Real Estate at Raise

11 07 2018

The outgoing year and the start of 2018 display an element of promise for the real estate sector in Ukraine. The number of transactions grows continually, especially as compared to 2016. The nature of transactions changes from internal restructuring and distressed assets deals to investment ones. And this all is not about residential property alone, but commercial and industrial too.

Of course, residential property is still seemingly overwhelming, especially in Kyiv and other big cities. However, the market is largely uncertain. Prices are neither falling nor rising noticeably, and there is no affordable financing. To oil the fire, the mass media continue predicting another market collapse, which, however, has not occurred so far. On the other hand, it is hardly possible to find any free land plot for residential development in Kyiv. Commencing a new project would rather involve reconstruction or demolition of existing worn-out structures or rezoning and often replanting the territory. Other options involve arrangements with military departments, the Academy of Sciences or other multi-functional state-owned entities who still possess commercially attractive sites.

Commercial areas continue to grow. Usually because of commissioning of properties, which construction started several years ago when market outlooks were a bit different. Its occupation, however, depends on the overall economic advancement: new companies entering the market, market players extending their operations, the population increasing their purchase power, etc. These trends are still rather weak. Small businesses, IT industry and startups, so much spoken about now, show the driving force that could give some impulse to the development of the commercial property market, primarily the offices. Internet-towns and IT-clusters, so well-known abroad, are not yet coming about in Ukraine. Though, we should give proper respect to this young community for the co-working platforms appearing here and there to push the traditional corporates out of business centers slow by slow.

We have even seen some minor developments on the industrial property market. For the past couple of years, the key projects in industry were rather at finishing the earlier started construction or expanding existing facilities, than investing in new ones. Chinese interest in Ukrainian enterprises, after breaking their ties with Russian industry, is limited to acquisition of technologies and moving them to China. And yet we are seeing Ukrainian and close European businesses start looking at expansion opportunities in Ukraine. Industrial sites are comparatively cheap, even close to the capital and in other good locations.

Unlike other industrial projects, the alternative energy sector is certainly on the up. At the moment this is primarily about land and the construction of new power plants. As long as the favorable "green tariff" treatment is available, many wish to try their luck in Ukraine. This is equally fair for both foreign energy companies and portfolio investors, already having some unpleasant experience in Poland and other European countries curtailing their incentive programs.

Last, but not least, infrastructure construction could often be seen here and there. It should, however, be distinguished from the general trends since the Government acts as the only key customer in such projects, and external public borrowings is the major source of financing. Still, foreign construction companies do enter the Ukrainian market and they are not necessarily from close Poland and Turkey, but also from far-reaching China and South Korea. Private projects are smaller both in number and volumes and mostly focus on export-oriented industries: agriculture and metallurgy.

The key point is that lawyers have plenty of work to do in the real estate sector. No matter whether they are focusing on residential or commercial property, industry, energy or infrastructure. New investors appear from time to time, many of them are international. Most are careful, taking a closer look. Some try negotiating their investments. Some do close deals, as our practice shows inter alia. The feeling is that the number of requests is constantly raising.

Published: Ukrainian Law Firms 2018, July 2018

Author: Alexander Borodkin