The Shadow Rental Market in Ukraine: Why 90% of Transactions Are Not Declared
The shadowing of the rental market in Ukraine remains a serious problem, as more than 90% of transactions are not declared. This phenomenon is due to the low level of official income declaration from rentals, high taxes, and insufficient support from the state. In 2022, only 900 individuals declared income from rentals, which amounted to about 3 million hryvnias, indicating the scale of the shadow segment of the market.
Causes of the Market's Shadowing
The rental tax in Ukraine is 23%, which is a significant barrier for many landlords. High tax rates encourage them to avoid official agreements, which in turn leads to the growth of the shadow market. Olena Shuliak noted that
“official registration of contracts would mean for landlords paying a tax of 23%”, complicating the process of legalizing the market, since without this step
“it will be almost impossible to remove the market from the shadows”.
Another problem is the insufficient number of rental subsidies, which were received by only 83 families. This indicates that state support does not meet the needs of the population facing difficulties in obtaining affordable housing. In this regard, draft law No. 12377 'On the Main Principles of Housing Policy' is expected to be adopted by the end of 2023, which could be an important step in reforming the market.
The Ukraine Facility program also provides for financial support to Ukraine until 2027, which may positively impact the rental market situation. However, to achieve sustainable results, it is necessary to organize the work of realtors and ensure transparency of agreements. Only a comprehensive approach to solving shadowing problems can help bring the rental market out of the shadows and ensure citizens have access to quality housing.
The shadow rental market in Ukraine indicates serious economic and social challenges that require urgent solutions. High tax rates and insufficient state support lead most landlords to avoid legalizing their agreements. However, the adoption of a new draft law and financial support from international partners can create conditions for market reform that, in turn, will help ensure citizens' access to housing and reduce shadow agreements.