The second anniversary of the land market: has the land replaced the beloved apartment near the metro in the investor’s portfolio?

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And although at the beginning, the conservative Ukrainian investor reacted to the new opportunities quite cautiously: complicated bureaucratic procedures and, most importantly, not understanding (if you have never been interested in agro) what kind of land is actually promising for investment.

Soon he was able to fully appreciate all the advantages of land investments. And today the demand is many times higher than the supply.

Why has land become one of the most popular instruments in a Ukrainian investor’s portfolio?

• Land is an exhaustible resource for which there is always and will be demand.
• Low entry threshold compared to even the cheapest real estate: one 2-ha plot can cost from $4,500.
• Almost all agricultural land of destination is already leased, which means that it brings income from the first day of acquisition.
• No repair and improvement costs are required.
• The risks of military operations are minimal: even with a direct hit, the land is quickly restored to a state suitable for cultivation.
• The quality and fertility of land in Ukraine is the best in Europe.
• Stable annual rental income of 4 – 7%
• Asset value growth: forecasts are reduced to a corridor of 15-30% of average annual growth. Some of the experts are more optimistic, some less so, but if we take the experience of neighboring European countries, the average statistics show that in the first 5 years – the value of land doubled, after 7 years – it tripled, in 10 years – it increased almost 5 times and continues to grow.
• Resilience to crises: despite the war, Ukrainian land not only did not lose value, but in most regions it increased by an average of 20% over the last year. And this if taken in dollar terms.

Evolution of the demand for land before and during the war?

How was it before the war?

From the very beginning of the opening of the land market, the demand in the central regions was the greatest. This is due to the fact that statistically there is a larger number of plots, more regions, districts, greater competition among agricultural companies.

In general, the region itself is more informationally “pumped”: everyone knows that Vinnytsia is an agricultural region, and Poltava region is the best black soil, arable deposits of gas fields.

But if you compare the quality of the land, the amount of precipitation, the possibility of earning for farmers from one hectare, then Chernihiv and Sumy have always been slightly underestimated.

Such promotion as in the central regions, it was not there, but these areas are very attractive in terms of the quality of the soil and the perspective of the tenants’ economic activity. Here, the cost of plots per hectare is slightly lower than the average for Ukraine, and the area of ​​the plots themselves is much larger.

That is, the proposals in the northern regions were more interesting from the point of view of the increase in value. And many of the investors pressed for such a favorable offer.

Before the war, the largest number of agreements were in Poltava Oblast, Kyiv Oblast and Vinnytsia Oblast.

Kharkiv, Poltava, and Kirovohrad oblasts were the leaders in terms of land area for which transactions were recorded.

What now?

When the market slowly started to resume its work after the total stoppage of any property alienation transactions in June 2022, the demand for the northern regions decreased even more.

Of course, there are such extreme investors who agree to buy plots even in a zone 50 km from the border, they are ready to take risks for maximum capitalization.

But this is rather an exception to the general trend. And although these plots continue to be cultivated: there is also a professional farmer who pays good interest on rent, but we understand that the risk is also increased.

The main trend now is to buy land in the central regions and is partly directed to the west. If you look at how private investors perceive investments in agricultural land, then for the most part, for them, it is a very conservative, super reliable asset that is virtually impossible to destroy, that brings stable rental income and sufficient capitalization.

They want to be calm and not play roulette with possible extra profits. That is why they focus on the central regions. Now the right-bank Ukraine, especially Vinnytsia and Khmelnytskyi, have become the leaders.

If we talk about the western regions, the land here is much more expensive, it is more difficult to find a plot here due to high competition, and the area of ​​the plots themselves (due to the peculiarities of soldering) is much smaller than in the center and in the north.

How do prices for good plots differ by region?

Ukraine is moving along the path of gradually increasing the price of land plots. Military actions slow down but do not stop this process.

Of course, in the area close to the front line and to the borders with Russia or Belarus, there is a certain discounting of the cost, but if we take it as a whole throughout Ukraine, then since the beginning of 2023, the price of agricultural land has increased by 15-20% on average. Good areas today in terms of value reach:

• Vinnytsia, Ternopil, Khmelnytskyi regions up to 2800-3000 per 1 hectare
• Poltava region up to 2,600 $ for 1 hectare
• Chernihiv – Sumy oblasts in areas with high competition reach indicators of $2,400 – $2,500 per hectare
• How has the portrait of the investor changed before the war and now?

They were the main investor before the war entrepreneurs of medium and higher level, most of whom entered with an investment of 30 or more hectares. When the war began, the main concern of entrepreneurs was to save their own business, and the issue of investments took a back seat.

On the other hand, retail investors who work for hire or freelance, on the contrary, reoriented their portfolios from classic residential real estate to agricultural land. Because real estate has high risks of destruction due to military action, and land as an asset is almost devoid of such a disadvantage.

At least it is definitely not in danger of total destruction.

Today, among the company’s clients, almost 65% are representatives of the IT sector, 15.8% are entrepreneurs, and the share of military investors is increasing, which is already about 10%.

The approach to investing is also different: usually AITishnyk first chooses 1-2 plots, so to speak, testing a new investment tool on themselves. And later they buy several more plots, gradually increasing their portfolio of land investments.

For example, the share of such repeated purchases in the company Tvoye kolo is approximately 35%.

How much land does one investor buy on average now?

If we exclude deals with a large check for 50 or more hectares, the share of which is not very significant, then on average one the investor buys from 3 plots with an area of ​​2 hectares each. That is, approximately 6 hectares per investor. However, one should take into account repeat purchases, which account for every third case.

What investment strategies are investors choosing today?

• Buy a large plot of land in one transaction. But it should be understood that the maximum de-soldering that occurs is 5 – 6 hectares per plot. And it happens very, very rarely. Larger plots can be found in Chernihiv, Zhytomyr or Sumy regions.
• A reasonable alternative to looking for a large plot may be to concentrate on the selection of plots nearby in one region: then when the market opens up to large agricultural companies and competition for land increases, such plots will be in greater demand, and the owner will have a stronger negotiating position both on the rent and on the sale price .
• Maximum capitalization: this strategy includes the selection of plots in regions where, due to the risks of military actions, prices are the lowest.
• Buy a plot that is leased from one of the TOP 5 large agricultural holdings.
• Choose only tenants from among agricultural holdings with foreign capital.
• Investors with a large sum to invest seek to maximally diversify the land bank by region and under different agricultural companies.

Why does an investor need a management company?

Investors entering the land market for the first time first try to transfer their previous experience from traditional residential real estate to land.

It would seem, well, what’s the matter here: choose a plot on the marketplace, pay a commission to a broker, draw up an agreement on the right of ownership, a lease agreement and enjoy receiving your interest. It seems that the scheme is simple.

But over time, questions arise: why is there no indexation of the rent, or worse – no rent is paid at all, why, when trying to sell, buyers offer meager prices, when apparently similar plots in the same region are bought much more expensively?

In fact, choosing really promising, investment-attractive land, if you are not a professional in land matters, is not an easy task. It is necessary to understand the competition in the region, the quality of the soil, the intentions of the lessee regarding this plot, and whether there is enough rainfall in the region, what the terrain is like, and whether the whole plot is cultivated by the lessee, and what are the conditions of the lease agreements.

Add to this the procedure of legal checks, compliance with the preferential right of the tenant and you will get a lot of nerves and time to solve all these issues.

But the investment work does not end there either, because it is necessary to monitor the state of the region, the level of rent, the demand for land, compliance with contractual conditions, and negotiate their improvement.

And it should also be taken into account that most lease agreements were concluded many years ago and the new owner simply becomes their legal successor. Or the sales platform on the day of the agreement or earlier translates the lease agreement for 15+ years with terms not in favor of the investor.

Today, lease agreements are very crooked: the percentage of the payment is calculated from the NGO, most of it is simply a fixed figure in hryvnias without reference to indexation, inflation or the dollar exchange rate. If we talk about systemic large enterprises, their contracts are very uninteresting for investors.

In order to bring them to a competitive level, to add clauses about the responsibility of the tenant, a fair review of conditions, indexation, constant systematic work and a strong negotiating position are required. A tenant will never review the terms of the agreement for one investor, but when hundreds of landlords turn to him with the same request, it’s a different matter.

This is precisely the job of the management company – to represent the interests of all investors before the tenant. The more land is under the management of the management company, the stronger the negotiating position.

If you cooperate with a management company, then it solves all these issues. All an investor needs is to decide on a budget, strategy and give wishes to the company’s manager. And then professionals will take care of the matter.

Specialists of the Tvoye circle team work every day to make investing in land easy, transparent, convenient and profitable.

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