Investing in unstable countries: what does the case of Ukraine teach us?

Geopolitical conflicts have an impact on the economy, including, of course, real estate. Many countries are characterized by instability and may reach the state of Ukraine. If you have nevertheless decided to invest in them, this is what you need to know

Adv. Guy Kleinbaum, Guest Column

10/04/2022

Sunday, 10 April 2022, 00:07

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In the video: Johnson and Zlansky touring the streets of Kyiv (Photo: Reuters, Editing: Aviad Ballali)

Contrary to popular belief, territorial geopolitical conflicts have not been invented in Israel.

Many countries in the world past or present have taken or still take part in such and such ongoing conflicts, whether it is the Georgian-Abkhazian conflict, the United Arab Emirates and Iran, the various African countries or the conflict between Russia and Ukraine, which has now made headlines again.

Geopolitical conflicts not only claim many victims, but often also have a negative impact on the economies of those countries, and those adjacent to them.

The second intifada, for example, led to the Tel Aviv 25 index losing about 40%, by the beginning of March 2003. Conflicts between the oil countries cause sharp fluctuations in its prices, which affect the entire world.

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Building in Ukraine (Photo: AP)

In recent years, the world has become more and more a small global village.

If in the past local conflicts between different countries of the world or constitutional and governmental instability seemed to us distant and without significant impact on us, today, as more and more Israelis invest in foreign exchanges and real estate overseas, the political and constitutional situation in those countries may affect our assets. Whether directly or indirectly.

Is betting on real estate investments in areas of tension and volatile regimes really worthwhile?

As mentioned, a major investment channel that has gained momentum in recent years among Israelis is real estate investments abroad.

The zero interest rates in the Israeli economy, the volatile and unstable capital market, the need to spread risks in the investment portfolio, and the high real estate prices in Israel, bring many Israelis to real estate investments overseas.

Some investors are often willing to gamble and invest in real estate in countries where the geopolitical situation is dangerous and unstable and / or in countries where there are undemocratic regimes, where there is not always transparency and legal and constitutional clarity, in order to enjoy high return potential in the future.

A place that Israelis like to invest in.

Cape Town, South Africa (Photo: ShutterStock)

When looking at real estate prices in Moscow for example in 1991, the year in which the Soviet Union disintegrated, compared to 15 years later, one can see a significant jump in real estate prices.

A similar trend can be seen in Cape Town in South Africa, in Eastern European countries such as Georgia for example, and in other parts of the world where such and other conflicts have ended.

It should be borne in mind that the constitutional situation in some of these countries is delicate and dangerous, and overnight it can change and endanger real estate investors, who need to put this into the equation before they go into investing.

On the Russia-Ukraine conflict and the whims of politicians and military personnel and their impact on your real estate investments

The conflict between Russia and Ukraine is a prime example, which can illustrate to real estate investors the stakes in real estate investments in politically unstable areas.

Investors who decided to invest in real estate in Ukraine before the current conflict, had to take into account that political tensions in the region may return, especially after the annexation of the Crimean island in 2014, and avoid investment, despite the temptation of low real estate prices.

For now, they stand helpless and look at their real estate investments that are in real danger.

As investors, before investing, you must make sure that Eastern European countries, such as Ukraine and Georgia or countries like Dubai or Zanzibar, whose oil has risen quite a bit among investors recently, are under threat. Constant of wars, invasions, government revolutions and other dramatic events, which may undermine the stability of their economy and that of the local real estate industry.

Also, the constitutional-legal system in quite a few of these countries, is very far from what we know in the Western world, the rate of change of laws is fast and the level of transparency is low.

More than once we even hear in the news about significant cases of government corruption happening there, which reach the highest levels.

Insane price increases in the last 30 years.

Moscow (Photo: ShutterStock)

If, after all, you have decided to invest in these countries, you must make sure that there are legal defense mechanisms that insure your money and cover the governmental instability and the unconstitutional constitutional and legal situation, such as those that exist in Israel and other Western countries.

Under them, the developer must provide such and other guarantees, guarantees and insurance policies to the purchasers.

The advantage of investing in these Western countries, which even in the absence of legal mechanisms, the developed and advanced legal system in the various Western countries, knows how to provide protection and security for investors.

Real estate investors in any overseas investment must ensure that they have strong and stable legal protection mechanisms in place.

Adv. Guy Kleinbaum (Photo: Yachz)

Real estate investments in countries where the regime is stable like England and the US, which have faced quite a few challenges and have the capabilities and financial strength to deal with economic crises, where regulation and legislation are pro-investors, and can not change overnight, are far superior to any potential for a dream return .

These countries provide long-term certainty, which is critical for investors, which is even higher and better than that granted to investors in Israel.

Real estate investors in any overseas investment must make sure they have strong and stable legal protection mechanisms in place that will secure their money and give them peace of mind in the face of all the various risks. And the investment area, including checking the rights in the property, and that there are no liens, obligations or rights belonging to a third party, establishing a trust account and transferring funds only with the trustee's approval, transferring investment funds according to pre-determined milestones, and more.

The global real estate opportunities that open up to investors, among other things, due to the corona plague that changed the rules of the game and led to rising real estate prices in many countries around the world, can cause many to take an uncalculated gamble on risky real estate investments. "Consult a qualified professional with experience in the field and a vision for the future, who can guide you and help you invest wisely and in a way that will protect the money you have saved through hard work

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