Immovables Moving Forward

16 02 2018

The current situation on the real estate market is rather intriguing and ambiguous. It is intriguing because we saw some developments in 2017 when new transactions did appear, including investment ones. Their number has increased as compared to 2016 and they turned out to be more large-scale and diversified. And it is not about residential property alone, but commercial property and infrastructure as well.

The infrastructure, however, should be distinguished from the general trends since here we have the government as the only key customer visible and external borrowings as the only source of financing available (in generalized terms). Naturally, in this context, foreign construction companies enter Ukrainian market and they are not necessarily from Poland and Turkey, who are territorially and mentally close to Ukraine, but from far-away China and South Korea as well. However, private projects are fewer by their number and mostly focused on export-oriented industries: agriculture and metallurgy.

They are traditionally developed by large holdings being mostly local or with local involvement. Moreover, the alternative energy sector certainly boosts the industry to develop. Primarily, this is about land and construction of new power plants. As long as the favorable "green tariff" treatment is available, there are many of those who wish to snatch a piece of luck in Ukraine. Interestingly, this is equally so both for foreign energy companies and for portfolio investors who already have unpleasant experience as some European countries curtailed incentive programs in this industry.

The situation in the sector is ambiguous because we still may hardly say that the market is recovering to some more or less stable or, at least, predictable extent.

Residential property is being built and there are lots of it, but prices neither rise nor drop noticeably, and still there is no affordable financing. To make the matter worse, restless mass media add fuel to the fire from time to time by predicting another market collapse, which, however, has not just occurred so far. More so as it is hardly possible to find any free land plot for residential development in Kyiv. One would need either to reconstruct or demolish something or have both the designated purpose and the territory detailed plan changed, or start negotiating with military departments, Academy of Sciences or other multi-functional state-owned entities who still have more or less promising land plots in their possession. They continue placing in operation commercial property. Especially, this is the property, which construction started several years ago when market outlooks were quite different. Its occupation by tenants, however, directly depends on the overall economic advancement: new companies entering the market, market players extending their operations, the population increasing their purchasing power, etc. However, we see none of these developments, at least, on a large-scale basis. Small business, IT industry and startups, so much spoken about now, are indeed the driving force that could give an impulse to the development of the commercial property market, primarily the offices. Internet communities and IT clusters, who are so well-known abroad, are, as the saying goes, over the hills and far away from Ukraine. Though, we must give proper respect to this young community for the co-working platforms appearing and developing in Ukraine to push slowly out traditional offices from business centers.

There are even less developments on the industrial property market, of course, the alternative energy sector mentioned above not including. We have been observing for a couple of years in row that the key projects in this industry are more about finishing the earlier started construction or expanding existing facilities, than investing in new ones. Chinese companies'; interest in the Ukrainian enterprises, after the latter have broken their ties with the Russian industry, is largely limited to the acquisition of technologies by, inter alia, inviting Ukrainian scientists to China and moving core operations there. Speaking about two major investment transactions in the production sector we supported in 2017 incidentally, they were made between foreign investors, one investor sold its business because of leaving the Ukrainian market and the other investor bought a site in view of shifting its production facilities and ramping up the output. Therefore, we may say that the overall FDI balance was met for the Ukrainian industry last year.

The point is that lawyers still have lots of work to do in the real estate sector. No matter whether they are focusing on residential or commercial property, industry, energy sector or infrastructure. New investors appear over time from neighboring Poland, Turkey and Israel and, sometimes, from more far-away countries, including the East. They are careful, taking a closer look. Some of them try to start negotiating their investments. So, we may hope for further development.

Published: Yurydychna Gazeta, #7, 13 February 2018

Author: Alexander Borodkin