Monday, February 20, 2006

Commercial Rents and Scams

The Kyiv Post this week has two pieces of information on the Kyiv real estate marketplace. First is a table listing rental charges for commercial properties in Kyiv along with similar properties in various other Eastern European cities.  In all cases, Kyiv rental fees are much higher that other cities in the region. My understanding of the situation is that it is a matter of a lack of supply coupled with a growing demand for commercial real estate. So, why the lack of supply? Certainly, the apparent financial return on Kyiv real estate is high enough to encourage a great deal of development.  Perhaps the second article in the Post points towards the answer.

On the front page of the Post is an article concerning the real estate scam of the firm “Elite-Center.”  Pushing aside the financial details in the article, what is interesting is the role of the city’s government controlling function within the scam. Not only was the company in the center of the scam not officially registered but a least one of its buildings, while being built as apartments, was approved to be a office building. This is the type of change that the city’s building authorities should be atop of. Certainly, the city’s building authorities have a reputation of being very interested in new development. The Post article, by John Marone, suggests that the city officials might be complicit to the alleged scam. The article itself does not give enough evidence to support this assertion but certainty the history of Kyiv development would suggest that there is a complex web.  

The two articles are tied together by the complex, non-transparent nature of Kyivs development. How soon do we get to the place where real estate signs listing lots for sale or lease are common in the city? One last note, the profits for such high commercial rates do not got to the owners or developers of the properties, but to hidden people who have the ability to control development in the city.

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