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.
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 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 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.
Oct 5, 2021
Careful tracking of incomes & expenses is what every financially diligent person has to do in their life. Not only this is about the correct definition of cash flows they have but also about taxes correctness & calculation of real available resources to plan their life & further business process. Why & how to track expenses?When you track rental income, you stay organized, which is crucial for ...
Oct 2, 2021
Kyiv real estate market is strong in 2021. The same strong, as expected, it will enter 2022. As the lockdown waves show, Kyiv doesn’t follow trends of the most influential economies of the world – when another lockdown happens, the prices for square meters here grow, not fall. Even with many idle periods for the past 15 years of annual publically available statistics for the capital’s real esta...
Sep 25, 2021
Have you ever wondered why the property is called real estate? Not only because it’s something you can tangibly palpate with your fingers but also because it has been and still remains one of the asset types, which provide real profitability in most countries. Real estate at a glancePeople may change, epochs may go, empires rise and fall. Even stars may collide to blaze as supernovas. But prope...
More about DGY
DGY is a real estate investment and property management company. Our experts have an impressive experience in turning businessmen into smart real estate investors. We collect limitless opportunities throughout the world’s best real estate markets and help our clients implement the best deals. We take care of all due diligence and customize documentation while your income grows. We also provide you with property management services so you can forget about the tiresome maintenance of several objects and entrust this process to professionals.
Investment advice and recommendations
DGY is an investment company that takes care of every client and helps them become successful investors. With the help of an investment experience and a well-thought plan, we will help you examine the market, choose a strategy specifically for you or your business, and calculate future costs to start making money with real estate investment.
In order to invest in real estate, you should consider how you will run your management in Ukraine. DGY will help you eliminate all possible pitfalls at an early stage as a personal project manager will be assigned to your case. They will assist you in choosing the project according to all required objectives.
DGY Investments takes care not only of purchasing property but also renovating an existing one. With the help of a thorough plan and estimating, we will thoroughly prepare a property for sale. Our professionals evaluate an investment property and create a strategy that includes the costs for renovation, possible taxes, fluctuations on the market, etc. Therefore, our clients are able to resell the renovated properties in Ukraine with more than 15-20% profit from the initial price.
Before our clients decide to deal with real estate investing, they consult with our experts concerning details such as the necessary documents needed to purchase a property and successfully run all the processes connected to it.
Therefore, if you are eager to invest in Ukraine, it’s essential to have all the paperwork done correctly, and that’s the moment when our team of experts takes care of this step. DGY Investments helps investors buy real estate property, manage the paperwork, start preparing relevant documents for purchasing realty in Ukraine, and close the deal successfully.
Real estate investment opportunities in Ukraine
When an investor decides to invest in real estate in Ukraine, the most affordable way to attain stable passive income is through buying residential real estate. Investors can expect to receive a regular monthly payment from their tenants at a fixed monthly amount, unaffected by inflation or other unforeseen circumstances. The amount of rental income will vary depending on the size, type of property and location. For example, buying an apartment in Ukraine’s capital Kyiv is beneficial to investors due to offering a large working population, central location and affordable prices. Hence, the minimum price of renting a decent one-bedroom apartment in Shevchenkivskyi District will be around $1000 per month in 2021, followed by Pecherskyi District with a cost of $850 per month. Besides, investing in real estate in Ukraine annually brings clever investors up to 15% of yield, attracting many business people every year.
Properties for investments in Ukraine
Ukraine has a giant sector for real estate investing. Businessmen who come there all over the world often choose between investing in residential and commercial properties. The main advantage of buying property in Ukraine is the affordability of prices on the houses and apartments. For instance, if you invest in real estate in a historical district, a luxurious apartment will cost you around $80k only.
How to invest in Ukrainian Real Estate
In order to invest in Ukrainian real estate, you should take into account a list of crucial factors. The first one is to choose what kind of realty you are going to invest in: residential or commercial. It is vital as it should comply with Ukrainian real estate law. The second tip is to identify the purpose of purchase in order to make a strategy for the property. For instance, you may purchase the property for your own use or buy it for lease. The next step is to calculate the taxes and what kinds of taxes are payable during the purchase, owning, or selling. Also, to invest in real estate properly, you should keep in mind currency control rules in Ukraine to sell a property and get a higher profit.