absolutely. I mean, that’s what we’ve been doing for the last couple of years.

ALEX: Yes.

JOHN: Due to the lack of lending, we were buying places, first, for 200,000, then 500,000, then 800,000 as the market improved, the liquidity improved the discount for a larger property because there’s no lending, the absolute amount became bigger. But yeah, now it’s back around $200,000, you can get a discount due to the fact that just simply no one has $200,000 in cash. And an important thing that Oleksii mentioned is the lack of strict zoning regulations in Kyiv as well. First floor in a residential building, it does have great opportunity because it can be residential, it can be office, or it could be commercial. And it’s pretty relatively easy to convert between them even unofficially rent for any one of those three.

And in the future, as certain segments or the market develops, you can subdivide and choose how you want to zone that property for resale. So that just gives you more exit options, which is very important.

LADISLAS MAURICE: So, let’s say, if I wanted to make a real estate investment in Kyiv right now, I’m a foreigner, sellers don’t want money in the bank because of capital controls, which is a big risk that foreign investors need to take into account. The exit right now is not necessarily that easy. So how do I actually buy real estate right now? So Alex, let’s say, I contact you, there’s your email below here, I’m like, “Hey, I want to make such an investment. Help me out.” Am I supposed to take the train to Kyiv with a suitcase and $300,000 in cash? [laughs]

ALEX: No, of course not. First of all, you can transfer the money through the [crypto 00:18:16], that will be the safest option. Second, if you buy big property, sometimes, they are selling by companies, or they’re selling by people who can take the money also in Ukrainian hryvnia, and still keep it in bank account. Because for now, banks, they give good interest rates on your money that’s much more than in Europe. Also, I have part of my money in Ukrainian banks, and that’s okay, that’s fine for me. I trust to them. And still, if you’re a foreign investor, you will open an investment bank account as possibility. But the problem is, as John said, that we have restrictions for the seller, that he will not be able to take more than 1,000 hryvnias per day from the bank after the purchase. So–

LADISLAS MAURICE: Which is how much in dollars is that?

ALEX: It’s around $30, $27 per day. That’s the restriction to keep money in the banks. And that’s kept our system alive because, otherwise, people would take all the money from the banks and the system would die even one year ago. So that was a good restriction for that period. If you’re talking about the big properties, people who sell big properties, they will always find solution how to receive money from you, because people who sell property for $150,000, $200,000, or even more, they know all the opportunities how to cash out the money after the purchase and transfer into their bank account, even in Ukrainian hryvnia. So people who sell their house near botanical garden for 1 million bucks, which was around 3 million before the war, they definitely know where to put that million bucks and how to take it out, for example.

LADISLAS MAURICE: Okay, so it’s still doable.

ALEX: It’s still doable, but not with people who sell apartments for 50,000 or 40,000 bucks. I wouldn’t even go for the apartments for now. That’s not the opportunity.

LADISLAS MAURICE: Okay, clear. Any thoughts on the topic, John?

JOHN: Yeah, sure. And I don’t mean to be ultra conservative here. I mean, I’d like to say a couple of things. Even before the current situation, I really, really, please, recommend any investor to have a very good lawyer. It doesn’t cost more than $1,000, or $2,000, or even $3,000 for a full due diligence, full contract, full negotiation, and everything. Please, that’s so incredibly important. I can’t tell you the number of times that– and I’m sorry, it’s the people that have made a lot of money in real estate, and that are very experienced real estate investors, and have invested in many emerging market real estate, they come to Ukraine, and they say, “I’ve done this a million times before, I don’t need help, I don’t need advice, I don’t need even whatever.” And then they give me a call, nine months or a year later, and say, “I bought a property with legal problems, with problems on the title, I am getting screwed by my construction guy.”

Please, there’s a difference between normalʹno, normal and legal. And especially like, for example, in the current situation, if you buy a property and the full purchase price is not included in the contract, and the proof of payment is not in legal means, and there’s a deficiency in the contract, the seller can return whatever amount of money is in the contract back to you in the future and get the ownership of the property back. So if you buy a $200,000 property and, on the contract, it says $50,000, because you’re doing $150,000 in crypto and $50,000 in bank transfer, they can give you back $50,000 and they’ll take back the property if there’s a problem with the title or– I mean, it’s just like title anywhere, it could have a claim against it or something, you know what I mean? So I urge extreme caution on this. And it is not expensive to get a professional advisor, and lawyers, and legal help, and a proper bank to assist you in these transactions.

Yeah, sure, I provide these services. Great. But I mean, I just can’t tell you, the number of foreign investors I’ve seen that badmouth Ukraine for no good reason other than, honestly, their own stupidity. And all of the risks they took were absolutely preventable. And it was only their fault that this happened. And it makes me sad. But anyways, yeah, definitely, please, do your due diligence.

LADISLAS MAURICE: Cool. And I think one important thing to add is that if, as a foreign investor, you do not go through the proper channels, as things stand, you would have issues getting your money out, because Ukraine, sure, has capital controls now that are more stringent than before, but even before the war, the country had capital controls, and you needed to show how the money came into the country to be able to get it out later out of the country. So I mean, Ukraine being Ukraine, generally, there are solutions, for sure, and some people are fine with it–

JOHN: You’ve just got to watch–

LADISLAS MAURICE: Go ahead.

JOHN: You’ve just got to watch a little bit of this culturally, because there’s absolutely solutions. But there’s a timeline difference culturally. And Western people, I don’t know, my mom’s worried about 20 years from now, maybe, I work in Ukraine, so I’m worried about– most people are worried five years from now, I’m maybe worried one or two years from now. Ukrainians are worried a week or two from now. So there are solutions today. You know what I mean?

LADISLAS MAURICE: Yeah, yeah, you’ve got to be very, very careful.

ALEX: I would add before the war, if you buy apartments through investments account, that’s your proof of investment, and you can take money out without any risks, that’s fully legal. I never bought any apartment for any of my clients for a lower price in the documents. Yeah, that’s not correct and that’s stupidity. And also, that’s true, you should check everything a couple of times and you should pay to the lawyer, or your agent, or to the notary, whatever, to check everything. And that’s no problem. And in Ukraine, you can buy. There is no restrictions. I mean, like there are restrictions, but there are no penalties if you pay in cash for apartments. That’s fully legal. I mean, like, you will have the price and contract full price, you will mention everything, and you will have the paper from the seller that he received the money. That’s because we have the legislation that, yes, you could buy through the bank account, but there are no penalties and nothing if you pay in cash.

For me, all the properties I bought my clients, I bought only through the bank account before the war. For me, now, I’m choosing the most safest options which I have for now. If somebody agreed to receive money on his bank account, I will transfer to the bank account. If there is no option of bank transferring, my lawyer will advise the best solution without risk for future. So that’s true, you need a lawyer, and you need to do your homework, because I also saw a lot of people who save 500 bucks, and then they buy apartments in buildings with huge scratches, or damages, or they buy apartments not on the [for sale 00:26:37], and so on. So that’s the job of your agents.

But almost all agents in Ukraine in Kyiv, they want only to take their commission as soon as possible. They try to sell you the shittiest place because you’re a foreigner and they know that nobody else will buy that. So that’s a huge risk going on the market to just any agents on the street. That’s a problem.

JOHN: Yeah.

ALEX: When you buy something in Ukraine, I would recommend to choose an agent, for example, like John or me, and people who understand in buying process, in renting process, and in selling process. Because if agents are professional only in buying process, he will not prognose you for how much you can rent it out, how much reconstruction will cost you, and for how much you’ll sell it. So you need to mention and to think about everything.

LADISLAS MAURICE: Yeah. And both of you have done dozens of renovations as well in Kyiv.

JOHN: Yeah.

ALEX: Yeah.

LADISLAS MAURICE: Cool. Gentlemen, thank you very much for your time today. This was really insightful, because I know a lot of people out there are wondering how the market is going. There’s not much data. If you Google, there’s practically no information. So I think this was very insightful.

JOHN: Thank you, Ladislas.

LADISLAS MAURICE: Okay, so if anyone is interested in getting in touch with John or Alex, there are their emails below in the description.

ALEX: Thank you.

LADISLAS MAURICE: All right. Bye-bye.