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Friday, March 21, 2008

The Next Big Thing: Risks Fail To Dampen Market

From Financial Times By Daniel Thomas
Published: February 27 2008

Over a late night dinner between some of the most active international property investors and developers 18 months ago, there was one country that everyone agreed would be the next big investment market: Ukraine.

The numbers just added up, they agreed, it would be the “next Poland”. The large and increasingly affluent population clearly need offices and retail outlets, while its location with Russia to one side, and Poland, Romania and Hungary on the other, seemed neatly positioned for industrial requirements. Strategically, it is at the crossroads between Europe and Asia.

Now, these predictions seem to be coming true, with the Ukraine believed by many regional experts as an essential market to invest. The problem, however, is that the speed of acceptance of the country could mean that returns are coming down too quickly in a country where there are still risks to Western investors.

The Ukraine is the second-largest country in Europe, with a population of more than 46m people. It is still a poor country, however, with almost 40 per cent of its population below the poverty line, according to 2003 statistics.

The most obvious risk about conducting business in the Ukraine is in the political sphere following a crisis last spring that sparked an early legislative election and, by December, a new prime minister.

Analysts say that the government could do more to improve the investment outlook, including more efforts to crack down corruption, the development of the capital markets and improving the legislative framework.

On the long-term economic horizon, there is the potential threat of a reinstatement of tax, trade, and customs privileges, and a government promise to maintain restrictive grain export quotas.

But the Ukraine’s economy remains buoyant in spite of the political turmoil and background concerns about the mechanisms of government. Real gross domestic product growth reached almost 7 per cent in 2006-07, fuelled by strong consumption, which was in turn spurred by rising pensions and wages.

This is why many developers see the country as ripe for retail development, in particular, to soak up some of this money. Developers predict that the country has capacity for at least one substantial mall in every significant city. And a significant city in the Ukraine is one with several million people.

Property advisor Cushman & Wakefield says that the economy has mostly ignored the political problems, adding that “following recent elections some normality is returning to the Ukrainian market”.

The market is still relatively undeveloped outside the capital city of Kiev, which has already attracted Western companies. Investment in the country is primarily by developers at the moment, with comparatively little good quality commercial property for investors to buy even if they wanted to.

Fund managers say that Ukraine has significant scope for opportunistic strategies, despite the higher country risks and the poorly developed real estate market practices.

The market has attracted London-listed investment company Raven Russia, which recently received shareholder permission to extend its remit into the Ukraine. Although it will remain focused on Russia, the developer sees the country as an important market for future growth.

“Ukraine has great potential,” says Glyn Hirsch, executive deputy chairman of Raven Russia, “particularly logistics development. Investors need to be very sure what they are doing and do their homework, but the returns could be very good.”

Yields in Ukraine are still relatively high compared to neighbouring counties, which makes agents predict a growing investment market.

“Countries to watch are Ukraine and Turkey where a few property opportunities exist but are not well known yet,” says Simon Moore, analyst at Collins Stewart, who points to the potential for greater capital growth and possibilities in the “property development stages”.

But there are worries that the market is just not ready for the levels of capital being targeted at the Ukraine.

Mark Mogull, founder of Benson Elliot Capital Management, warns that the weight of money could cause a bubble. “The Ukraine has a relatively small economy, and so there is a limit to how much capital it can absorb before causing a dangerous liquidity bubble.”

There are more practical problems. Land ownership is key for a developer, says one local agent, and the Ukraine seems prone to having disputes about who exactly owns what.

Because of this, many developers have established relationships with local partners, which is also useful for aspects of construction such as installing utilities.

There is also a currency risk to the Ukraine, as with all countries outside the EU, and investors are advised to hedge the risk through one of the many complex instruments such as currency options and swaps, or buy currency protection through an insurer. Any hedging method is likely to cost disproportionately, which needs to be factored into any investment.

Wednesday, March 19, 2008

'Ukraine: Investment Infrastructure: EURO 2012' Investment Forum

Information from American Chambers of Commerce in Ukraine

We would like to inform all interested Member companies and Embassies on the Investment Forum planned to be held in a framework of the EBRD Annual Meeting held in May 17th, 2008, "October Palace" in Kyiv. Ukrainian State officials, leadership of the many leading Ukrainian companies, bank and investment companies, consultants, the NGOs and Embassies, leading experts and scientists as well as foreign guests representing both governmental and private sectors are among the participants of the "Ukraine: Investment Infrastructure: EURO 2012" Investment Forum.

Among the main goals of the Forum are presentations of the investment projects related to the EURO 2012 form different Ukrainian regions, discussion of the different aspects of the preparation process, and opportunity to hold discussion on the following topics: knowledge economy: innovations, technology transfer and venture business; Finance: financial sector, stock market; trans-border cooperation; globalization and business activity; WTO accession; discussion on the specific industry sectors including energy, machine-building, travel and tourism, agriculture, etc.; infrastructure including transport and communication; legal aspects of the investment projects' implementation, etc.

Currently Ministry of Economy of Ukraine is acting as the main responsible State body to prepare the agenda, speakers, round table topics and the guest lists. We would like to draw your attention that there is an opportunity to provide your feedback and proposals on such important issues as:

  • Specific topics needed to be included into agenda and Round Tables of the Forum.
  • Your companies' presentation and guest speakers, which you would like to offer.
  • Names of organizations and institutions you would like to see among the participants of the Forum.

Please contact Ms. Svetlana Kovalivska at the Ministry of Economy at and/or Tel/Fax: 38 (044) 281-9553 to indicate your organizations' interest, to provide a feedback and to get more information regarding the Forum.

Thursday, March 13, 2008

Famous Colliers Maps

I'd like to offer you a famous Colliers' maps, which present rent rates, yields and pipeline across Europe. You can download they here

Tuesday, March 11, 2008

Lviv Presented Its Investment Projects For EURO-2012

On March 6th, 2008 Mr. Oleg Synyutka, 1st Vice Mayor of Lviv and Mrs. Oksana Slysarenko, Deputy Head of the Presidential Secretariat hosted a special meeting for investment and diplomatic community on the priority investment projects for the upcoming EURO-2012.

Mr. Synyutka together with his colleagues from the Lviv City Administration responsible for the economic and investment policy presented Lviv as one of the cities hosting EURO-2012 outlining advantages of Lviv City, many important areas needed foreign and local investments as well as detailed description of certain projects. For more detailed information please contact: Tel/Fax.: +380 (322) 97-5900 / 03, e-mail: or

Here the short presentation, which includes statistics, economic updates, investments and EURO-2012 projects including airport reconstruction, hotels, and sport facilities, city development chapters and others.

The Fights With The Illegal Rents

State Tax Administration of Ukraine fights with illegal market of apartments for rent in Kiev.

In 2007 Kiev Tax Administration did 891 cases on the property lease property without the appropriate tax documents. The State budget received an additional UAH 253.4K. Only in January 2008, they has found 67 facts, paid UAH 33.6K of taxes

The main sources for information on those property was tracking information in the media, particularly in specialized magazines and Internet.

With growth in this income business, tax officers will pay more and more attention to real estate property profit. For sure, this affects in the first place to private owners, who pay taxes very rare. And this is a pretty clear signal from Yulia Timoshenko (through the tax administration) that State budget need more tax funds for social issues.

Friday, March 7, 2008

Ukraine: Catching Up With The Neighbours

From Financial Times By Roman Olearchyk

Published: February 27 2008

Ukraine’s hot property market has produced some superior returns over the past eight years, providing investors with double-digit annual price growth rates.But it was not until last year that structured investment instruments appeared, such as real estate funds, offering international investors exposure to this fast-growing market.Most of the benefactors over the past decade were privileged domestic investors who snapped up flats and land in a frenzy, often at very low prices.Many who managed to close several acquisitions, typically with cash, turned into millionaires overnight as annual prices surged for seven years at double-digit rates.

Residential flats that a decade ago were selling for about $50,000, have reached astronomical levels, typically more than $2,500 per sq m. That is enough to make Kiev (pictured above) one of the world’s 20 most expensive cities in terms of property prices.

The sharp surge in purchase prices and rental rates is tapering off, but Kiev real estate experts do not expect a big downward correction in the immediate future. Demand consistently exceeds supply, particularly for commercial space, where the most growth is expected in coming years.The market holds ample opportunities for large foreign investors seeking strong returns by investing in a new wave of real estate funds and property developers, some of which have listed on the London Stock Exchange’s Alternative Investment Market (Aim).

“To keep up the pace of development and raise money for future development projects and land acquisition, large local developers started to more actively explore capital raising opportunities through IPOs and private placements,” says Tomas Fiala, managing director of Kiev-based Dragon Capital.

Dragon raised one of the largest sums from an IPO on Aim when it listed Dragon-Ukrainian Properties & Development, bringing in $208m, followed by secondary private placement for $100m.One developer, TMM, raised $105m. AISI Realty raised $33m, adding to a flurry of private placements by developers and funds.“These placements raised $664m in the aggregate, or 39 per cent of the total amount of capital attracted by Ukrainian companies through IPOs/private placements last year, says Mr Fiala.“To compare, there were only two real estate company share placements in 2006 for a total of $85m.”

Cast back in time by virtue of its membership of the USSR last century, and the collapse that followed the end of the USSR, experts say Ukraine’s real estate market is about seven years behind its peers in central Europe.While the foreign investment raised thus far is small, the expectation is its growth will imitate its neighbours’. New shopping centres, office space, warehouses and residential space continue to sprout up across the country.

“Foreign capital is a latecomer to the Ukrainian real estate market, having become active in the country only in 2006 due to complex legislation and intricate legal procedures. In addition, international property buyers were restrained by a lack of available stock for sale,” says Mr Fiala.But investments in both property development and property acquisition will continue to grow as local returns are much higher than on the alternative central and east European markets, according to Mr Fiala.

Petro Radchuk, vice president, at KDD Group, the developer that raised $130m last year in an IPO on Aim, says the listing “has allowed investors to get exposure to the fast-growing Ukrainian real estate market”.Like other developers and funds, KDD Group can offer large scale investors a chance to take part directly in some of its projects.

“Real estate consultants estimate that supply will equal demand not earlier than in 2010-2011. This explains why office rent rates grew 40 per cent in 2006 and 35 per cent in 2007. Retail centres increased rates by 15 per cent in 2007,” says Mr Radchuk.Last year saw acquisitions bring new landlords to top retail and office space in Kiev.

“The simple fact is that there are opportunities to invest here, whether through direct investment or via a vehicle like one of our groups’ non-listed funds or future listings like the ones we have seen on the Aim,” says Paul Niland, director of Primeros Property Fund.

Thursday, March 6, 2008

GLD Takes Good Speed

GLD Invest (Austria), one of the leading international player in Ukraine, is going to to expand own activity in Ukraine. Recently company sold its K40 sqm logistic project East Gate to another Austrian investor, Akron Group for EUR 35 mln. At the same time, another their logistic property West Gate is very successful and almost rented out. Also they are going to Odessa with new logistic property, as well as Kharkov and Zaporizhia.

Besides, a company intends to go next level of the operations, taking into interest to office market, too. In this market, company announced funds about EUR 200 mln. This fguure quite correspondent with funds amount which is announced for Ukraine' project and exceeds EUR 450 mln.

That's pretty clear, because for now, GLD has good experience on local market with comprehensive expertise, with own experience and feeling of Ukraine market. And good relation within professional community. I could wish to Clemens Lehr (GLD' Head in Ukraine) and company in whole good results and noticeable project.

Wednesday, March 5, 2008

One Line News - March 5

  • CB Richard Ellis has opened office in Kiev
  • GLD Invest starts to build A class logistic complex in Odessa with total area exceeds K60 sqm
  • In 2007, Kviza Trade (Velika Kishenya' managing company) increased its profit in 4 times (to UAH 35.134 mln.) comparing with 2006
  • VSE Energy is going to invest in 4 logistic complexes about USD 120 mln.
  • Retail turnover in January 2008 has increased up to 27.1% comparing with the same period in 2007.
  • KDD Group (Kyiv Donbass Development) has signed strategic partnership with Osnova-Solsif, one of the largest Ukrainian-French construction company.

Tuesday, March 4, 2008

Upon Madrid Conference

As I posted before, I've been in Madrid for participating in conference regarding real estate in Ukraine. There were many well-known Spanish companies like Riofisa, Hypo Bank, Forum-Development and many more.

I guess I've done my presentation well indeed, 'cause there were many warm feedback for my speech for. Main focus was on real estate overview in Ukraine in general, with real estate analyze for regions.

I was happy to be there. Good contacts, good results and great weather :)

You can download my presentation here