The bill on the use of escrow accounts in the construction of private houses was approved in the first reading

The State Duma adopted in the first reading a draft law on the use of escrow accounts in individual housing construction (IHC). The innovation will become possible by using standard design documentation or purchasing house kits. To encourage developers to use this mechanism in the context of a greatly increased key rate, the Ministry of Construction is ready to work out additional support measures for them.

A package of bills on introducing the possibility of project financing for the construction of individual housing construction, approved on Wednesday in the first reading, was submitted to the State Duma by the government (see Kommersant of October 31). Customers who own the land will be able to transfer funds to special bank accounts, while the contractor will build the house using the loan funds, and will have access to the citizen’s money after the completion of the project. The use of such a mechanism, according to the project, will be possible using standard design documentation or house kits using domestic materials.

The second bill of the adopted package provides for insurance of funds in escrow accounts in the amount of up to 10 million rubles – by analogy with project financing of apartment buildings (MKD; in this segment an increase in insurance coverage is discussed; see page 8) and based on the fact that the average the cost of a typical private house is estimated at 7.4 million rubles.

Let us recall that the mechanism of escrow accounts was introduced in 2019 for the construction of apartment buildings as a solution to the problem of defrauded shareholders. Since 2022, it has been valid for private houses in low-rise residential complexes (see “Kommersant” dated November 24, 2021). The current expansion of the mechanism for individual housing construction has been discussed for many years, including to increase the liquidity of private houses for their purchase through a mortgage, and is already being tested in pilot mode (see Kommersant of August 2).

However, the interest of contractors in escrow accounts for individual housing construction raised doubts among a number of deputies. United Russia member Alexey Kanaev, remembering the “resistance of developers” to the innovation in 2019, asked: “What will encourage contractors to meet the developer halfway and not give up escrow accounts?” Deputy Head of the Ministry of Construction Yuri Mutsenek cited the results of the introduction of such accounts in the MKD sector as an answer: almost all objects are built using this mechanism, which indicates interest in it and the stability of project financing. However, the official added, the key rate plays an important role here (now it has been raised to 15%, which has led to an increase in the cost of project financing). Therefore, the Ministry of Construction is ready, if necessary, to work out additional measures, including the abolition of VAT on the contractor’s work under a construction contract using escrow accounts.

During the discussion in the State Duma, there were proposals to make escrow accounts mandatory for all private housing construction, which is financed using mortgage lending. However, the Ministry of Construction insists that for now this should be one of the possibilities for financing individual housing construction, and proposes to first evaluate its effectiveness. Nevertheless, the department is already exploring the possibility of expanding the use of escrow accounts in cases where the site is not owned by the customer, but under a long-term lease.

Evgenia Kryuchkova