Acquisition of real estate in Ukraine
Last year has indicated housing market recovery in all major Ukrainian cities. This is especially discernible in Ukrainian capital Kyiv, where the housing boom can be observed.
The foreign buyers prefer to acquire existing residential property in inner city areas. In Kyiv, for example, the art nouveau buildings of the early 19th century attract buyers from Germany as well. Low prices and good rental yields (up to 15%) explain the investment growth, which has been clearly improved after the years of stagnation.
Considering the tight housing market in Germany the purchase of one or more apartments in Ukraine is indeed a good alternative for an investor who is thoroughly informed. If you have no any private or business relations in Ukraine, an investment should be made with particular caution. As like everywhere else, also in Ukraine, purchase of real property has its peculiarities.
1) Preliminary due diligence
It is highly recommended to prepare for property acquisition and to check it independently beforehand. A legal due diligence investigates whether the seller is the duly registered owner of the property and there are no any claims, mortgages or encumbrances of third parties. It is also important that the buyer make sure that by purchasing no minors or other vulnerable persons live in the apartment. Despite the fact that the main information on registered property and mortgages is publicly available in the online Public Register and also is to be checked by the notary, any other information should be verified in some separate sources, such as Debt registers, Registers of public burdens, Residence Register and the List of heritage buildings.
Particular attention should be paid by acquiring apartments located in cultural heritage protected buildings. That’s why the buyer shouldn’t entirely rely on information provided by the seller and certified by the notary.
Finally the Buyer should also make sure that technical condition of the apartment he intends to buy is satisfactory. It is advisable to consult with an engineer who inspects the apartment construction.
2) Documents to be prepared for purchase
The apartment sale and purchase agreement is subject to Ukrainian notary certification. As a rule a notary drafts a modal sale and purchase agreement that if necessary could be supplemented by additional provisions. A foreign buyer should read the draft in advance and request to arrange translation if necessary.
Along with the sale and purchase agreement foreign individuals shall also duly prepare the following documents before the notary's appointment:
- Passport and its copy to be duly translated into Ukrainian and certified.
- In addition, the buyer shall have Ukrainian tax id. This is requested by the tax authorities. The procedure takes up to one week and can be arranged by the buyer’s representative acting under the PoA.
- Finally, the purchase of the apartment under Ukrainian law requires the spouse’s consent and therefore, if necessary, a translated and apostilled marriage certificate. This also is required if the buyer's marriage status is not governed by Ukrainian law.
Foreign companies as the buyers must submit the number of corporate documents (extract from the commercial register, articles of association, etc.) and the power of attorney in a specific form (documents issued in Germany must be apostilled).
3) Purchase Price Escrow Agreement
The purchase price may be paid in foreign currency (e.g. EURO) from the buyer’s account at his bank abroad directly to the seller’s account in Ukraine. The buyer can also pay in Ukrainian currency. For this purpose, a special investment account must be opened at a Ukrainian bank.
As a rule a notary starts to register the transfer of title immediately after signing the sale and purchase agreement. The total time to sign the agreement and register buyer's title in the online public title register (meaning that the buyer has become the owner) takes only a few hours.
The abstract system of title transfer and prenotification principle well-known in German law are completely unfamiliar to Ukrainian legal system. After the purchase price is agreed there is no possibility to register title in the register first and then to pay the purchase price. That’s why it’s important the parties to review the terms and the moment of transferring title and purchase price payment.
Cash payments in foreign currency are prohibited under Ukrainian law. The buyer shall avoid the situation when the notary leaves the room after signing a sale and purchase agreement and the buyer pay the purchase price in cash before the title transfer will be registered by the notary.
To secure mutual obligations under the apartment sale and purchase agreement the parties may agree that buyer’s title is registered after the purchase price will be received by the bank. Thus along with the purchase agreement, an escrow account agreement with a bank as an escrow-agent should be executed. This option has recently been incorporated into Ukrainian law and is widely used.
4) Expenses related to purchase/sale
The buyer’s expenses related to residential property acquisition usually varies from 2% to 7% of the purchase price. 1% of the purchase price is charged to the so-called Pension fund. The buyer shall also pay a small (about EUR 60,00) registration fee. In contrast to Germany it is also a usual practice the seller but not the buyer shall cover the notary fee (1% of the purchase price). If the buyer engages a broker the fees to be paid by the buyer amounts between 2% and 5% of the purchase price. Other expenses arise from legal and technical due diligences of the apartment as well as bank fees for escrow account maintenance.
5) Maintenance and running costs
Any owner shall pay for utility services such as heating-, electricity-, water- and gas supplying services to the relevant supplying companies. The average month payment made by 4 person household for a two or three room apartment is about EUR 200,00 in winter and EUR 75,00 in summer. Of course, the amounts depend on the actual consumption and technical condition of the apartment. Additionally a maintenance fee (EUR 30,00-40,00) for the maintenance of house area may be charged.
Many owners use security services to protect the home. There are both private and public security services that install an effective protection system to protect the home in the owner’s absence.
Residential property is subject to property tax in Ukraine. This tax is currently about EUR 1,00 per year for every square meter exceeding 60 sq.m.
By renting an apartment you should note Ukrainian tenancy law peculiarities, particularly the fact that short-term rents are better for the landlord. The tax burden of 18% can be reduced if necessary by business registration.
In summary, apartment purchase in Ukraine is not a very risky transaction. Anyway the necessary precautions may not be ignored.
I have prepared this article together with Ukrainian real estate expert Vladislav Kysil. We are happy to assist you with your purchase of an apartment and ready to provide you with a fixed price offer.