Anyone have experience in higher risk countries?

Question

Greg Scott · Answer

@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.

Sean Almeida · Answer

Hi All,

Since I posted this, we have created a full turnkey solution for foreign investors. We help the foreigner (individual or company) to buy the property, then we renovate (I have two interior designers/project managers in house), then we rent to other foreigners fixed to hard currency (mostly USD but sometimes EUR), then we manage the property. Most tenants stay for 2-3 years.

Doing this we have seen yields of 11-16%. The gap usually depends on size of the investment, with 11% being smaller investments of around $130-150k all in. The higher yields come from the 3-5 bedroom options that are in high demand among the expat market.

As for appreciation, we see that the market is slowly starting to creep up as the economy starts growing again and FDI is increasing. We see the market going back to $4k per m2 for a renovated apartment in the dead center, which it was before the war began. Currently when the renovation costs are included we are seeing all-in costs of $1800-2500 per m2.

Credit is still not practical, although the central bank did lower interest rates 0.5% recently. However, inflation is expected to be well below 10% this year, so decent mortgage rates are at least on the horizon. Also, we are in talks with one European bank that will lend up to 40% of the value of a property, but only AFTER it is rented out. They wouldn’t tell me rates or terms until we discuss a specific property, but in any case this is a good sign.

In case there are any doubts about the investment case, a deputy minister of infrastructure came out with a shocking statistic recently:

In order for Ukraine to have the same m2 per capita as the European average, one BILLION square meters of residential real estate needs to be built. And that’s not taking into account that much of the current housing stock is subpar, to say the least.

Another indicator, this time from the commercial segment, is that the vacancy rate for offices in Kiev is currently 3% (three percent). A couple of million meters are under construction and should be delivered in the next two years, but in the meantime rental rates for office space have reached the European average.

And believe me when I tell you that commercial real estate is way more advanced than residential...

Best Regards, and Happy Easter from Kiev!

Sean

Dmitry Dyakonov · Answer

Hi everyone, I've had experience with properties in Athens (2010 and onwards), Limassol (2013 and onwards), Moscow (2008 and onwards) so far and now I'm in Kiev. I see the same post-crisis trends, you can easily get 35% return on investment flipping properties here. There is so huge gap between poor properties in top locations and properties with good repairs. The approach is the same like in the US, but the margin is so much higher. Most of the owners lack cash at the moment and are in big trouble with banks, they easily sell properties 1.4-1.5$k per square meter and you can sell the property right away with cheap renovation 2.5-3$k per sq. meter to a family that is eager to move to the downtown area.

Many locals are desperate to sell their properties in troubled regions like Crimea, Lugansk and Donetck to relocate to Kiev on permanent basis.

Sean Almeida · Answer

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.

Andriy Boychuk · Answer

@Sean AlmeidaI 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.

Anyone have experience in higher risk countries?

Most Popular Reply