EMRF RAIF – Now an Eligible Investment for Cyprus (EU) Permanent Residency

EMRF RAIF – Now an Eligible Investment for Cyprus (EU) Permanent Residency
EMRF KRER2 – Update
Very interesting news – our fund, EMRF VCIC RAIF PLC (KRER2) has now been classified as AN APPROVED INVESTMENT FOR CYPRUS (EU) PERMANENT RESIDENCY.  Similar to other countries “Residency” programs, Cyprus now accepts a minimum investment of EUR300,000 in a Cyprus RAIF as an acceptable investment criteria for application for Permanent Residency.  This replaces the requirement for a direct investment in real estate .

Please find further details, sent by our Fund Administrator, in the following: PERMANENT_RESIDENCE_PERMIT_2021_short.pdf

This month EMRF raised over $2,000,000 in new investment and we are very excited to be adding to our real estate portfolio.  Applications for the June 30/July 1st dealing date should be submitted as soon as possible in order to complete KYC in time for the closing at the current NAV.

For the latest news headlines on our Funds and Ukraine, please visit our Blog which is continually updated:  https://krer.eu/blog/


Fund Overview
EMRF VCIC RAIF PLC KRER2  (EMRF KRER2) is a fully registered EU fund (ISIN CYF000001067) investing in prime real estate in Kiev, Ukraine.  Managed by a fully EU regulated Alternative Investment Fund Manager – Byron Capital Partners – with the unique opportunity to invest in premium, central Kiev properties at historically low prices. The fund goal’s of capital appreciation, supported by above market rental yields, have a proven track record.

The Managing Director of the fund John Suggitt – supported by his partners John Crockett & Shane Sorg – have a combined 60 years of investment banking, investment and real estate experience in Ukraine & Russia and have proven thei r ability to identify, purchase, design, renovate, rent and sell properties at returns substantially exceeding market averages – through all market cycles.

The large majority of investors in EMRF KRER2 are either institutional fund managers or very experienced Eastern Europe Analysts/Investment Bankers.


Investment Objective
Long-term capital appreciation through purchase, renovation and rental yields in residential, office and retail properties in Prime Kiev.


Fund Documents
EMRF_VCIC_RAIF_PLC_KRER_2.pdf
KRER_2_Memorandum.pdf



Market Update:
1)  Market prices have unquestionably and substantially moved up – sale supply has evaporated and, as a result, sales of properties has slowed as the market is finding a new, higher level.
2) Office market rebounds strongly following the end of the full quarantine.  Unfortunately our tenant of Laboratorny 6 could not weather the full quarantine and recently vacated the premises.  We retained their deposit as they vacated early.  However, as soon as the quarantine ended we have been flooded with calls and have received several offers.  We feel confident in the strength of the market & demand, we look to improve on the previous rent of $6,600/mos. and thus we are seeking an even $7,000/mos. implying a gross yield of 20.1%
3) 1Q21 had one very clear trend – in spite of the quarantine pause – there is a lot of excess capital that has been waiting to be deployed for the last year and any good news will bring sharp buying activity.

Real Estate Headlines
*  Ukraine climbs to sixth place in the world for growth of property prices – Ukraine, Russia, and New Zealand are the countries where residential property prices have grown over the past four quarters at the highest rates.  In terms of price growth, the Ukrainian capital took 11th place among 150 cities in the world.
*  Sharp decline in new construction
*  Forty Belarusian tech companies and 2,000 IT workers have moved to Ukraine 
*  Home mortgage loans, long a rarity in Ukraine, are up 23% 2020 

The Wandering Investor has ranked Kiev as one of the top 3 international real estate markets for 2021:
thewanderinginvestor.com/international-real-estate/top-3-international-real-estate-markets-for-2021/

In last quarter’s fund update we included a section on the impact of mortgage lending on the Moscow real estate market.  Still very relevant reading:
Moscow_Real_Estate_Lending.pdf

Recently I gave a speech on the state of the residential housing market in Ukraine and Kiev specifically.  The data I dug up was even worse (better) than expected.  The full presentation is in the process of being edited to be included @BNE.  In short:

* The average size of living space in ‘Central’ Kiev is 7.5m2/person.  7.5m2 ~80sq feet.
*  For comparison, average living space is over 40m2/person in Germany. Over 5x larger.
*  9.1% of households have less than this amount. The highest level of overcrowding is in Kyiv where 16.5% of households have less than 7.5 m2 of living space
*  28.4% of people live in one-room apartments (no bedroom)
*  There are approximately 974,000 households with four or more members living in 1 bedroom apartments
*  52.7% of all households with children are not happy about their housing situation due to over crowding
*  Over the last 10 years about 74,000 new apartments per annum have been delivered. This equals 1.7 units per 1,000 people or 0.4 new units per 100 existing dwellings.  EU average for the last 10 years is 5.0.
*  In fact, at that rate, the construction of new dwellings has not even been sufficient to replace deteriorating housing stock
*  Kyiv itself has 178,000m2 of outdated housing, meaning thousands of families in the capital are living in buildings that need either massive refurbishment or possible demolition

Even if a massive amount of residential was constructed it wouldn’t meet demand.  I read that 1 billion m2 for Kiev is required to make up the housing shortfall in order for Kiev to reach any sort of the lowest EU norm.  This would be at the current population level … news in Eastern and Southern Ukraine will continue to drive emigration to Kiev.

The full presentation (please skip the first few paragraphs – I asked to present as a contrarian POV to the other presenters whom were pitching EU RE and yields of 3%):
Presentation.pdf

The bottom line is pretty simple.  Kiev RE is massively undersupplied residential/office, no amount of possible construction in the medium term can make up for the shortfall.  Increasing demand driven by the return of mortgage lending, higher wages, emigration to Kiev.  Incredibly low household debt levels

Ukrainian Macro Economic News
  • During the pandemic year, online shopping increased by 26% 
  • The e-commerce boom pushed Kyiv warehouse vacancy rates down from 30% to 2% 
  • S&P Global Ratings re-affirms Ukraine “B with stable outlook” when it comes to long-term and short-term liabilities in foreign and national currencies, said the international agency.  “Ukraine’s growth, balance of payments and public finances exceeded our expectations in 2020,” S&P said. Ukraine’s rating could be bumped up next year.  The banking sector stays relatively strong.
  • Bucking the world recession, Ukraine’s IT exports increased by 20% yoy. Peter Dickinson wrote in an Atlantic Council blog: “Ukraine’s Booming IT Sector Defies the Coronavirus Crisis.”
  • Of the 100 best IT outsourcing firms in the world, 11 are based in Ukraine, according to the 2021 Global Outsourcing 100 list
  • Ukraine’s economy continues its strong post-Covid recovery. The NBU said in a major online press release that “the 2020 GDP fall (by 4.2%) turned out to be less pronounced than expected at the onset of the coronavirus crisis (by 6%).

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