How to people buy apartments without mortgages?
It's one of Ukraine's great real estate mysteries: How do people buy homes when the mortgage options are few and expensive? The short answer: Most have to save up a lot of money, get very creative or stay in debt for a long time.
When Anatoly Schmargun got a job near the Comfort Town residential complex in 2012, its brightly colored apartment buildings on the left bank of the Dnipro River immediately caught his eye.
“When I saw the place, I was like—‘wow! In Kyiv, such colorful buildings, and not too high!”
He decided to buy an apartment there and took out a mortgage. Six years later, and still owing tens of thousands of dollars for his apartment, Schmargun’s opinion has changed.
“This is not a good system,” he told the Kyiv Post. “It’s theft. Ukraine is a poor country. But we have such high prices for everything.”
The 2008 global financial crisis brought the near-collapse of Kyiv’s mortgage lending. After years of economic and political turmoil as well as war, during which time the hryvnia lost most of its value, the credit market still hasn’t revived. This makes buying a home, for most Ukrainians, difficult and costly.
But with trust in the banks still low, real estate remains Ukraine’s preferred store of value. Despite there being few options and bank loans being wildly expensive, many, like Schmargun, are still weathering the costs and sinking their money into houses and apartments.
Paying up front
The breakdown of how people finance their homes in Kyiv hasn’t changed much since 2015, says Tim Louzonis, a partner at AIM Realty, an elite real estate agency.
He estimates that about two-thirds of Ukrainians pay entirely up front. One third, he says, use short-term financing offered by a developer — like Comfort Town, which initially offered Schmargun a seven-year payment scheme.
Three to four percent, he says, take out a bank loan. With interest rates around 20 percent annually, it’s the last resort.
“Basically, they ask all their relatives, they ask their grandmother, and then, for the difference, they go to the bank and say, ‘we’ll take that out and pay it back as quickly as possible.’”
The loans aren’t mortgages, says Louzonis — they’re short-term, usually less than 10 years, and the sum borrowed is generally small. “The amount borrowed is usually more like ‘bridge financing’ than a home loan,” he says.
For his part, Louzonis advises clients — almost all
expatriates — to pay for apartments up front. “This is not a place where you can speculate,” he says.
Bas Schuiling, from the Netherlands, is one such expatriate. The employee of an American IT company, Schuiling paid some 80,000 euros — or about $94,000 for an apartment in Podil, after saving up for some time. “I didn’t try to get a mortgage here,” he says, explaining it was prohibitively expensive. With average salaries in Kyiv now at around $350 per
month, paying for an apartment up front isn’t an option for everyone.
A slew of developers — Comfort Town, Fina Town and Crystal Park, for instance — offer another way to pay: an in-house financial structure, in which residents can pay for their apartments over five to seven years.
The president of KAN development, Comfort Town’s parent company, declined to answer the Kyiv Post’s questions about how exactly Comfort Town’s financial plan worked.
Schmargun says his apartment, up front, would have cost $110,000. In 2012, he made a $23,000 down payment. He takes out a calculator to figure out how much he will have to pay in three years, after his payments are completed. “$170,000. More than 50 percent more,” he says. Short-term financing through a developer may soon become more reasonable.
Valeria Malakhova, head of Oschadbank’s retail department, says that the bank partnered with five developers in January — Comfort Town, Faina Town and Crystal Park among them. Declining to give specifics, Malakhova says that the partnerships will offer longer payment plans -- 10 to 20 years.
But interest rates will still be high, says Malakhova, at around 19–20 percent annually, although some might be lower, depending on the partner.
Meanwhile, although most don’t see bank loans alone as a viable way to finance a house, Malakhova says Oschadbank is managing to attract customers with ordinary loans for periods of a few years.
Interest on these loans is, again, 19 to 20 percent, sometimes higher. “It’s a very high interest rate from (a westerner’s) point of view,” she says. But, with the National Bank of Ukraine setting its own deposit rate at 15 to 17 percent, it’s about as low as Oschadbank can go.
“(Loans) give a client an opportunity to buy their own flat and live in there. Rent payments are, anyway, just as much as monthly credit payments.”
Flight to suburbs
While Comfort Town and developments like it offer more accessible payment plans, Louzonis casts doubt on whether they’re the best option — at least from an investment standpoint.
“Ukrainians want to live in new buildings, with underground parking,” he says. “Not Stalinkas,” he adds, referring to Soviet-era buildings built from the 1930s-1950s.
But, with no eminent domain laws in Kyiv’s city center, moldering historic buildings remain standing, and new apartments have to be built farther and farther away from the center, says Louzonis. In the long term, as commute times go up, their value as investments — property to rent out — is questionable at best.
“It’s not an investment. It’s a place to live,” he says. “The sale price isn’t lower — but the rent will be lower, and the investment yield will be low.”
For Schmargun, despite the years of ever-increasing payments, his home purchase is still worth it.
“Our last apartment, when we rented, we paid $550 a month. You paid for…we call it for nothing. You’re paying, but you don’t get anything. But when it is your apartment, everyone hopes that in five or seven years — it’ll be yours. You won’t have to pay,” he says. And three years from now, his apartment will be his. “I can spend that (money) on traveling, a Macbook, etc. Thank God that I’ll have the possibility to do this.”
A man looks from his balcony at brightly-colored apartments belonging to Comfort Town, a 2010 development with its own financial structure. (Kostyantyn Chernichkin)
My cow is worth a lot! Bank As mortgage rates remain high in Ukraine – around 20 percent – many Ukrainians try to find alternatives such as borrowing cash from relatives, using short-term financing from developers, or paying upfront.
Construction proceeds on a Kyiv residential development built by Ukrbud, Ukraine's state construction company, which has built tens of apartment buildings around Kyiv. (Volodymyr Petrov)
Kyiv has one of the highest prime yields – returns on investments – for office, retail and logistics real estate as its market is considered to be high risk. Ukraine’s yields, however, are unleveraged, meaning that they are not combined taking into account financial obligations such as debt. As the economy showed signs of stabilization and an increase in investment demand in 2017, the market witnessed a decrease in risk for its commercial real estate market lowering the yield rates, according to Cushman & Wakefield real estate services firm.