At least 10 new real estate investment trusts (REITs) will appear in Ukraine by 2025, Volodymyr Sementsov, co-founder and managing partner of INSPI Development, told Interfax-Ukraine.
"In the next two or three years, real estate investment trusts will be actively developed as an alternative tool for citizen investment and citizen wealth preservation. First of all, powerful Ukrainian development companies are interested in creating such trusts, which plan to simultaneously implement from three to five large-scale projects stretched over time for five-ten years in different real estate segments," he said.
The main feature of REITs is that citizens can invest their own savings by purchasing the relevant shares (securities) that are in free circulation, and receive a profit of 10% per annum pegged to the foreign exchange rate.
"In order to save money and make a profit from investing in real estate, most citizens will no longer need, for example, to purchase an apartment, maintain it and rent it out. Instead, it will be possible to profit from investing in a trust that directly owns and rents such real estate. Such trusts exist all over the world, and this is a fairly popular type of placement of free funds," he said.
The specialist added that at the end of 2021, several well-known and powerful Ukrainian developers announced the creation of such trusts with the possibility of investing in them for everyone. According to Ukrainian legislation and depending on a type of the trust, the minimum amount for entering a Ukrainian real estate investment trust through the purchase of securities may be from $5,000.
According to the expert, it is these trusts that are able to attract the attention of foreign investors to the Ukrainian real estate market, since for them the format of REITs (real estate investment trusts) is understandable and widespread, and the profitability of investments in Ukrainian projects is higher. According to his estimates, in Ukraine the return on investment in real estate funds is on average 10% per annum with reference to foreign currency, while in the USA such return does not exceed 2-5%.
Sementsov predicts that two or three foreign REITs may enter the Ukrainian market by 2025.
"In fact, a REIT is a management company that directs the funds received to different segments of real estate. Securities of international REITs are freely listed on financial exchanges and are more liquid than real estate, because they can be sold at market value much faster than, for example, an apartment," Sementsov said.
According to him, a large share of the profits of any REIT is rental payments, which provide stable and predictable cash receipts. In addition, the profit of REITs does not depend on the level of inflation, because real estate rental payments very often grow by the equivalent of the depreciation of working capital.
"In fact, the emergence of real estate investment funds is one of the directions to create a transparent real estate market in Ukraine, which will stimulate the entry of foreign investment into this sector of the Ukrainian economy," the specialist emphasized.
As for the Ukrainians, their interest in REITs will be fueled by more attractive profitability compared to bank deposits.
In his opinion, from the middle of 2022, a trend of the flow of Ukrainian funds from deposits to REITs will be noticeable. "According to the most optimistic forecasts, in 2022, the flow of capital of individuals from the banking sector to investment funds may be up to 2-2.5% of the total amount of investments in foreign currency [up to $ 250 million], and up to 3-5% of the total amount of hryvnia deposits [about UAH 25-30 billion]," Sementsov said.
INSPI Development is an investment and development company established in December 2020. The company plans to develop a network of service apartments in Ukraine, new formats of real estate and iconic real estate objects. By 2025, the company's portfolio includes more than ten properties, including a network of service apartments, commercial and residential real estate.