12 February 2015

Is This The Time For Investors To Consider The Ukrainian Property Market?

The famous investor, Warren Buffet, said: 'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful' . Such a contrarian approach has helped Buffet become one of the world’s richest men.

Contrarian buyers seek markets where the majority of property investors fear to go. Places where there is bad news, such as an economic collapse or a war. Such events create fear in the minds of most investors, which makes them unwilling to take advantage of the low prices that are usually available at such times.

Ukraine is going through a difficult period at the moment. The country has lost the Crimean peninsula and there is a war continuing in the eastern corner of the country, where pro-Russian separatists are trying to establish independence from the rest of the country. Recently, a Malaysia airliner was shot down, most likely by Russian provided rockets and news channels across the world have been filled with horrific images of bodies and luggage strewn across the Ukrainian countryside.

The contrarian investor however, knows such negativity pushes down property prices but doesn’t really change the economic fundamentals of the marketplace. Such an investor looks beyond the headlines and makes an assessment of the opportunity that is available.

The Ukrainian property market crashed in 2008, along with other countries such as Bulgaria. Interest rates skyrocketed to crippling levels of 30% or more, forcing many homeowners into liquidation. In the years since then, any Ukrainian borrower that isn’t very creditworthy has most likely been removed from the credit market. This has left the property market intrinsically healthy as there is no overhang of soft loans propping up prices and most deals are done in cash.

The present war in the Donetsk region of Ukraine is, at least at this point, only happening in a small area of what is still a very large country. The capital, Kiev, and the whole of Western Ukraine are calm, particularly since the recent presidential elections when there was a clear majority for Petro Poroshenko, the “chocolate King”. Whilst Ukrainians are still understandably very anxious, life in much of the country has returned to something resembling approaching normal, following the upheavla of the Euromaiden protests.

The contrarian sees how the recent bad events, particularly the downing of the airliner, have put Ukraine firmly in the minds of people across the world. Previously, it’s doubtful whether more than a small percentage of any population could even locate Ukraine on a map. Nowadays the country is well known by most.

What roles and motives America and Russia have in Ukraine isn’t clear. But Putin’s machinations in Crimea and the East have portrayed Ukraine as a poor and defenceless country up against the big bad Russian bear. This has engendered sympathy towards Ukraine and the loosening of the purse strings of the IMF and other international lending bodies.

Current events are a continuation of the ongoing tug-of-war between East and West for influence in Ukraine. Russia seems to be trying to destabilise and weaken the country by military and economic means, whilst the West is likely to invest what it can in keeping the country westwards looking.

The recent actions of Putin have had the probably unintended consequence of giving Ukraine a stronger sense of national identity and separateness from Russia, who many now see as the main source of the problems. For the investor, a Ukraine which is more fully in the West is likely to have a better economic future than the country just being a submissive satellite of Russia, whose economy is in fact tiny as compared to the giant EU/USA combo.

With people worried in Ukraine about the future, property prices are likely to be very soft. Yet the reality is that the troubles with Russia may have already peaked and it’s by no means certain or even likely that the Russian army will formally cross the border to stop the Ukrainian government’s eventual cleanup of the troublemakers in the East. The high price in international sanctions and the need to endlessly financially bailout any annexed land is a deterrent to overt military actions by the Russians.

For the contrarian investor, interested in Ukrainian property, it’s probably wise to focus on Kyiv and the Western provinces as it’s highly unlikely the Russians would want to get involved in a region where they would be strongly resisted. Apartments in Kyiv are likely to be a good target as there is still rental demand, particularly from the growing number of international aid agencies and financial situations that are arriving in the city.

It could also be profitable to look at Ukraine’s moribund tourist areas, such as the underdeveloped Slavsk ski and summer resort near the beautiful city of Lviv. This pocket in the South West of Ukraine is a well located crossroads and could well be a beneficiary of large investment.

So while the dark clouds still hang over Ukraine, the more independent investor can see that the sun is likely to shine soon and it may be best to buy before prices rise.

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