HINTS FOR REAL ESTATE INVESTMENT
Despite all the difficulties connected with political instability, the Russian occupation of Ukraine’s Crimea, and Russia’s war on Ukraine in the east, certain branches of the economy are showing growth. Construction is one such branch. Notably, in a situation in which one third of all banks were declared bankrupt in the last few years, a significant number of citizens prefer keeping their savings in the form of real estate. That has only increased the number of investors and strengthened the attractiveness of the construction market for national and foreign investors.
On the basis of knowledge received from supporting construction projects since 2010, and experience of participating in construction investment projects of various degrees of complexity, a short list of really useful recommendations has been prepared, highlighting the issues necessary to pay attention to when making decisions about construction investments.
1. Check the records concerning the investment facility carefully.
When choosing an investment facility, it is necessary to pay attention not only to its legal status to date, but also to make a retrospective study: to obtain an extract from Town Planning Cadaster, and data from the Property Inventory and Registration Authority concerning history of construction object/ construction in progress located or previously located on the land plot; to analyze title transfers and validity of grant of a land plot; to know if the land plot detailed plan drawing-up was started, to size up the possibility of its approval, as well as possibilities of altering a land plot’s designated purpose.
Mala fide possessors use widely different ways to put a gloss or to sterilize the history of real estate.
Violations that took place in the past can be successfully concealed or hidden, intentionally or otherwise. Special attention should be given to the data from old (paper-based) registers concerning ownership, as well as the mortgage and encumbrance registers.
2. Verify contractor data
It is best to start with getting information about partner companies and beneficiary owners, and study the register of debtors and bankrupts. The way the contractor has behaved in the past can reflect how the partner may be expected to behave in course of your relations.
Besides, it is necessary to understand that this information will be studied not only by you, but also by potential purchasers of your product, as project investor credibility is of great importance in Ukraine.
If you don’t acquire assets but enter a partnership for a certain period, we recommend you to use an instrument which is new for Ukraine – an agreement to exercise participant’s (shareholder’s) rights:
3. Engage escrow agents to arrange payments
You must have been long used to one convenient and trusted payment mechanism – the escrow account. But up to December last year, such a mechanism was not present in Ukrainian legislation. Now things have changed. A trusted bank, broker, notary, lawyer, etc. can act as an escrow agent in any transaction, increasing its reliability both for seller and purchaser.
4. Consider the use of investment funds in the transaction structure
The use of modern investment mechanisms in a transaction structure enables the optimization of expenses on the purchase of an asset, its holding and divestiture.
This will also allow you to obtain additional guarantees and tax preferences over the whole investment cycle.
This is certainly not a complete list. And of course your local legal advisor will give you many other useful recommendations. But these hints are a basic set of recommendations based on long-term experience and should be used to ensure a successful and secure investment.
Kornev Ihor partner, attorney at law and HEAD OF LAND, CONSTRUCTION, REAL ESTATE INDUSTRY