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Buying property in Ukraine: scams and pitfalls

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Everything you need to know is included in our Ukraine Property Pack

Ukraine is increasingly appealing to foreign investors interested in real estate, driven by its affordability and emerging market opportunities.

Navigating the property market in this area can be quite challenging, especially for non-local residents. There are various obstacles and unexpected problems that you might encounter if you're not cautious.

Our community of property-buying customers and our local partners have reported several common issues to us. We've listed them all in our Ukraine Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in Ukraine?

The Ukrainian real estate market, particularly the residential property segment, has been substantially impacted by the Russian invasion.

This conflict has led to an almost complete cessation of new developments, with only pre-war projects reaching completion. This stagnation sharply contrasts with the pre-conflict era, highlighting the significant impact of the ongoing situation on the property market.

Inflation and currency depreciation, triggered by the war, have significantly increased construction costs, leading to a rise in property prices.

For example, in Kyiv, the price per square meter increased by about 38%, while in western regions like Lviv, prices surged by as much as 80%.

These figures illustrate the economic fallout of the conflict on the real estate sector.

Ukraine's Ministry of Digital Transformation has made strides in modernizing the real estate market, particularly through the introduction of the Unified State Electronic System in the Construction Sector. This initiative has increased transparency and reduced human error in property transactions.

However, the state of martial law has suspended some electronic processes, and access to information in the registers is now restricted, requiring intervention from notaries or state registrars.

The real estate market in Ukraine offers varied investment potentials.

Urban areas, particularly cities like Kyiv, Lviv, and Odesa, present dynamic markets with promising profit opportunities, especially in areas undergoing urban renewal or expansion. However, these investments come with their own set of risks, primarily due to the ongoing conflict and economic instability.

The demand for small apartments in Kyiv, for instance, remains high, with properties often selling at pre-war prices, reflecting a stable segment in an otherwise turbulent market.

The process of buying property in Ukraine involves several key steps, such as market research, legal due diligence, and property selection, financing, and registration.

Engaging with legal experts and real estate agents is crucial, as they assist in navigating the complexities of Ukrainian property laws and managing transactions. For example, the purchase of an apartment involves a notary certifying the transaction, a step that underscores the importance of professional guidance in these processes.

Foreign buyers face additional challenges, including understanding Ukraine's property ownership laws, which have become more foreign-investment-friendly in recent years, and navigating language and cultural barriers.

These aspects necessitate a comprehensive understanding of the local legal and regulatory framework and often require assistance from local experts.

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Watch out for mistakes when buying property in Ukraine

The concept of "zemelnyi nayom"

When purchasing residential property in Ukraine, a less obvious yet significant pitfall you should be aware of involves the "zemelnyi nayom" or land lease agreements, particularly in cities like Kyiv.

Unlike in many other countries, in Ukraine, it's common for apartments in multi-story buildings to be sold separately from the land on which the building stands.

This land is often owned by the city and is leased to the building or the homeowners' association.

When buying an apartment, you must verify the status of the land lease agreement. It's crucial to understand the terms of this lease, its duration, and any associated costs or obligations.

Sometimes, these leases can be relatively short-term or subject to changes in terms, which could impact your rights or the value of your property.

While this might not be a frequent issue, it becomes critical in cases where the land lease is nearing its end or if there are uncertainties about its renewal. This can lead to complications, especially for a foreigner unfamiliar with the local legal and administrative processes.

Therefore, you are advised to conduct thorough due diligence, possibly with the help of a local real estate attorney, to ensure that the land lease situation is clear and secure before finalizing your property purchase in Ukraine.

Issue of "spivvlasnist" and "OSBB"

In Ukraine, when you buy an apartment, you are not just purchasing your individual unit, but also acquiring a share in the common property of the building, known as "spivvlasnist." This includes hallways, elevators, common utilities, and the land on which the building is situated.

It's crucial for you to understand that managing this shared property can often be complex and sometimes contentious.

One key aspect you must be aware of is the "OSBB" (ОСББ), which stands for "Ob'ednannya Spivvlasnykiv Bahatokvartyrnoho Budynku," or Association of Co-Owners of a Multi-Apartment Building. This organization is responsible for managing the common property, and being a part of it means you will be involved in collective decision-making regarding maintenance, repairs, and improvements to the building.

The pitfall here is that the effectiveness and efficiency of these associations can vary greatly.

In some cases, there may be mismanagement or disagreements among co-owners, leading to delays or issues in the upkeep of the building. You should thoroughly investigate the functioning of the OSBB for the property you are considering.

Review their meeting minutes, financial statements, and talk to current residents to gauge how well the building is managed.

This aspect of property ownership is unique to Ukraine and can significantly impact your living experience and the value of your property.

Therefore, you are advised to be diligent in understanding the dynamics of the OSBB and the state of co-ownership affairs in the building where you plan to purchase your apartment.

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"Pamyatka arkhitektury" or architectural monuments

A unique and often overlooked aspect when buying residential property in Ukraine, particularly relevant in historic cities like Lviv, is the issue of "pamyatka arkhitektury" or architectural monuments.

Many buildings, especially in older city centers, are classified as historical or cultural monuments. This designation has significant implications for property owners.

If the property you are interested in is a "pamyatka arkhitektury," it means that the building is under state protection due to its historical, cultural, or architectural value.

Owning such a property comes with a set of strict regulations and restrictions. You should be aware that any renovation, restoration, or even minor alterations to the exterior and sometimes the interior of the building will require special permits from local heritage authorities.

These processes can be time-consuming and complex, often involving detailed architectural plans and adherence to specific restoration guidelines.

The pitfall here is underestimating the restrictions and additional costs involved in maintaining or altering a historical property.

Renovations might be more expensive due to the need for specialized materials or craftsmanship that preserve the historical character of the building. Moreover, failure to comply with these regulations can lead to significant fines or legal complications.

Before purchasing such a property, you are advised to conduct thorough research into its historical status and understand the full scope of regulations and restrictions you will be subject to.

Consult with local experts or lawyers specialized in historical buildings to gain a clear understanding of what owning a "pamyatka arkhitektury" entails.

"Pravo preemstva" or the right of succession

When buying residential property in Ukraine, especially as a foreigner, it's essential to be aware of the intricacies of "pravo preemstva" or the right of succession, particularly prevalent in regions like Kharkiv or Zaporizhzhia.

This aspect is specific to Ukrainian property law and can present unexpected challenges.

The "pravo preemstva" means that certain relatives of the previous owner might have legal rights to claim the property, even after it has been sold.

This is particularly relevant if the previous owner passed away and the property was inherited. In Ukraine, inheritance laws strongly favor family members, and there are instances where children, spouses, or even siblings of the deceased owner can challenge the ownership of the property in court, claiming their right of succession.

This situation can be a significant pitfall, especially if you're unaware of the property's full legal history.

There have been cases where new owners, after purchasing a property, find themselves entangled in legal disputes with family members of the previous owner who assert their succession rights.

To avoid such complications, you are advised to conduct a comprehensive legal check on the property before purchasing. This involves verifying the property's inheritance history and ensuring that all potential succession claims have been legally resolved.

It's highly recommended to work with a reputable real estate attorney who is experienced in Ukrainian property law to navigate these complexities.

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"Privatized" versus "non-privatized" apartments

Another unique and potentially challenging aspect you should consider when buying residential property in Ukraine, especially relevant in areas like Dnipro or Mykolaiv, involves the issues related to "privatized" versus "non-privatized" apartments.

This distinction, deeply rooted in Ukraine's transition from Soviet-era housing policies, can have significant implications for property buyers.

In the post-Soviet era, many state-owned apartments were privatized, transferring ownership from the government to private individuals. However, not all apartments underwent this process. When an apartment is "non-privatized," it means that it's still technically state property, even though individuals might live there.

Buying a non-privatized apartment can be fraught with legal complexities and additional steps.

Firstly, the privatization process itself needs to be completed before you can gain full ownership of the property.

This involves navigating bureaucratic procedures to transfer the property from state to private ownership, which can be time-consuming and complex. It's important to note that until this process is completed, you won't have full legal ownership of the apartment, which can impact your ability to sell or renovate it in the future.

Moreover, there's a risk associated with the previous occupants or their relatives claiming rights to the property.

In some cases, individuals who lived in the apartment before it was privatized may come forward with claims, leading to legal disputes.

This is especially true if the privatization process was not handled correctly or if there are ambiguities about the rightful ownership.

The issue of "samobud" – unauthorized or self-constructed buildings

An additional, unique aspect to consider when buying residential property in Ukraine, especially in cities like Chernihiv or Poltava, is the issue of "samobud" – unauthorized or self-constructed buildings.

This term refers to properties that have been built or significantly modified without proper government permits or in violation of urban planning regulations.

The critical pitfall with "samobud" properties is the legal and administrative risks they pose. These buildings may not adhere to safety standards, urban plans, or legal requirements. As a result, they can face legal challenges, including fines, forced demolitions, or difficulties in obtaining proper documentation and permits in the future.

If you're considering a property and it turns out to be a "samobud," you should be extremely cautious.

Firstly, obtaining a mortgage for such properties can be challenging, as banks are often reluctant to finance them due to the associated risks.

Secondly, selling the property in the future can also be problematic, as potential buyers may be deterred by the legal uncertainties.

Before proceeding with any purchase, you are advised to thoroughly check the legal status of the building. This involves verifying that all construction permits are in order and that the property complies with local zoning and building regulations. Consulting with a local real estate attorney or a construction expert is highly recommended to assess any "samobud" properties.

They can help you understand the full scope of potential issues and guide you through the necessary steps to rectify any legal deficiencies, if possible.

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The issue of "komunalni poslugi" or communal services debts

In Ukraine, especially in regions like Vinnytsia or Cherkasy, an often-overlooked pitfall in residential property transactions is the issue of "komunalni poslugi" or communal services debts.

This refers to the accumulated debts for utilities and communal services like heating, water, and maintenance fees associated with the property.

In Ukraine, debts for communal services are tied to the property, not the individual. This means that if the previous owner accumulated a significant amount of unpaid bills, the responsibility for paying these debts can be transferred to you, the new owner, after the purchase.

Before finalizing a property purchase, you are advised to meticulously check for any outstanding communal services debts.

This involves requesting a detailed statement of the property's utility bill payments. Ensure that all bills up to the point of sale have been paid by the previous owner.

Failure to do so can result in you inheriting a financial burden, which can be substantial in some cases.

Furthermore, it's important to understand the average cost of these communal services for the property, as they can vary widely depending on the location, size, and condition of the building. This information will help you budget for future expenses and avoid any surprises.

Working with a reliable real estate agent or attorney who can assist you in obtaining and verifying this information is highly recommended.

They can guide you through the process and ensure that all financial aspects related to communal services are settled before you take ownership of the property.

"Zemelna dilyanka" or land plot allocation

In Ukraine, particularly in lesser-known regions like Ivano-Frankivsk or Zhytomyr, a unique and often overlooked pitfall in the residential property market is the issue of "zemelna dilyanka" or land plot allocation.

This refers to the legal status and boundaries of the land on which a property is situated.

When purchasing a house or a villa, it's not just the building itself you need to be concerned about, but also the land on which it stands. In some cases, the exact boundaries and legal status of the land plot might not be clearly defined or properly registered.

This can lead to disputes over land boundaries with neighbors or issues with local authorities regarding land use rights.

The pitfall here lies in assuming that the land plot's legal status is clear and uncontested.

If the land boundaries or rights are not properly documented, you may face legal challenges in the future. These could range from disputes with neighbors over property lines to difficulties in renovating or expanding your property due to unclear land use regulations.

Before proceeding with the purchase, you are advised to thoroughly check the land plot's documentation. Ensure that the land boundaries are clearly marked and correspond to official records.

Verify that the land is appropriately registered and that there are no ongoing disputes or issues related to land use rights.

Consulting with a local real estate attorney or a surveyor is highly recommended. They can help you navigate the complexities of land plot allocation in Ukraine, ensuring that all legal aspects are addressed.

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"Nelegalni prystroyky" or illegal constructions

When buying residential property in Ukraine, particularly in cities like Sumy or Rivne, a unique and often unexpected issue you might encounter is related to "nelegalni prystroyky" or illegal constructions and additions to the property.

This refers to structures or extensions added to the property without proper permits or in violation of building codes.

The problem with illegal constructions is that they can pose several risks.

Firstly, these additions may not meet safety standards, potentially endangering occupants.

Secondly, they can lead to legal issues. The Ukrainian authorities may require the removal of such constructions or impose fines. This is especially true in urban areas where strict building regulations are enforced.

Before purchasing a property, it is essential for you to thoroughly inspect the property and verify that all structures and extensions have been legally constructed and approved by the relevant authorities.

This includes checking building permits and ensuring that any modifications made to the property comply with local zoning laws and building codes.

If you discover illegal constructions, you need to assess the risks and potential costs involved. Removing these constructions or bringing them up to code can be expensive and time-consuming. Sometimes, it may be more prudent to reconsider the purchase, especially if the illegal additions are significant.

You are advised to seek the assistance of a qualified real estate attorney and possibly a structural engineer.

They can help you understand the legal and structural implications of any illegal constructions and guide you in making an informed decision.

"Zony otdykha" or recreation zones

In Ukraine, especially in coastal areas like Odessa or the Crimean region, a specific and often overlooked pitfall in residential property buying involves "zony otdykha" or recreation zones.

These are areas designated by local authorities for leisure and tourism purposes, and they come with a unique set of regulations and restrictions.

The key issue with properties located in recreation zones is that they are often subject to specific land use rules that can significantly impact your ability to make changes to the property or use it for certain purposes. For example, there might be restrictions on commercial development, building heights, or even the times of the year when you can occupy the property.

This is particularly relevant in coastal areas where properties may be in high demand for seasonal tourism.

Before purchasing a property in a recreation zone, you should carefully investigate the local zoning laws and any specific regulations that apply to the area. It's important to understand how these rules might affect your plans for the property, whether it's for personal use or investment purposes.

There's also the possibility of changes in zoning regulations, which can occur as local development plans evolve.

Such changes could either positively or negatively impact the value and usability of your property.

You are advised to consult with a local real estate expert or a legal advisor who is familiar with the specific regulations of the area.

They can provide you with detailed information about the implications of buying property in a recreation zone and help you navigate any potential legal complexities.

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