All of you, who remember situation in commerical real estate in Ukraine, as well as some of my old posts, should be shocked with current cap rates in Kiev. Particurlarly, for property owners. For example 1-1,5 year ago a prime office property deals could be negotiated at 7-7,5% yeild only. But now these figures completely different: 16-17% for offices, 15-17% for retail and 18-20 for logistics.
Feel the difference? Credit crunch in action
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.
Hot topics nowadays - Dragon steps to strength its role in local RE market. Another news now.
Dragon-Ukrainian Properties&Development PLC (DUPD), one of the leading investment fund in Ukraine, has obtained USD 208 mln. at end of the spring on the AIM, is going to get more. They're planning to receive up to USD 600 mln. during 2008-2009 with debt financing, including bank loans and bonds.
DUPD Board member and Dragon Capital CEO Tomash Fiala says that company intends to attract USD and UAH financing, and it could be done even at LSE, if the capital exceed USD 1 bln. in the next 5 years.
Fiala noted, that company valuate now more than 100 project in Ukrainian real estate, where 10-15 will remain then. Also he has mentioned that for the company are most profitable investments are retail and offices, hotels and residential then, and logistics is last.
"The supply is pretty low in every segment of the commercial real estate market" said Mr. Fiala. Especially comparing with any Eastern Europe country. "We expect increased demand within next 5 years. And there are huge demand for attractive income property, so fund is sure about profitable and stable exit.
According to Dragon-Ukrainian Properties&Development PLC strategy, company is planning to invest in Kiev commercial property and other big cities than with stake exit after 12 month after construction completing.
Additional info from Reuters
I continue to post most interesting and useful presentation from Time To Invest Kiev IV. Now the material from Terry Pickard (NAI Pickard) -
"Ukraine" shopping center, owned by well-known Kiev' RE player Quinn Group finished 2006 with a net profit UAH 9.25 mln (USD 1.83 mln.)
They increased net revenues by 19.9% (UAH 7.57 mln in 2006 over 2005) to UAH 45.6 mln.
Quinn group bought the property (93% of share capital) form US company NCH Advisors at 2006 for USD 59 mln.
Dow Jones Newswire
Dragon-Ukrainian Properties & Development, an active investor in the development of new commercial properties as well as in the redevelopment of existing properties in Ukraine which offer the prospect of attractive returns to its shareholders, said Thursday that it plans to float on AIM.
The company plans to place new Ordinary shares of 1 pence each at $2 and expects to have a market capitalisation of $200 million on Admission which is expected on June 1.
The initial focus will be on the development of new and re-development of existing commercial properties in the retail, office and warehousing sectors.
However, the directors will also consider alternative types of investment in real estate, including land acquisitions with development potential for residential projects, where they believe such investments will generate appropriate returns for shareholders.
The company's initial investment and development activities will focus on Kyiv and Kyiv district as well as other major regional centres of Ukraine where the population exceeds 700,000 people.
Whilst the primary focus will be on the development and re-development of commercial properties and, to a lesser extent, on secondary market acquisitions, the company will actively seek opportunities to enter into sale-and-leaseback arrangements, mainly in the retail sector where the directors believe such opportunities are likely to be present, given the continued expansion of the retail sector in the Ukraine.
The company expects to implement its strategy in partnership with one or more local property development experts. It may acquire properties from such partners and may make investments in, or from joint ventures with them.
The company expects to invest the net proceeds of the placing within 24 to 30 months after Admission. Funds not invested will be held on deposit in cash or in near cash instruments.
Dragon Capital Partners will act as investment manager to the company and will be responsible for identifying new investment opportunities for the company. The company's nominated adviser and broker is Zimmerman Adams International.
Recently, I've wrote about land auction in Lviv planned at 20 March. But it didn't happen in mentioned time. Due to the lack of bids from potential buyers. The new one is planning at the beginning of April.
Local authorities are ready to reduce the price of land, but have not yet decided on discounts. In April, for the sale of re-sold four land plots, three of which are under public and residential.
The last resulted auction held in Lviv on October 5, 2006. It sold 0.02 hectares in the centre of the city of UAH900K . The city with admirable regularity announced tender, but bids from customers were reported.
Rumours say that the developers don't buy because the price is high. But officials persist for several months been told that if local investors were not able to buy land, at the city market should to come non-residents
The president of the Association of Ukrainian taxpayers Sergei Bychkov said this today.
He noted that in a market economy, real estate is an indicator of ability to pay. "In conditions of a transitional economy, this indicator is very important, especially since part of the private incomes is hidden", assumes S. Bychkov.
According to him, a tax on real estate it is important that the rate was variable - from 0.05% to 1.0%. It should establish local authorities, depending on the type of property, the size of housing and other criteria.
S. Bychkov also noted that in Russia Real estate tax is 9% of the total government revenue.
From RBC Ukraine
The State Property of Ukraine Committee (FGIU) will reconsider all rent contracts for the lease of real estate owned by the State. The order signed FGIU Chairman Valentyna Semenyuk.
In accordance with the order, subject to review all contracts for the lease of real property signed or agreed FGIU, its regional offices, as well as the Crimea State Property Committee, with the exception of the treaties signed state budgets organisation, the Pension Fund and its organizations.
Revision of contracts should be conducted in accordance with the approved bill "On the State budget of Ukraine for 2007" on the determination of rent in accordance with the market value as determined by the Cabinet of Ministers of Ukraine rule N1846 of 27 December 2006. This rule assumed that the rental rates are seen as starting in the auctions for the right to lease state property and the rates significantly changed.
Review contracts to be implemented through the signing of additional agreements to lease. The base for a month and the first month payment on the new rates determined in January 2007. Rents for January calculated on the basis of the rental rates established by the rule N1846, and the inflation index for January 2007.
In 2006, the income in the State budget from the lease of state property amounted to 326.5 million. Income from rental of a state 116.6% of the annual plan. Since the beginning of 2007, the amount of rental income exceeds UAH 28,980 mln. According to the approved plan by the end of the year FGIU to list in the budget from the lease of state property UAH 310 mln. The number of active leases public property contracts now stands at 26,633.
An interesting post Kiev, Ukraine: The biggest and most obvious housing bubble in the world? about Ukrainian "bubble" as said keith form Housing PANIC. I don't agree with some ideas, but it's close to the truth. Read and comment. I've done it already.
Hotels income in Ukraine exceeded UAH 2 bln.
In 2006 services sales, from hotels and other short-term residence objects in Ukraine, grew up to UAH 2,047 bln. in market prices ($409 mln. aprox.)
For the same 2005 period that figure was only UAH 1,512 ($302 mln.). Thus trend for 1 year has been reached + 26% .
One of the biggest Ukrainian banks Ukrsotsbank (Banka Intesa group) forecasts residential real estate prices decreasing at 2nd half of 2006.
Such forecast has been done after deep research related with real estate situation in Moscow. The experts say that real estate trends in Kiev are pretty similar to Kiev. One of condition is "freezing" of Moscow price index. Secondly - less supply of investments assets, possible NBU restriction for foreign currency crediting and decreasing trends in the world real estate market.
Kyiv becomes latest property hotspot
BBC News
When you think about property hotspots in Eastern Europe, Prague, Warsaw or even the Baltic states may spring to mind, according to an article by Helen Fawkes, BBC.
Few people would necessarily put the capital of Ukraine in the same category. Yet Kyiv is now believed to be the most expensive city in Eastern Europe in which to buy a home. Prices increased by 10-25% in just the final two months of 2006. New blocks of flats are springing up across the capital of this former Soviet republic. One such is the Triumph apartment complex. It overlooks rolling hills and golden-domed churches on the edge of the city, and according to TMM, the company responsible, will have a swimming pool, spa and underground parking. Although months remain till the building is complete, much of it has been sold already. And although the flats remains a concrete shell - as with most flats in Kyiv, it is up to the owners to fit floors and doors and finish the walls - a three-bedroom unit is valued at about $1m. This kind of price is estimated to be about three times what it would have been two years ago - although, with no public register, no-one is entirely sure of the exact figures.
The cost of apartments has already overtaken some EU cities like Amsterdam. "It`s been amazing," says Tanya Plemenyuk from NAI Pickard Commercial Real Estate Services, who is showing a prospective investor round the flat. "Kyiv has experienced such a property boom. I bought a flat three years ago for $30,000, and now its worth up to $200,000." Part of the story is simply a rising demand for accommodation as wages go up and the economy grows - a demand for which supply cannot keep up. "People simply want to move out of their old Soviet style housing, and move into something more comfortable," says Jaroslav Kinach from property developers XXI Century Investments. In addition, many Ukrainians don`t trust banks, preferring property as a way of securing their savings. And then there is also a new class of super-rich Ukrainians looking for ways to invest their money: a tiny, but incredibly wealthy, group of business people who have done well since the collapse of the USSR, often in traditional industries such as steel production.
But the main driver for the property boom is speculation. Investors tend to snap up new flats, then leave them unfinished and empty - adding to the imbalance between supply and demand. At the offices of agents Parker and Obolensky, prices start at $500,000. "In my experience the most expensive places cost $25,000 per square metre," says Parker and Obolensky`s Ruslan Suchkov. "That`s not a joke. Apartments of this price are about 100 to 300 square meters in size." Such a valuation would put the top of the market at around $7.5m.
The cheapest one-bedroom flat in Kyiv costs in the region of $100,000- far beyond the reach of most people in a city where the average salary is about $200 a month. At the age of 30, Tanya Voroshko still lives with her mother. For her, buying her own home seems like an impossible dream. "It makes me feel hopeless and helpless," she says. "No matter how hard you try, taking into account I make pretty good money, still I can`t afford it. "It makes me feel angry and like there is no place for young professionals like me in this city."
Even as darkness falls across the capital, the building work continues. Some building sites operate 24 hours a day. But with so much speculation, and such an imbalance between prices and salaries, many fear that the residential property market in Kyiv is in danger of overheating. It could be a bubble - and if so, there is no way of knowing when it might burst. He said the President would sign the readopted law but would also demand that lawmakers create a legal land market by the end of 2007. “The President’s position is unalterable: a transparent land market must be created in Ukraine within a year.” Mr. Baloha added that Ukraine’s land market should be created by January 1, 2008, under the National Unity Pact. To achieve this goal, he said, the Verkhovna Rada must immediately pass cadastre and land market bills. “If this decision is slowed down, it will be seen as an attempt to conceal the actual price of land from farmers and preserve illegal schemes to distribute land resources,” he said.
Important, but not enough discussed news.
From Jan 1, in Ukraine implements new rate for private (individual) income tax - 15% insted of 13% past years.
Regards, Sergey
2006 for private investors, having free funds, was successful. Since 1998, when prices for residential real estate were twice dropped, there was possible to purchase one-room apartment for $5K. Now this apartment costs about $80K.
There is 1600% for 8 years and aprox. 60% for 2006 income for real estate deals. Secondly are power plant shares - 90% (and you should exclude 15% for taxes and traders commision). Third most profitable asset is gold brings 35% profit, but there is 10% spread for bank operations.
Talking about real estate pricing I have to say about enourmous growth - from $1350/sq.m at February to $2300 at December (at Kiev for sure). Make note, that is not only income from arbitrage. Most of them using for rent business. So potential income about 70% for 1 year
About stock exchange. Profitabily of mutual funds vary from 11 up to 57 %.
So, in short-term conditions, real estate investments are most profitable and reliable asset in Ukraine.
