Currently apartments in Ukraine are increasingly used as investment tools – in order not to lose savings, as well as to rent apartments and receive investment income, very often as a substitute for low pensions. Investment in real estate became the only way to save money and even earn income from renting it. According to some experts, only 20% of all purchases are for personal living, and the remaining 80% is purchased as an investment. Of course, these buyers are certainly interested in a good return on capital invested i.e. what percentage of initial investment is returned as income per year, and return of capital, i.e. for how much can they sell this apartment in case there is such a need.
The analysis of the relation between rent and price of apartments in Kiev in various segments shows that the payback period is within 10-12 years (about 10% cap rate). Sometimes, if the apartment is well chosen, payback can be about 7-8 years. Such profitability can’t be obtained from any bank deposit.
Will this correlation between the price of the apartment and the rent remain in the future? It is very difficult to answer this question, although there is clearly a tendency to increase the payback period. But the fact that bank deposits do not give the same percentage of return is obvious to everybody.
For example, in many cases it is impossible to rent out housing in the Baltic countries, as there are no long-term tenants, so apartments are rented for the price of utilities. In Israel, the cap rate is sometimes only 2%.
Will such a situation await Ukraine? Perhaps it will, especially if the economy does not improve and the outflow of labor does not decrease. However, this will most likely affect smaller cities as they suffer from both internal migration to major cities such as Kyiv, as well as external migration.
For the further development of the real estate market, we would like to see a radical change in construction standards, reducing unnecessary or outdated requirements, but keeping those that are necessary and adopting modern building codes. For example, all over the world, the frames of high-rise residential buildings are built of metal, but in Ukraine these buildings are still made of reinforced concrete – this is directly related to the outdated requirements of State building standards.
Concerning Kyiv real estate: Unfortunately, the density of development in Kyiv without expanding infrastructure is such that the comfort of living in the city center disappears, especially when more and more time should be spent in traffic on the way to work. It is the limited opportunities to build on new land plots that will dictate the prices in the central part of Kyiv, although one can foresee the demolition of the “old” and not “historical” buildings and the construction of new skyscrapers in their place. Most likely this will be the next stage of development of the Kyiv real estate market.
As for the non-central areas, they are gradually being built up and constructions are increasingly moved to the city’s outskirts, while the roads are not being widened at all. In some peripheral areas it is becoming increasingly difficult to access one’s housing via existing infrastructure. The situation is worsened by the woefully inadequate existence of schools, kindergartens and hospitals in most new developments. Alternatively, you can buy an apartment in a very nice complex with excellent social and physical infrastructure (kindergarten, supermarket, sports grounds, underground parking, green space), but you will get to this earthly paradise in terrible traffic jams. The Kyiv Municipality does little to nothing to solve these problems. Therefore, the investment attractiveness of peripheral buildings will decrease because “it’s better to pay more but live not far from your workplace”.