Likely the investment of the decade – Ukrainian Real Estate

A perfect storm appears to be developing in the Ukrainian economy and from the angle of foreign investors, specifically the Ukrainian property market. Last week’s inflation numbers are showing that the Central Bank has finally put the nail in that coffin and economists are predicting that the upcoming January 30th interest rate decision will be radical cuts of around 300bps. Yes, these numbers are huge and the implications for the overall economy are as well but this is merely one of the positives coinciding in what could be a perfect storm developing in the Ukrainian property market.

Lack of Bank Credit (about to change)

In 2014, Consumer credit largely collapsed in the fallout of the revolution that ousted Kremlin-backed quasi dictator Yanukovych and the subsequent Russian invasion of Eastern Ukraine. Still today only around 5% of property purchases are done utilizing bank credit. These are cash deals. Lets imagine that the percentage of buyers accessing newly available credit eventually returns to market averages we’ve seen in other emerging Eastern European countries or even back to the 2007 Ukrainian average of 70%. The Zelensky government is currently implementing programs to do exactly this in both business and consumer credit. With rental yields (10%-15%) already on par with mortgage rates, a further drop in cost should find ready customers.

Vanishing inventory

In the capital city of Kyiv, inventory for sale on the secondary market has been cut from the low 2 years ago at 22,000 to the current 10,300. The rate of evaporation has been accelerating of late with the past year coming in at -37%. Here’s an inventory chart from last week’s article .

December 2019 Property Inventory (secondary market)

The +16% price gains we saw in 2019 will likely be dwarved by what we see in 2020 and likely 2021 as all these factors coincide. We’ll know more on January 30th as NBU meets.