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Frequently asked questions: | |
How much paper work is there when purchasing a property in Kiev?
Like most other countries of the former Soviet Union, Ukraine is having a tough time ridding itself of old soviet bureaucracy. One of the greatest obstacles to buying real-estate in Kiev is the amount of red tape. However, it is manageable if you have patience and a good lawyer.
What to watch out for when purchasing?
The buyer of the apartment will inherit any unpaid bills on the apartment. This is a concern because many Ukrainians have not paid their utility bills for years. Most aparment buildings still run on the soviet central planning system, which encourages free loading since heat, electricity and water cannot be cut off to any one individual apartment, but instead the whole apartment building is one unit. A competent lawyer should make sure that you don’t pay these bills. When you own an apartment, you should also be willing to spend around $40 per month on public utilities. There are no property taxes (other than the tax paid when selling real estate).
How can I check the ownership titles?
Because of a lack of legal infrastructure and disrespect for individual rights, business is conducted through personal relations, making it very difficult to come into the country and buy property. Finding a well-connected real-estate agency is essential, as it is impossible to check the legal status of an apartment without an agency. It is wise to err on the side of caution in this matter, since many downtown apartments are owned by very poor and desperate families who may be in business of selling their apartment with phoney papers and latter legally reclaiming it as their own.
Why is it important to check that the building code has been respected?
Many Kiev residences have built, "out of place", buildings without authorization and others have extended balconies and built on the sidewalk to make small stores. All of which is illegal but not enforced until the owner sells the property. Locals explained that they bought a gutted house, but the former owners did not have permission to do that. And so in closing there were some complications because you are not allowed to buy or sell a house in the city unless all the repairs have been approved. So if someone has installed a balcony or moved a gas line and didn’t have permission from ZHEK (the Ukrainian Housing Department), then they legally can’t sell their apartment and you can’t legally buy it. So you have to make sure that the seller’s paper work is straight, and this can take some work.
What are the minimum fees associated with the purchase of an apartment?
1) Brokerage fee - around 3-5% of apartment price.
2) Pension fund duty (depends on whether you are a foreigner and a first time buyer or not).
3) Drawing up all necessary documents and notary fees – at least $100.
4) Duties for state registration of your purchase with government officials – at least $10.
5) Government tax - 1% of property price.
Real estate investors are closely watching politics and the upcoming 2006 parliamentary election in Ukraine. There has been talk of implementing a property appreciation tax of 13% for residents and 26% for nonresidents, effective at time of sale, which could significantly affect the market. This tax would be paid on the difference between the price the property was originally acquired for and the price it was sold for.
Who pays the brokerage fee in Kiev?
The brokerage fee is usually pay by the buyer, but its negotiated.
Do I need to us a notary?
Yes, the notarization is not only required, but it is needed to secure the sale purchase agreement. It is equivalent to buying title insurance since in Ukraine, public notary are liable for checking all property documents, ensuring the correctness of the deal and will bear financial responsibility in case of mistakes.
What are the real estate improvement and maintenance costs?
In most cases foreign buyers immediately renovate their newly acquired residential property, typically spending $10-15 thousand USD on repairs and construction. Some real estate agencies offer construction overseeing services. Some charge 6% of construction costs for their services. In order to build new structures on property acquired, all real estate owners must obtain a building permit. Many locals and foreigners opt to pay building firms (usually around $500 or more) to do the whole process for them — from drawing up architectural plans to standing in line in all the government offices that put their stamps of approval on the plans.
What documents do I need in order to enter into a sale-purchase agreement?
1) your passport with a valid visa.
2) your tax payer number on the territory of Ukraine. The tax payer number on the territory of Ukraine can be obtained at the Kiev Tax Administration. Usually, it takes about a week to get the document. In order to save your time, a third party can do this for you by Power of Attorney. Notary fees for issuing a Power of Attorney is at least $10.
3) if the buyer is married and comes to Ukraine without his or her spouse; he or she will need a copy of marriage certificate, copy of spouse's passport, and notarized copy of spouse's consent to buy property in Ukraine.
How do I get money into Ukraine to buy property?
Up to $15,000 USD may be brought into Ukraine without special documents (until recently it was $10,000). Most foreign property buyers open a bank account in Ukraine and transfer money from abroad. Then money can either be transferred to the seller's bank account or taken out in cash. Opening a bank account in Ukraine is easy and requires these documents:
1) passport and copy of birth certificate.
2) tax payer code certificate.
3) proof of foreign origin of money (if a foreigner puts cash into an account after opening); a custom's declaration from entering Ukraine, a bank receipt from exchanging cash or travelers checks, or a bank receipt from receiving cash with a credit or debit card.
How are the property rights registered?
Registration of the sale-purchase agreement with the state registrar for the property rights and deals with the real estate marks the transfer of the property rights. It is done in a number of offices of the Kiev Committee for Registering Real Estate Ownership Rights. The registration can be arranged by the notary or the realtor. The regular term of registration is 14 days. The state fee is small. These fees can vary depending on the service provider that you will use.
What are the bank fees for sale-purchase transactions?
Although the overwhelming majority of real estate transactions are made in cash, the sale-purchase transactions in 99% of cases take place in a bank. Usually the deal takes place in the bank where the buyer withdraws his money from. Banks usually take no fees for using one of their negotiation rooms.
What are the main steps of a sale-purchase transaction in Kiev?
The process of buying an apartment can be divided into the following stages:
1) finding a property or a potential client for your property.
2) negotiations and signing of the preliminary agreement.
3) preparing the closure and research of the apartment history.
4) closure and registration of the deal.
5) property transfer.
What is a depositary (preliminary) agreement?
Most real estate deals in Kiev are extended in time for a period of one week to several months. The reasons are divers. First, all real estate transaction in Kiev require the completion of a set of current documents from various state institutions. Second, the buyer may need to secure financing or the seller may need to secure alternative residence. As a result there is the need for a preliminary agreement between the buyer and the seller. Preliminary or depositary agreements describe all of the conditions of the future deal as well as outlining the list of necessary documents to be provided by the seller.
What is a usual deposit amount in Kiev?
Upon the signing of preliminary (depositary) agreement, a buyer pays to a seller a deposit, usually in cash, to take the property off the market for the period before all the required documents are assembled and the closure is prepared. The amount of the deposit is usually not representing a certain percentage of the property price, but is a round number, which both parties find acceptable.
Is there any additional paperwork after the property is registered?
On the date of transfer of the property, the parties need to sign an “Acceptance Act”, which certifies that the apartment is transferred to the buyer in acceptable condition. This act, even though it does not need notarization, is an integral part of the paperwork for the apartment.
What are the causes of Ukraine's real estate boom?
The causes of the rise in price of real-estate in Ukraine are the following:
1) low levels of housing per capita in Soviet times.
2) Soviet system kept people from moving to big cities, but now they are allowed to.
3) opportunities and capital concentrated in big cities.
4) rising income levels in cities and resort areas.
5) lack of investment alternatives.
6) mistrust of banks after losing life savings during the inflation and banking crisis of the early 1990s.
7) increasing accessibility of bank loans and mortgages.
What about the common areas in a building?
The municipality owns the common areas of a residential building, unless the whole building is privatized as a cooperative, which is not the usual case. The municipality assesses a fee to apartment owners for maintenance and cleaning of the common areas. The common lines for utilities and water/sewage are also municipal property. Given the state of municipal governments in Ukraine, this means that cleaning, repairs, and maintenance are often lacking.
Are there any tax breaks for foreigners buying property in Ukraine?
There is a Ukrainian pension fund tax that foreigners are not required to pay when buying their first apartment. However, if you plan to buy a second apartment apartment, then this tax applies.
Are there any taxes when purchasing land?
The subject of the payment of the land tax is the owner of the land plot and land-user, including the leaser of the plot. Land owners and users pay the land tax from the date when they acquire title of the owner or user to land. Land tax interest is set in the amount of 1% from the monetary valuation of a land plot.
Do you need the services of a lawyer and/or a real estate agent?
The services of a decent lawyer should be secured as soon as an investor sets foot in Ukraine and well before any offer to purchase real estate is made. The next person an investor will need to assist with the property buying process is an estate agent. Ukraine is a country where there are both incredibly good estate agents and incredibly corrupt agents who attempt to charge both the buyer and vendor and potentially resell the same piece of property repeatedly.
What documents should vendors offer up for scrutiny?
1) the certificate of privatization or a previous purchase contract or proof that the vendor owns the property as a result of inheritance.
2) a certificate from the Unified Register of Prohibitions on the Disposal of Immovable Property to prove that there are no outstanding debt or legal issues against the property being offered for sale.
3)proof that the seller is the owner of the property. Property rights must be registered in the All-Ukrainian Real Estate Ownership Rights Register. Registration of the title of real estate can be confirmed by an Extract from the Real Estate Ownership Rights Register distributed by the local Bureau of Technical Inventory (BTI).
What percentage of the purchase price do the costs represent?
In terms of the fees, charges and taxes that a property investor in the Ukraine may incur these include the solicitor’s fees, estate agent’s fees, property registration fees, pension fund duty and notary fees. Those who allow for between 5 and 7% of the purchase price for these extra costs should find themselves well covered.
What are the costs of keeping the property?
1) payment for the communal bills – water, gas, electricity.
2) municipal payments – even if nobody lives in the apartment still the small amount of municipal payments must be paid. This payment depends on the quantity of square meters of the property and on the city. For example for today averagely the annual municipal payment for the property with an area of 45m2 includes 19 USD.
Is the “mortgage system” of financing for foreigners in Ukraine possible?
It is possible only when a foreigner works in Ukraine and has a high salary level. Otherwise you might be better off talking to your banker in your home country.
What are all the property encumbrance?
The general register of all kinds of real estate encumbrances does not exist in Ukraine today. Although the corresponding law was passed on 1 July 2004 and came into force, the appropriate bodies of state registration and databases have not been created yet as required. The basic property encumbrances are:
1) Lease contracts. A lease agreement for a building or any other capital structure or a part thereof concluded for the period of at least one year shall be subject to state registration.
2) Judicial restraining order. According to the Commercial Procedure Code and Civil Procedure Code courts of general jurisdiction and commercial courts of Ukraine can carry judicial restraining orders as a provisional remedy for a claim. It's a usual practice in Ukraine when, for instance, some court institution prohibits alienation of real estate for a certain period of time. Such resolutions are temporary and should be cancelled after the trial is finished. However, while they are effective any sale of real estate is not legal.
3) Contractual mortgage. In Ukraine there is a certain procedure to register hypothec (as a special kind of mortgage of real estate). All hypothecs should be registered at the State register of hypothecs supported by Ministry of Justice.
4) Tax lien. Such liens are subject to the procedure for registration of movable property mortgages as there is no special procedure for registration of tax liens. An extract from such a register is a proof of the absence of the tax lien.
When are rights and obligations generated?
All agreements related to transfer of the title to real estate, irrespective of the legal status of parties to such agreements, are subject to notarization and state registration. These agreements are considered to be concluded (i.e. come into force) only after their state registration. Thus, real estate sales agreements do not generate any rights and obligations until the moment they are registered.
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