Is it worth investing in real estate or is it better to hide money under the mattress? Let's consider simple advice from Eric Nyman, managing partner of Capital Times and his opinion on whether it is worth investing in real estate in Ukraine.
Since the beginning of the economic crisis in 2014, the purchasing power of Ukrainians has decreased significantly, which has affected the real estate market. In this connection, developers reduced not only their margin, but also construction costs. Paradoxically, as a result, the supply on the market significantly exceeded the demand, which has not changed until now. According to OLX statistics, apartment prices in Kyiv increased by an average of 2019% in the second half of 11. Is it worth investing in real estate, judging by the fact that a one-bedroom apartment could be bought for an average of $50, a two-bedroom apartment for $350, and a three-bedroom apartment for $70, attractive offers? Let's figure out what factors affect prices. By the way, if you are thinking about buying real estate, we recommend that you contact us professional luxury real estate agency THE Capital.
What affects prices and is it worth investing in real estate now?
In short, the situation in Ukraine's economy and the demographic growth of the capital's population.
The income of the population - the higher it is, the more people are able to pay high rent. Accordingly, housing prices are higher.
Demographics – the faster the population growth, the higher the demand for housing and the higher the price. So, is it profitable to invest in real estate? It is also necessary to take into account the pace of housing construction, which restrains the growth of apartment prices.
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Investment models
Depending on the amount of available savings, there are different investment models. Next, we will understand in general whether it is necessary to invest money in real estate and whether it can be done profitably.
You can buy a property without additional repair costs.
The advantage: you actually save resources and rely only on the growth of the market, so you can lock in the profit after the sale.
Disadvantage: This is the least profitable tactic, because the invested money does not actually work for the owner and freezes in the walls. But this is not the most important drawback in deciding whether it is worth investing in real estate. In this situation, the potential profit from the sale directly depends on the volatility of the market. If there is growth, you can make a profit; if not, then you will have to accept the losses and wait for better times.
Rental of objects.
Disadvantage: depending on the class of housing being purchased, the payback period for such operations ranges from 7 to 10 years.
Advantages: the asset is capitalized while retaining ownership, its value increases over time, and a stable monthly income is provided. This can become a decisive factor in the question of whether it is worth investing in real estate in Ukraine.
Purchase of a real estate object under construction
Advantage: The price is 20-30% lower than the potential market value after commissioning. The property is then sold for a profit. In this model, funds are not frozen for a long period of time and are constantly in circulation.
Shortage: Outdated urban planning legislation and corruption often freeze such construction. Taking into account the fact that in Kyiv there are 10% of frozen new buildings that were never put into operation, you can understand whether it is profitable to invest in real estate according to this model.
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Purchase of property at auction, confiscated or seized by the state. Advantage: in some circumstances, its value can be significantly lower than the market value. The purchase of this type of real estate involves a quick turnover of capital. In fact, auctions provide an opportunity to purchase finished equipment intended for resale. By buying an object at public auction, you will be able to save capital on the property, and also use it to receive passive income by renting it out. The only difference between buying on the market and buying back at auction is that the value can go down. Knowing the advantages and disadvantages of this investment model, you can decide for yourself whether it is profitable to invest in real estate
One of the most profitable investments is investment in office and commercial real estate.
Over the last decade, the level of vacancies in office centers has decreased to a minimum, despite the fact that in Ukraine it is an average of 10%. However, the most profitable object for large investments are office buildings. After all, it is precisely the quality offers that are clearly lacking in the market. Small rooms or old abandoned ones that have been converted into modern open spaces are gaining more and more popularity.
About investment costs
At the same time, it is important to compare the costs of maintaining and managing this real estate. That is, after calculating everything, you will understand how much money you will actually earn and whether it is really profitable to invest in real estate.
Separately, you need to take into account how well you have calculated the risks of owning real estate - from the guarantee of keeping the property safe to natural disasters, armed conflicts, sloppy tenants, etc.
And in conclusion, it is important to add that, as in any business, there are risks involved in investing, and which real estate investment model you choose is up to you. However, remember that banks can go bankrupt, close, it is not safe to store such large sums at home, even if it is mom's apartment. Maybe you should consider investing in hotels and apartments, but that's a whole other story! The main thing is to remember that having free square meters is a really profitable and guaranteed passive income. By the way, if you are thinking about buying real estate, we recommend that you contact us professional luxury real estate agency THE Capital.
