Ukraine: the Arithmetic of war and the real estate market in the Donbass

The ongoing conflict in the East of Ukraine creates conditions for the formation of the illegal market of real estate and the emergence of a barrier to protect owners ‘ rights. As a result, the temporarily uncontrolled territories of Kiev formed the ground for corruption and created additional mechanisms to replenish the bins of the so-called Lugansk and Donetsk “people’s republics” and intimidation of civilians.

Since the conflict began in 2014, the Ministry of social policy of Ukraine has registered nearly 1.7 million internally displaced persons who left the Crimea and occupied territories of Luhansk and Donetsk regions, accounting for nearly 4% of the total population of Ukraine. To settle in a new place, most of the migrants are forced to sell they left in the occupied territory of the estate.

With the transition of the territories of Lugansk and Donetsk areas de facto under the control of “LNR” and “DNR” access to Ukrainian public registers of legal entities, real estate, cars and land for these territories was closed. Military conflict also provoked the blockade legal and economic relations of Ukraine with the occupied territories of Donbass. Thus, in the autumn of 2014, transaction of sale of real estate in the occupied regions of Luhansk and Donetsk regions were in the “gray area”. When the occupied territories return under the Ukrainian control, the new owners will have to legalize the committed transactions through the courts. “The situation allows the former owner to void the transaction of purchase and sale in court. The buyer may be left without the purchased property,” — said the lawyer Igor Chudovsky. The decision of such disputes can drag on for years, burdening homeowners and creating barriers to full economic development.

Meanwhile, according to statistics of the Ministry of justice of Ukraine, the real estate market in the East of Ukraine is experiencing explosive growth in the first half of 2016, the number of transactions in the Luhansk region was increased compared to the same period of the previous year by 99.4%, and in Donetsk — by 50.6%. Thus, in General the real estate market in Ukraine grew by only 19%.

It should be noted that not all transactions are as sale. Sometimes property owners carry out a deal under the guise of giving real estate to avoid taxes.

Statistics on the income from the real estate market in the occupied part of Donbass is closed. Revenue and expenditure budgets “republics” are kept secret because “the military situation and the instability of the economy.” However, according to rough estimates on the basis of the very popular website of the real estate of Ukraine on the foreign real estate market in only two controlled by the “LNR” and “DNR” large cities for sale as of November 20, 2016 was put up housing for a total of about 40 million US dollars. If “legalization” of transactions from the sale of this volume of real estate budgets “republics” would significantly grow. That perhaps is the main motivation of these self-proclaimed territorial entities.

In “LNR” and “DNR” all transactions on the real estate market that is not in controlled areas, declared as illegal. In August 2016 the leader “LNR” Igor Plotnitsky was forbidden to sell the house according to the Ukrainian legislation.

About similar bans have said it previously. In August 2015 in the “LNR” announced the non-recognition of documents issued by the Luhansk Municipal enterprise “technical inventory Bureau” with stamps of the Ukrainian sample. Also banned was to make real estate transactions of any legal nature.

In the occupied Donetsk, the situation has gone even further. In September 2015 in the “DNR” made a decision not to recognize the actions by Ukrainian notaries in respect of real rights to immovable property on the territory of the “Republic”. And in 2016, the de facto Council of Ministers “DNR” decided not to admit the documents on real estate transactions, issued by Ukrainian notaries after December 31, 2016.

In addition, and in “LNR” and “DNR” established a mandatory procedure “legalization” of documents on the sale of real estate if such transactions were made on the territory controlled by Ukraine. In both “republics” of the “legalization” of transactions carried out so-called interdepartmental Commission, which is empowered to determine the “legitimacy” of transactions. Procedure “legitimize” also provides for payment of the fee and property taxes to the budgets of the republics.

In the provisions on interagency committees these unrecognized territorial entities no mention of possible penalties against citizens who have not passed the compulsory procedure “legalization” of real estate transactions. However, such statements create a Toolkit for arbitrary extortion and intimidation of citizens in the temporarily occupied part of the Donbass.

In spite of all prohibitions, at the end of 2016 he has published more than 1,650 ads for the sale of apartments in Donetsk and Lugansk. The real estate market in the occupied regions of Luhansk and Donetsk regions can be divided into two parts: external and internal. There is no exact statistics, but on a personal assessment of the author, the proposal in both markets exceeds the demand significantly.

In the domestic market seller looking for a buyer inside the occupied territories. Some sell a house in prestigious districts of large cities to buy property cheaply and to live on the difference from the transaction. Others are looking to buy a home closer to the center to find work or to leave the area attacks. The announcement of the sale of real estate citizens placed in local print media “republics” that are not available to residents of other regions of Ukraine.

On the foreign real estate market in Luhansk or Donetsk sell mostly immigrants, who left the conflict zone. Buyer’s are looking outside the “republics” by placing ads on the sale of their apartments or houses. Feature of the external market that the transaction of purchase and sale of real estate held by notaries under the laws of Ukraine.

The story of the sale of his apartment in the “LC” the immigrant told the journalist from Lugansk, editor of the program “Donbass. Realities” and the rubric “letters from the occupied Donbass” on Radio Liberty Andrey Dikhtyarenko. He sold his property in August 2016. The transaction took place in Severodonetsk, the new administrative center in Luhansk region. “The buyer went to the meeting place from Lugansk and I’m from Kiev. Pre-processed all documents…. I can say from my own experience and the experience of other people who have sold apartments in Lugansk and Donetsk that compared to pre-war times, i.e. until the conflict in 2014, prices for apartments fell by almost three times. I sold the apartment for a third the price that could claim in August 2013.”