Real Estate Investments VS Fixed Deposits In A Ukrainian Bank: What’s More Beneficial?

A wise investor knows that diversification of a portfolio is able to cover possible fluctuations of assets in one basket. While this strategy is widely applicable throughout the world, it is not as straightforward in Ukraine, where various types of investment opportunities as of 2021 create not a similar income but very different.

Investment property and other investment opportunities analysis for Ukraine

In Ukraine as of 2021, there are only three major types of investing: bank deposits, real estate, and income from UAH fluctuations. Let’s closer consider them.

UAH fluctuations

The national currency of Ukraine called hryvnia (internationally – UAH) normally undergoes descending fluctuations – it used to drop every year since 2014. There were two large periods of stability of UAH exchange rate compared to other currencies: during 2004-2009 (UAH 5.05 for 1 USD) and 2009-2014 (UAH 7.99 for 1 USD) – artificially held by the National Bank of Ukraine (central bank). Since 2014, UAH has dropped by 3.5 times and people have gotten used to keeping their money in USD to compensate for the inflation rate.

However, this tool is no longer actually relevant since November 2020, as UAH is slowly yet stably rising (from UAH 28.45/1 USD to UAH 26.67/1 USD for the period of Nov. 2020 – Sept. 2021).

Bank deposits

Bank deposits have been a strong investment tool in the period between 2005 and 2019. They were fluctuating here and there. However, the average yearly income was between 15% and 30% annual, giving one of the biggest incomes in the world.

Yet, the investment opportunity of this tool started to rapidly decline 5 years ago. Since 2016, the Ukrainian government introduced taxation of deposit interest income at a level of 18%. And around that time, they added the necessity to pay 1.5% of war tax due to the start of the Russian War in Ukraine in 2014. Thus, the deposit interest income is taxable now at 19.5%.

Also, there were sharp declines in interest volumes. Thus, if in 2018-2019, the average fixed deposit rate in Ukraine for a year was 14.9% before taxes, in 2020, it was already just 8.7% (that’s just slightly above 7% after taxes). In 2021, it lowered further, to 7.5%.

As an example, the biggest deposit bank in Ukraine, Privat Bank, offers only from 6% to 7% interest as of the end of September 2021. However, the deposit interest rate offered by any bank in Ukraine is fixed, unlike possible interests paid by these financial institutions in Europe or the US, which can fluctuate. In Ukraine, only the loan rate fluctuates.

Real estate

Real estate is growing in Ukraine. Comparing only three latest months, for which there are official and reliable price statistics, we could tell the following (considering entire Ukraine):

• In May 2021, the average price increase was 8.5% compared to May 2020
• In June 2021, it was +7.1%
• In July, it was +5.9%.

By analyzing the trends of 2020/2019, the data for the same months are as follows: +8.4%, +10.1%, and +24.8%. The average monthly growth of the price of 1 real estate object in Ukraine was +10.8%. The biggest increase was noticed in:

• Apartments located in many-story houses
• Detached homes
• Objects in the capital (Kyiv) and in some cities with over a million people of population.

Along with that, some segments of real estate in Ukraine have dropped – industrial and office facilities. So it is better now to invest only in those, which are on the rise.

Mutual funds – a rare and unpopular tool so far

Mutual funds. Although some investors compare mutual funds vs real estate, it makes no sense in Ukraine since the market of mutual funds is so small that it’s not even a fetus. Maybe it will grow into anything sane in the upcoming 5, 10, or 15 years but it is not anything serious today.

There are only several companies offering mutual funds but there is no legal multifaceted field developed to cover all aspects. Thus, it makes their owners and investors insecure. And investors aren’t protected with any national guarantees that the owners of those funds will actually pay them and not cheat them (like, taking all their money and fleeing to some Jamaica).

If the situation improves because of the soon introduction of an obligatory pension accumulating system in Ukraine, these funds might become strong players. So far, we aren’t sure whether they ever will be.

Conclusion on the issue of real estate vs mutual funds and other tools

Let’s briefly sum up:

• UAH fluctuations are no longer the investment tool since they brought yearly net losses of 6.3% for the last year
• Deposits in the bank bring around 8% annual before taxes or 7% after taxes
• Real estate in 2020 and 2021 grows by over 10% a month on average, which should result in fantastic 120% annual growth for 2021 alone.

So if you still have any doubts about what investment tool in Ukraine to choose – we’ll say it loud and clear: real estate is a top priority in 2021 and 2022.