We analyse the significant differences between the purchase of an flat (living space) and apartments (non-residential premises). What are these «apartments», which we are trying to sell developers? And why, buying this type of property, you do not buy a flat in which you can register for permanent residence?
First of all, you should understand that the beautiful name «apartment» does not mean «luxury flat» as it may seem at first glance. It is rather «hotel room» – non-residential premises with all unpleasant «surprises» for the future owner.
What «pitfalls» should the potential buyer of apartments know about?
First of all, it is worth to start with the fact that in the current legislation of Ukraine there is no clear definition of the concept of «apartment». The term «apartment» in the sense of the premises intended for temporary residence is established in National Standard of Ukraine 4527:2006 «Tourist services. Accommodation facilities. Terms and definitions». Thus, paragraph 7.2 of Section 7 «Types of numbers» National Standard of Ukraine 4527:2006 established that
Apartment – «room of two or more living rooms, kitchen niche, one full and one additional bathroom for guests. The apartment is designed for one or two people».
According to State building codes B.2.2-24:2009 “Houses and structures. Design of high-rise residential and public buildings ” (expired on 01.01.2020), apartments are called apartments for temporary residence of people with high level of service. At the same time, according to para. 1 of the article. 382 The Civil Code of Ukraine, an apartment is an isolated room in a residential building designed and suitable for permanent residence thereinя.
As you can see, the definition of apartments as a real estate object, which was contained in State building codes B.2.2-24:2009, does not meet the requirements of the Civil Code of Ukraine in terms of the purpose of the apartment as a real estate object. This position is consistent with the decision of the District Administrative Court of Kyiv 826/5637/17 of 04 August 2017.
Also the apartment is mentioned in State building codes B.2.2-20:2008 «Houses and structures. Hotels». And it is noted in para. 6.2.5 that the superior rooms (apartments, presidential, suite, duplex) should be designed in two or more living rooms, as well as at least two sanitary units.
That is why the apartment is more like a hotel room than a permanent residence.
Main differences between flat and apartment
|Living room (residential real estate)||Non-residential premises (commercial real estate)|
|Authorized permanent residence, rental||Authorized temporary residence, rental|
|Ability to register permanent residence||Registration of a permanent residence is prohibited (in exceptional cases, temporary registration up to 5 years if the building has the status of a hotel)|
|Clear vertical of wet zones (bathroom, kitchen)||Free planning|
|Payment of utilities at standard rates for the population (for example, gas 7.99 UAH)||Utility charges for commercial real estate (for example, gas 43.77 UAH)|
|Possibility to create own Condominium Association||Creating Condominium Association and selecting a management company is prohibited|
|High requirements for the construction of residential real estate – the developer must comply with all construction standards regarding the technical arrangement of the flat (obligation to install meters, insulated walls, provide a balcony, make soundproofing and the like)||Significantly below the requirements for the construction of non-residential real estate, the so-called multifunctional complexes – there are no strict requirements for sanitary standards, noise and thermal insulation, insulation of the walls. Gas, electricity, water meters may be missing|
|The owner of a flat with a total area of up to 60 sq. m exempt from real estate tax||The owner of the apartment pays a property tax on the total area without tax (for each sq. m. area)|
|Exemption from taxation when selling a flat, if such property is in ownership for more than 3 years. More about taxation of residential and commercial properties you can read here.||5% PIT (Personal Incoming Tax) + 1.5% military fee must be paid when selling apartments|
|The right to receive a residence grant||–|
|Right to other benefits, benefits and financial assistance at the place of residence||–|
|Right of first priority to school and kindergarten in the place of residence||–|
|The privilege of voting in local elections||–|
|The price is higher||The price is lower (15-20%)|
|If it’s the only place you can live, eviction is not possible||You can evict for debts|
Since the apartment is intended for temporary residence only, they cannot in any way be equated with flats – premises for permanent residence.
1. Non-residential stock (non-residential premises).
Apartments is a nonresidential facility. That is, real estate that legally does not provide for permanent residence of people, but is designed to be used for profit in the conduct of business.
When building a housing stock, the requirements for the developer are to provide residents with a certain infrastructure near the complex, and there are no such requirements for the construction of non-residential stock. Schools, kindergartens, polyclinics, catering facilities, other cultural and social facilities are not required.
2. No registration of accommodation in apartments.
In such objects of immovable property it is not possible to register the place of residence, while the status of residential real estate implies permanent or temporary registration of the place of residence of individuals. The only exception to the rule is if the building in which the apartments are located has hotel status. Then these apartments can be made temporary residence for up to 5 years.
3. Payment of utilities according to commercial real estate tariff.
The owner of the apartment pays for utilities at a commercial rate, in particular for natural gas – 43.77 UAH/m. cube, while the rate of natural gas for the population is 7.99 UAH/m. cub. Tenants are not able to conclude direct contracts with utility providers. You pay for the utilities of the management company chosen by the developer. This often affects the increase in the cost of utilities. Apartment dwellers also lack the right to create their own condominium and to choose their own management company.
4. No tax credit and higher tax rate on apartments.
Tax rate on non-residential real estate, apartments, significantly higher than the rate for residential real estate.
Non-residential real estate is not subject to tax relief, which reduces the tax base by 60 sq. m, applied to apartments. So, the owner of the apartment with a total area of 60 sq. m is exempt from tax, while the owner of apartments of the same area pays the local council rate on non-residential property for each 1 sq. m.
5. Obligation to pay tax when selling apartments.
The owner of the apartment is obliged to pay a tax on the sale of real estate, namely:
- Personal income tax (PIT) – 5%;
- military fee – 1,5%.
The calculation of the tax on the sale of real estate is determined from the amount of income received from the sale of such real estate. Owners of apartments are exempt from taxation when selling real estate, if such property is in their possession more than 3 years.
6. Lower state building standards for apartments than for flats.
For the construction of multifunctional complexes, which include apartments, there are other building norms and regulations (State building codes), compared to the construction of apartment buildings with apartments. This applies, for example, soundproofing, insulation of houses, balconies, meters, panoramic glazing and the like.
When working with apartments architects are given a lot of relief. For example, in the apartment there is the possibility of arbitrarily placing wet areas without regard to the floors below. Thus, in the location of the bathroom or kitchen in many ways free hands. It is hard to imagine the consequences in some cases, but this is a different story. In an apartment building, a clear vertical of wet areas, bathrooms above bathrooms, kitchen above kitchens floors below.
At the same time, apartment designers are not obliged to take care of the comfort and health of people and think about the necessary insolation (sunlight entering through the windows) and acoustic noise, access roads for quick and accessible for people with limited mobility. After all, according to the author’s and design idea, the apartment provides only temporary accommodation or overnight stay.
There is no legal basis for requiring the developer to comply with all standards for housing in the case of the construction of apartments. In practice, it is not always possible to check how well built apartments, because the requirements for the construction of such facilities are much lower than for residential real estate. Therefore, this issue is left to the developer’s discretion and responsibility.
7. Lower cost of apartments compared to flats.
Apartments are cheaper than flats at about 15-20%. One of the reasons – just lower requirements for construction. Accordingly, apartments are built faster, the building is easier to commission, they require less approvals and permits. And as a result, such real estate is valued cheaper, because the developer is less expensive.
8. Court disputes.
If, for some reason (debts on loans or housing and communal services) the court seizes residential real estate and it turns out to be the only housing of the defendant, he cannot be evicted from the apartment. Another thing with apartments that are not considered residential real estate.
If debt collection is imposed through the realisation of real estate, the Executive Service has the right to make the evaluation for the court, to evict you and put the property on the tender, since the apartment is legally a non-residential fund.
9. Other limitations:
- Residents of apartments are not allowed to vote in elections on the actual place of residence.
- Apartment dwellers do not have the primary right to enrol a child in a general education school or a pre-school institution by actual place of residence.
- Residents of apartments are not entitled to subsidies for the actual place of residence.
- Residents of the apartments are deprived of the right to other benefits, payments, financial assistance and the like, which are provided by the local council for registered members of the territorial city.
Having analyzed all the features associated with apartments, a logical question arises – why apartments appeared in the real estate market as an alternative to apartments?
The answer lies on the surface: the most common reason for the appearance of apartments – land on which the building was planned to be built, does not provide for the possibility of residential construction. Therefore, some developers try to take advantage of gaps in the legislation.
For what purposes can still be profitable to buy this real estate
Because the price of the apartment is lower than the evaluated price of the flat, employers often buy this rela estate for the temporary residence of their employees. Also in the apartments you can build an office for business (hotel, tourist, resort business) or rent them out.
But it should be remembered, you are obliged to pay utilities in the apartment at commercial rates. The tax on commercial real estate is much higher than on residential property. In addition, there is no possibility to take advantage of tax benefits.
On the basis of the above we can draw the following conclusion: if you plan to buy an apartment for profit, bearing in mind all additional payments, then this option is worth considering. If you are planning to buy an apartment for permanent residence or invest free funds in housing for the future, then buying an apartment may be uneconomical.
The most important thing to remember for everyone who is thinking about buying an apartment is that it is not a residential building. That is, a real estate that legally does not provide for permanent residence of people, but is designed to be used for commercial profit.
Accordingly, in such objects it is not possible to register the place of residence, while the status of residential real estate implies permanent or temporary registration of the place of residence of individuals.
By purchasing an apartment, the owner receives a commercial real estate, not an apartment. Usually developers warn that the sale of apartments, not housing. But there are also smart entrepreneurs who try to hide this fact.
However, the contract of sale will always indicate that you buy non-residential premises, which are not related to the housing stock. However, there are many scandalous stories when the developer promised the buyer to transfer the apartment to the housing stock. But to do it is very difficult, so do not believe in such promises. And remember that free cheese, as you know, happens only in a mousetrap.