23 February 2021
Together with the Norwegian-Ukrainian Chamber of Commerce and Cushman & Wakefield Ukraine, Redcliffe Partners recently hosted a webinar on Real Estate in Ukraine – Rules, Regulations, and Opportunities for Norway, with a focus on commercial real estate such as offices, retail, logistics and more. In addition to recent commercial real estate trends in Ukraine, the participants discussed property title checks and other legal matters to be addressed when investing in real estate in Ukraine.
Recently, business co-operation between Ukraine and Norway has reached new heights and diversified into various sectors and industries. Several large Norwegian companies are already operating in Ukraine, and more find synergies in joint activities, which brings significant benefits to both sides. However, there is still great unlocked potential in Ukrainian-Norwegian investment co-operation. Therefore, the digital networking meeting's focus this time was on real estate – a business sector with a unique position and interest that can be relevant for companies from diverse industries. The event's purpose was to create digital interactive networking for relevant representatives from Norway and Ukraine working with investments, retail, logistics and other business sectors involved in real estate.
Viacheslav Yatsiuk, the Ambassador of Ukraine to the Kingdom of Norway, opened the event, mentioning that Norwegian-Ukrainian co-operation has already achieved impressive results: in just three years Ukraine and Norway have doubled their bilateral trade. In order not to lose this momentum, it is essential to keep exploring new opportunities and disseminate information about these opportunities amongst Norwegian businesses.
Volodymyr Mysak, Head of Capital Markets at Cushman and Wakefield Ukraine, presented analysis of the commercial real estate market in Ukraine and discussed the trends seen in the office, retail and logistics market segments. Commercial real estate has shown positive dynamics in development since 2016; the number of tenants in each segment were expanding and investors had a positive outlook. In 2019, investment into CRE reached USD370 million, a 10-year historical high. COVID-19 has impacted real estate worldwide as well as in Ukraine. Tenants' demand sharply decreased and, due to uncertainty, investment volumes were modest, reaching just USD155 million in 2020. Yet, starting from 2021 we now see a positive outlook amongst tenants and increased activity from all market players, which we believe indicates that occupiers will be more active this year. Tenant activity will obviously send a positive signal to investors, who we believe will also be more active this year.
Svitlana Teush, Head of the Real Estate, Construction and Renewable Energy practices at Redcliffe Partners law firm, discussed the possibilities of checking property status based on available public information, and the limits to such checks requiring the need for due diligence in order to reduce the risk exposure for investors. She described different types of due diligence tailored to meet the objectives and cost preferences of an investor, including limited risk-based analysis or bankability review, the latter being increasingly in demand in projects involving a refinancing.
Svitlana emphasised the need to consider each title to a building and an underlying land plot and discussed the expected changes toward further implementation of the "land follows the building" principle in Ukraine.
She also recommended to check if a target property is fit for purpose, and to consider numerous restrictions and requirements which may follow from the land allocation, urban planning or grid connection documents, and contracts; in particular, to check whether this is subject to a special legal regime, third party rights or other encumbrances. Notably, with a proper deal structuring, many risks and restrictions can be addressed, and an investor can achieve its objectives and save on costs. Svitlana considered certain legal structuring solutions, including share deals, which are particularly relevant for commercial real estate, mutual investment vehicles, pre-acquisition carve-outs of assets and others.
She also discussed the outlook for the lifting of the moratorium on the alienation of agricultural land in Ukraine, set to begin in phases later this year, as well as expected improvements in land legislation, including for foreign investors.
Finally, Svitlana provided references to a number of online sources setting out different investment opportunities in Ukraine, including privatisations, concessions, output- and performance-based road contracts (OPRC) and other PPP projects and industrial parks, as well as the projects presented in the UkraineInvest Guide by UkraineInvest, the Investment Promotion Office.
Oleksandr Markov, Head of Tax at Redcliffe Partners, provided an overview of Ukraine’s taxation system and its key features that are of importance for the real estate sector. Further discussion was devoted to capital gains tax on indirect sales of shares when foreign companies are parties to a deal (and now Ukraine has a mechanism to withhold tax from these non-residents’ profits) and to corporate investment funds as an effective structure for real estate financing.