Anyone have experience in higher risk countries?

4 Replies

Hi all,

I am co-owner of a real estate agency in Kiev, Ukraine. We are seeing a huge uptick in interest from foreign buyers looking to do buy-to-let in downtown Kiev. No credit is available, but yields are 10-14%.

I'm curious about the general attitude towards these kinds of transaction from American investors and other real estate professionals. Also, I would be very interested to hear from anyone who has dealt with this kind of market who can share some positive or negative stories.

I only have real estate experience here in Kiev, so I'm really looking to get a broader overview.

Thanks,
Sean

@Sean Almeida   I've lived in Latin America so am familiar with the type of risks you mention.   Personally, yields of 10% don't excite me.  I can easily get that here in the US without the political and currency risk.

Now if you could show I would have 10% yield with a likely 100% valuation pop in a couple years, that gets more interesting.

“General attitude?”

From my comfy armchair, I can see how today’s situation in Kiev - far enough removed from the war areas, and being the economic and cultural center - could be attractive to those who know their way around the local bureaucracy to not have to pay an “overhead” under the table at every turn.

I can see how the deeply devalued Ukrainian currency can make the purchase potentially even more attractive. But I am presuming that the purchase price will still be in/pegged to a hard currency, not necessarily reflecting the dire local economic situation.

My own concerns, off the top of my head - putting aside the fact that the country is at war - would be:

1. Are these leases set in a hard currency or the hryvna? Given the history of the hryvna’s values, I could end up looking at 5% yields in no time.

2. I have not looked up Ukraine’s corruption ranking lately, but know it’s not low. I understand that the government has made it easier for foreigners to invest in Ukraine. I’d need to know I can trust the broker, the attorney (or is it a notary?), the title company, etc. And I’d need to make sure that the seller is real (and alive.)

3. Are these downtown properties in the center of the next color revolution? What type of property insurance can I count on?

4. Goes with the above question - will the next government be as “western-looking” as this one - will my ownership rights be protected in the future?

5. Goes with the above question - what are my taxes today, and what will they be tomorrow?

6. Am I buying the land/right to a say in the land also? If it is a condo-like property, where I own a specific share (like in the US,) that’s one thing. But if I have no say about the land, it’s another.

To paraphrase @Greg Scott, there are similar/better yields in safer locations.

Sure, the war may soon be over and the values will double. Or not. I missed this opportunity in post-USSR, especially in Moscow. I think I’ll miss it again. I missed it in the mid-90s Colombia, too, where I wouldn’t mind taking tax-deductible vacations today more than I would in Kiev - no offense to Klitchko (both of them.)

Ukraine certainly has a chance at success. It is in the right geographic place for it. It is also in the wrong geographic place, as history has shown over and over. It has enough young, educated and entrepreneurial people who yearn for a better future for their country to make positive changes. But today it also has risks that I would not know how to properly evaluate. This could be a good play for someone with right/trusted local connections.

I would actually be curious if you could educate me/us on the detailed situation as you are seeing it on the ground, @Sean Almeida. Are you investing your own/family money in the local real estate, for example?

@Sean Almeida

I agree with @Greg Scott , 10% is not a lot for Ukraine. As far as I know any bank in Ukraine will give this return or more with a regular savings account. 

I hold one investing property in Ukraine and it lost approximately 30% of its value during the war.  

Originally posted by @Greg Scott :

@Sean Almeida  I've lived in Latin America so am familiar with the type of risks you mention.   Personally, yields of 10% don't excite me.  I can easily get that here in the US without the political and currency risk.

Now if you could show I would have 10% yield with a likely 100% valuation pop in a couple years, that gets more interesting.

 Hi Greg, thanks for the reply. Sure, I understand that 10% alone is not going to get most people interested in the city given the risks, but indeed I think there is a strong case for certain classes of properties to double in 5-7 years, on top of the 10+% yields. I could tease this out more, but the main reasons are 1) a down economy, 2) an emerging economy, 3) AAA property locations, 4) lack of credit available, and 5) historical buildings (very sturdy construction, 3-4.5m ceilings, etc) that are very undervalued at the moment for mostly aesthetic reasons that can be fixed quite easily.

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