risks and how to avoid them

What is the benefit of acquiring housing in an unfinished house, what pitfalls exist in such transactions, and how a potential owner can protect himself from possible risks – in the material “Kommersant”.

Buying an apartment at the construction stage can be a more profitable investment than housing in a finished house. After all, this is how buyers have the opportunity to purchase square meters at prices lower than in the secondary market. It is beneficial for developers to raise funds for the project from equity holders. The main danger is that the construction company may never hand over the house.

The issues of such transactions in Russia are regulated by the Law “On Participation in the Shared Construction of Apartment Buildings and Other Real Estate and on Amendments to Certain Legislative Acts of the Russian Federation” dated December 30, 2004 No. 214-FZ. It has been amended several times. The latest valid edition should be followed. At the moment it is 12/30/2021.

Also, citizens participating in shared construction are protected by Federal Law No. 218-FZ “On a public law company to protect the rights of citizens participating in shared construction in case of insolvency (bankruptcy) of developers and on amending certain legislative acts of the Russian Federation”.

How to buy an apartment in a new building

You can buy housing even at the stage of excavation. The most common and less risky option for equity participation is through an escrow account. In this case, the equity holder concludes a tripartite agreement with the developer and the bank.

During the construction of the house, the bank keeps the money of future residents in their accounts, and the construction organization issues a loan. As soon as the company hands over the object, people can use the right to claim and get their apartments in ownership, and the developer receives money and repays the debt.

In the presence of an escrow account, the investments of an individual act as a kind of insurance. That is, the funds will be returned if the house is not delivered. Shareholders will receive their money back in case of bankruptcy of the developer. Also, the funds will be returned, even if the license is taken away from the bank, in the amount of no more than 10 million rubles. In such a situation, the Deposit Insurance Agency will pay.

Offers directly, without escrow accounts, are becoming less and less on the market, but they exist. If an old equity agreement was concluded, but the developer paid contributions to the Fund for the Protection of the Rights of Shareholders, then two options are possible: either the construction will be completed at the expense of contributions to the fund, or the shareholders will receive monetary compensation from these funds. The shareholders’ meeting decides which of the options to choose, and usually the completion is chosen.

Alexey Popov, Head of Cyan.Analytics:

“If construction has stopped, and bankruptcy proceedings have been initiated against the developer, then the facility will be completed at the expense of the country-wide fund of equity holders (official name is the Territorial Development Fund). It is in it that all developers make regular insurance premiums. In some subjects of the federation, whose regional budgets can pull this financial burden, there are regional organizations with similar names and functions. In some cases, the project may be transferred to another developer (he may be interested in completion with an eye to obtaining certain preferences for projects in other locations). There is a possibility of completing the construction by the forces of the housing cooperative, which will be created by equity holders (I am not aware of such examples).”

Shared construction – pros and cons

When signing the contract, one of the parties is a construction organization. Also, an individual is involved in the transaction – the buyer himself, although in this case he is more likely to act as an investor.

When buying housing in an unfinished house, the investor acquires only the right to claim, and not the right of ownership. The equity participation agreement is drawn up at the Federal Service for State Registration, Cadastre and Cartography. On its basis, the equity holder after the delivery of the house has the right to register the apartment as a property.

Participation in shared construction is beneficial because:

– the price of apartments in new buildings is lower than prices in the secondary market;

— new housing has no legal history;

– the buyer has a large selection of comfortable housing;

– the buyer of the “primary” receives a lower mortgage rate;

– you can get additional profit when reselling.

The disadvantages of acquiring an apartment under a share agreement are that:

– the signing of the contract does not imply a quick settlement, until this moment you need to wait an average of one to two years;

– future owners should have additional funds for the repair and purchase of furniture and appliances. This may take about a million rubles;

– the right of demand does not guarantee that the object will be completed.

Alexey Popov, Head of Cyan.Analytics:

“Now there are houses in the completion stage, the construction of which was frozen 10 years ago or more. Therefore, the wording “never completed” does not quite accurately reflect the situation. At the moment, there may not be any work on the site, but if the address is included in the unified register of problematic objects, then work to complete the project will sooner or later have to begin. Their speed, of course, depends on the activity and organization of equity holders, but this is not the only factor. The technical complexity of the construction completion process and the scale of the project also play a role (large problematic residential complexes are usually completed more slowly than infill development projects).”

What you need to know when choosing a builder

When choosing a developer to purchase an apartment under a share agreement, you need to pay attention to some nuances. Here you can immediately highlight the pace of construction and the time of delivery of the object. Sometimes it happens that the construction deadlines are disrupted through no fault of the construction company. This may be due, for example, to the suspension of supplies of building materials. If the developer does not deliver the houses on time, then this is most likely due to problems at the construction site. And most likely such a developer will make the same mistakes in the future.

Also, a reliable developer must have publicly available data on documentation and accreditation from banking institutions. For example, you can familiarize yourself with the project declaration, construction permit, constituent acts, insurance agreement. If these documents are not available, then the developer has problems with his activities.

In addition, it is worth paying attention to the type of agreement. After all, if a construction company does not have the opportunity to draw up an Equity Participation Agreement, then this should alert, because only this type of agreement guarantees that the project meets all the requirements of 214-FZ.

A reliable construction company should have its own website, which contains photos of projects and up-to-date information about the progress of construction work. Also, one of the signals of possible problems for the developer is suspiciously low prices, which indicates that the project or the company itself may turn out to be unreliable.

What mistakes do buyers make when buying an apartment in a house under construction

Buyers of apartments in new buildings often make mistakes that could have been avoided by acting more reasonably and carefully.

First – the desire to negotiate remotely, i.e. online or by phone.

Second – inattention to the layout of the apartment.

Third – underestimation of all possible inconveniences and likely developments.

Alexey Popov, Head of Cyan.Analytics:

“From the point of view of security criteria when buying an apartment in an unfinished building, first of all, you need to pay attention to the presence of a valid building permit, entered (along with other documents) in the UHIS (Unified Housing Construction Information System). If this is not the case, or if the house is sold under schemes other than an equity agreement, then the risks of the transaction become higher. For these projects, the existing mechanisms for protecting the rights of equity holders will not be relevant. In the same system, you can check how punctually the developer fulfills his promises – how often the deadlines were postponed in previous projects.

Marina Kolokolova; group “Direct speech”