How to buy an apartment in Ukraine through a derivative to a foreigner?
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Buying an apartment through a derivative, or by entering into a forward agreement is a separate way to purchase real estate in Ukraine. We are talking only about the purchase of an apartment from the real estate developer, i.e. on the primary market.
A derivative is a security that a person acquires under a forward agreement. The purchase of the derivative gives the buyer the right to conclude a purchase and sale agreement for the property rights, on the basis of which the buyer acquires the right of ownership to the apartment - after the building is commissioned.
Many see advantages in this type of acquisition of real estate, for example, no risk of reselling the apartment or a certain reduction in costs (reduction of the tax burden).
However, this process involves certain difficulties. First of all - the apparent complexity of the scheme for the purchase of real estate, as well as the need to understand the rules and regulations of the forward agreement. This can be especially problematic for foreigners who are not versed in the intricacies of Ukrainian legislation.
Our company offers legal support for the purchase of real estate for foreigners, including through the derivative. Today, we will tell you about the main aspects of this process and what a foreigner needs to pay attention to.
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What is a Forward Agreement on a real estate property and how to conclude it?
A forward agreement is an agreement whereby the developer undertakes to transfer the property to the buyer at a date specified in the agreement, usually after the building has been commissioned, and the buyer undertakes to pay for and accept the property on time.
A buyer makes a payment during the conclusion of the forward agreement, but not the entire value of the apartment - but the contractually agreed part (usually 30-50%). The buyer will receive a security - a derivative.
The procedure requires to conclude not one but two agreements in the same sitting:
- A forward agreement with a Corporate Investment Fund (CIF);
- A real estate purchase agreement with a real estate developer subject to conditions precedent (i.e., it comes into force at the time specified in the agreement).
The forward agreement must specify:
- Deadlines for each party to fulfill their obligations - payment of the agreement and transfer of ownership rights to the apartment;
- Fixed price of the property;
- Detailed description of the apartment, including floor, entrance, area, number of rooms, name of the real estate developer, etc.
The agreement shall be signed by the real estate developer and the buyer, after which the developer submits it to the CIF exchange for registration. Here is another advantage for the buyer - together with the forward agreement the real estate developer submits an impressive package of documents, including construction permits - a kind of additional check of the real estate developer’s credibility.
The exchange registers the agreement and holds an online auction for the apartment - it is formal, and the buyer can track the result online. Based on the results of the auction, the buyer obtains a certificate.
The derivative, which the buyer will get, must also specify:
- the terms of fulfillment of obligations under the forward agreement;
- characteristics of the apartment to be purchased;
- terms of acquiring ownership rights to the apartment;
- the price to be paid by the buyer.
This scheme with concluding several agreements and holding an auction can seem confusing and complicated. We will make it as clear as possible for you and will supervise the entire process from start to finish.
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What does a foreigner need to buy an apartment through a derivative in Ukraine?
To conclude a forward agreement, a foreigner will need:
- To get a TIN in Ukraine - a personal taxpayer number. This code, provided that the procedure is well-organized, can be obtained with in 1-3 days;
- To open a bank account in Ukraine. Money will need to be transferred through a bank, necessarily in hryvnia. Opening a bank account is not a difficult procedure, the main thing is to choose the correct bank, which has sufficient experience and service to work with foreign clients.
If you do not speak Ukrainian, or speak it poorly, you will need to use the services of an interpreter - these agreements are not subject to certification by a notary, and therefore they are concluded in the Ukrainian language. It is necessary to negotiate with the real estate developer correctly, and to understand what is going on during all stages of buying an apartment.
Our company resolves this issue in a simple way - we have English-speaking lawyers and managers who not only provide you with comfortable communication during the purchase of the apartment, but also explain all the aspects of the procedure.
The big disadvantage of this type of agreement can be the fact that if you decide to terminate the agreement prematurely, the amount paid for the derivative (30-50% of the apartment’s cost) will not be refunded. In fact, you have bought a security and it is now yours. Under this scheme, you're not buying real estate, you're buying the right to buy it.
However, you can wait for the execution of the agreement, and to resell the derivative in favor of the CIF until the receipt of the certificate for the apartment - but you need to exactly match the terms and understand the procedure. This option will not work if the real estate developer freezes the construction - in this case your security will lose its full value. With this scheme, you lose the protection of the law in the field of primary construction.
This means that already at the stage of concluding a forward agreement you must be sure of the real estate developer and of your desire to buy this particular property.
The preliminary inspection of the apartment can help you with this. Our company includes it into the price of legal support services for the purchase of real estate by a foreigner in Ukraine.
You can find out the cost of legal support services here. Depending on your needs and goals the service package may include:
- Advice on the best way to acquire real estate for the Client;
- Legal advice on the procedure of buying an apartment through a derivative;
- Checking the property and the real estate developer at the stage of selecting the apartment;
- Checking and, if necessary, amendment of agreements to be signed;
- Obtaining a TIN for a non-resident and assistance in opening an account in a Ukrainian bank;
- Legal support for the purchase of the apartment through a derivative.
What is the advantage of this scheme? It is convenient for the real estate developer in terms of saving on taxes, which, as they often assure you, affects the price of the apartment for you as a buyer. Simply put, in theory, you pay less per square meter. Keep this in mind when comparing price offers from different real estate developers.
But if you still want to buy an apartment offered by a real estate developer under a derivative scheme, we offer you services which will add you confidence in the security of the deal and will positively affect the achievement of your goal.
Do you want to buy real estate in Ukraine, and you do not know how to do it profitably? Don’t hesitate to contact us! We will find a simple solution for your situation and put it into action.
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