Pros and Cons of Buying a New Apartment in Ukraine
An advantageous location in Eastern Europe, low cost of living, and a significant fall in property prices since 2013 make Ukraine very attractive for local and foreign real estate investors alike.
When considering purchasing an apartment, each investor faces the perennial dilemma: Should I buy an apartment in an old or a new building? With the market having taken a hit during the financial crisis of 2008-2009, when construction in Ukraine was essentially frozen, and in light of stories about builder fraud and construction delays, most people are very cautious about investing in construction projects in Ukraine. However, comfortable, modern design, attractive prices, well-developed infrastructure and a pleasant sparkle of the new property may reward those willing to take some risks.
In this article, we will shed light on the main advantages and risks to be aware of when buying a new apartment. Check out the pros and cons to ensure that your property investment in Ukraine is safe and the most suitable option for you.
Advantages of Buying an Apartment in a New Building
Novelty and clean title
It is a great pleasure to inhabit an apartment that’s never been lived in. You will be the first to use all the facilities and appliances in your new home. Another benefit is that new properties are generally characterized by clean title to the real estate, which contributes to the safety of the transaction and may mean the apartment is more marketable and highly valued if you decide to sell down the road.
Greater choice, reliability, and efficiency
Modern properties offer a great choice of apartment sizes and layouts, boast more comfortable design, modern heating and ventilation systems, better pipes and a longer lifetime compared to older ones. Innovative technology and new materials improve the reliability of your new home. New buildings have modern utility connections that can withstand a large load, eliminating the risk of failure of the wiring or water supply.
Apartment redevelopment opportunity
Thanks to the modern approach, it’s often possible to redevelop the apartment plan to suit the investor’s desires. This is a great advantage of buying a new apartment, in contrast to old buildings, where renovations might be risky in terms of sustainability of the construction. Please note that major changes (such as removal of supporting walls) are subject to approval by the building’s engineering and construction experts.
Since 2013, due to the political and resulting economic crisis in the country, real estate prices are down by an average of 20% to 50%, depending on the type and location of the property. Additionally, you can notice considerable savings if you buy the property in the construction stage. The price of the apartment increases proportionally as it is completed, with the biggest savings available if you buy at the time of groundbreaking (which secures savings between 25% and 40% compared to buying the same apartment when the construction process is complete). However, keep in mind that you may have to bear the construction risk and wait several years for completion and a closing date. As of October 2017, the average price per square meter of a new building in Kiev was around USD 800, compared with an average price of USD 1,150 for Kiev properties in general. This does vary greatly depending on location and window view. In the new building, the average price for an economy-class apartment was USD 610 per square meter; for the comfort class, USD 710; for the business class, USD 1,200; and for the elite class, USD 2,010. Note that purchase prices rise quickly once new buildings are operating and occupied, and are significantly higher than for older properties.
Higher rental fee
Those purchasing an apartment they expect to lease out may be interested to learn that rental fees are generally 10% to 30% higher in new buildings compared to old ones, depending on the number of rooms and the class of the apartment.
Different payment schemes
While in the secondary housing market full payment is required, in the new-home market real estate developers usually offer a variety of payment plans, such as payment in installments, soft lending with the engagement of partner banks, and trade-ins (though not common in Ukraine).
New buildings in Ukraine usually have first-floor stores and underground parking lots. On the territory of property, you’ll often find a bright, well-groomed playground for children, garden pathways, bicycle trails, carefully manicured trees, flower beds, and grasses. Generally, the landscaped areas around a new building complex are well-lit and sometimes with security system and limited access.
Residents in new buildings are typically young people and families who are socio-economically similar. Such similarities may help you find like-minded people in your neighborhood and decrease the likelihood of crime or social problems.
Setbacks to Consider While Buying an Apartment in a New Building
Due to economic instability in the country, choosing a reliable developer with a perfect reputation is crucial when investing in real-estate construction in Ukraine. As a result of rising costs for real-estate construction and the devaluation of local currency, the Ukrainian real-estate market has seen numerous scandals involving developer bankruptcy. Such situations were especially widespread during the global economic crisis of 2008-2009 and even afterwards, when the real estate market took a huge hit and construction was frozen on many building projects.
Risk of fraud
Fraud by an unscrupulous developer is the main risk while buying a new apartment in Ukraine, especially given the country’s inefficient and corrupt legal and court systems. The most massive example of a scam in Ukraine’s real estate market was revealed in 2006 when more than 1,759 people were defrauded of about UAH 400 million by the large building company Elita-Center Group. It had collected money from investors for the construction of 40 housing complexes in Kiev that were not built.
As of the beginning of 2017, a list of construction violations in Kiev encompassed 62 residential complexes. An updated list, identifying the problems with each project, is available on monitor.mkk.kga.gov.ua. Among the main violations are discrepancies between the approved project and what was actually built; secondly, buildings that were not being used according to their intended function; and third, developers started construction without clear land title.
Therefore, before making any real estate investments in new buildings, investors should pay close attention to:
- the reputation of real estate developer. First of all, it is necessary to check the reliability of the developer, the number of projects the company has already built, and any court disputes related to the projects. It is also a good idea to check feedback about the company on the Internet, to understand the image of the company on the market.
- the availability of proper documentation. Be sure to read the construction permit; documents confirming land title with appropriate type of use; documents on town-planning conditions and restrictions, in particular, the “class of consequences” under which the project construction is classified; and documents pertaining to the connection of utility services.
- the formulation of the contract. As it is impossible to acquire title to the new apartment immediately, the investor should enter into a contract with the real estate developer. Under this agreement, the buyer will gain the right to property for the selected apartment after the new building goes into operation. The most widespread and legally possible ways of buying an apartment at the time of construction for a natural person include:
- Participation in a Fund of Financing of Construction
- Buying of special purpose bonds
- Buying property rights for real-estate in construction
- Preliminary sale-purchase agreement
Each of these schemes has its advantages and disadvantages, as well as particular risks. However, the safest and most government-regulated means are considered to be participating in a Fund and buying special purpose bonds. In any case, it is very important that the agreement on participation in construction contains all the necessary provisions and obligations of the construction company as well as guarantees of your rights as an investor.
Generally, newly built apartments are sold in a completely unfinished state (“shell and core”), which means:
- an investor should be prepared to spend time, money, and effort on large capital repairs and renovations, decoration of the apartment, selection and purchase of furniture etc. This might be a concern, especially for foreign buyers who are not able to spend much time in the country. In such a case, it’s important to have a reliable partner in Ukraine who will control the renovation and design processes in your place.
- as a rule, repair works in other apartments in the building continue for three to four years after the building is completed, so you might have to cope with the noise from a neighbor’s renovation after the settlement.
High property service charges
When buying an apartment is a luxury complex, you can expect service and maintenance charges that will be higher than for other buildings in the city. It is very likely that before signing off on the delivery and acceptance of your new apartment, you will be required to execute a contract with a private housing maintenance company, often related to the real estate developer, that demands sometimes artificially high prices for its services. The minimum is usually five to ten services, including cleaning of the grounds, communal areas, and rubbish removal, but sometimes it may extend to 40 to 50 clauses. While initially the developer gladly announces the list of provided services, it is rather difficult to learn ahead of time how much those pleasures will cost, so as to calculate the affordability of the apartment. In such cases, it’s helpful to buy into a residential complex where some units are already built and occupied, so you can get some idea of the utility and operation costs before buying.
Extra floor space
While buying an apartment in a new building, the stated size of the flat and, thus, the number of square meters for which you are paying are estimated ones. The total apartment space is set after an official measurement is made by the Bureau of Technical Inventory (BTI), and is usually one to two square meters more than announced by the developer. The investor may have to pay for these extra meters at a price that differs from the one at which the initial investment was made, depending on the description of this clause in the contract.
Delay in completion
The investor should accept the probability of frequent delays in construction and handover. Even when you’re working with a reliable developer, the date of substantial completion may be extended.
Summing It Up
The decision on property investment is always about your individual goals, needs, tastes, and possibilities. Buying a new apartment in Ukraine is a very attractive but at the same time rather risky investment opportunity. If you are interested in obtaining a new property in Ukraine, make sure you have worked through the pros and cons carefully, and hire a credible consultant in real-estate matters to provide you with quality legal support and necessary assistance.
Here are some additional resources that you might find useful :
- Ukraine Real-estate Investment – Opportunity and Challenges
- Buying Property in Ukraine – A Foreigner’s Guide
- Investment Bank Account for Foreign Individual
For further information, please contact us.