What risks should you consider when buying an apartment?

Despite the status of apartments still not determined by the authorities, buyers continue to be actively interested in this format of real estate. This is also a response to the lower cost compared to housing. However, not all purchases in this segment may be safe. Kommersant figured out how not to lose their investments in real estate.

In March 2024, the supply of apartments on the primary market in Moscow decreased by 19.9% ​​year-on-year, to 8 thousand lots, Metrium calculated. In many respects, the decrease in the supply of apartments was due to the washing out of lots from the market.

At the beginning of 2024, demand for apartments increased by 65.6% year-on-year, analysts said.

It is not only in Moscow that alternatives to the classic housing format are presented. At the end of September 2023, the total volume of the apartment market throughout Russia reached 4.3 million square meters. m, although in 2017 the figure was only 1.8 million sq. m. m, calculated at Nikoliers. The predominant share is still occupied by Moscow (1.58 million sq. m., or 34%), the Black Sea coast (1.12 million sq. m., or 26%) and St. Petersburg (645 thousand sq. m., or 15% ), consultants note. But apartments are gaining popularity in other parts of the country. The top 10 regions include the Moscow and Leningrad regions adjacent to megacities, as well as the Novosibirsk, Sverdlovsk, Chelyabinsk, Kaliningrad regions and the Republic of Bashkortostan, the consultants specified.

According to calculations by commercial director of the Osnova Group of Companies Igor Sibrenkov, on average, prices in projects with apartments are approximately 15–20% lower than in residential complexes of similar quality, concept and location. This difference can be achieved, among other things, due to lower requirements for the layout of lots, their number per floor, and insolation.

At the same time, utility bills for such properties are usually 20–30% higher than for housing. The tax burden is also higher: for apartments a tax is charged in the amount of 0.5–2% of the cadastral value of the property instead of 0.1%. Another important point is that apartments differ from apartments in that they cannot obtain permanent registration, recalls Vyacheslav Klimov, a lawyer at the Asterisk law office. However, given the difference in the cost of apartments and apartments, overpayments for utilities and property taxes often turn out to be not so significant in the end.

Investment option

In addition to classic apartments, which are purchased for living or renting out, another segment is developing on the market – apart-hotels. According to Nikoliers estimates, the total supply of apart-hotels in Moscow now amounts to 5.4 thousand rooms. According to them, 1.8 thousand units have been introduced over the past three years, and another 770 are expected in 2024.

Apart-hotels are complexes of apartments managed by a professional company using a hotel-style reservation system. In other countries, the format is traditionally used for medium- and long-term living, having the same functions as classic housing.

A significant difference remains the softer contractual conditions: you can leave an apart-hotel, unlike an apartment, at any time.

Such objects, as a rule, are built through shared construction mechanisms and sold to private investors, while their management continues to be handled by a professional company. It provides hotel service for renting out apartments to owners.

They purchase lots in apart-hotels mainly for investment purposes. Commercial Director of Management Company Norke Bogdan Koveza points out that 90% of owners eventually transfer their property to management. “Only a small percentage remain in the units,” he adds. Potential investors are attracted by the minimum entry threshold and the opportunity to receive monthly cash flow, the expert believes.

Risky investment

The format that attracts inexperienced investors is lots in former industrial and administrative buildings not intended for residential use, as well as modern buildings that are de jure declared as business centers, but office space is sold in them under the guise of apartments, explains the managing director of Metrium » Ruslan Syrtsov. According to his calculations, now the share of such buildings on the primary market in Moscow is about 5–7%, but last year this figure was higher, as supply adjusted downwards due to high demand for such objects.

Such real estate is in demand due to its even lower price compared to apartments. This is also beneficial for the developer: he does not have to bear the costs of obtaining permits for the project.

However, purchasing such lots for living carries high risks. The owner of the property may be fined for living in non-residential premises, and if the violation is repeated, the city authorities may, through the court, seek a ban on the use of non-residential premises for purposes that do not correspond to the permitted use. If such an object falls under a comprehensive development project or demolition, its owners will not be able to receive compensation under housing legislation.

City Hall against apartments

In Moscow, where the bulk of supply in the segment is concentrated, the mayor’s office has already begun to actively fight against the use of real estate for other purposes, and disputes with buyers of pseudo-apartments in former industrial and administrative buildings are moving into the courts.

At the end of 2023, the city property department and the capital government filed a claim with the Arbitration Court for recognition of three buildings with an area of ​​8.2 thousand square meters. m on Volnaya Street in the Sokolinaya Gora area with unfinished construction objects, a ban on creating, promoting and selling new premises in them. More than 300 individuals who purchased space in this facility appear as third parties. A lawyer representing the interests of 146 buyers explained to Kommersant that industrial buildings built in 1967 were converted and sold in 2021–2023 to individuals, while Rosreestr registered their property rights (see “Kommersant” dated January 26).

The case with the apartments on Volnaya Street is one of dozens of lawsuits initiated by the Moscow mayor’s office, says Daniil Sinitsyn, partner at the Poverennyy law firm. The lawyer also represents the interests of one owner in a similar case based on a claim filed in the fall of 2023 against Projector Development LLC and Maxima Plaza for a project on Zolotorozhsky Val, 11, building 22. Here, the industrial complex was rebuilt into apartments, not after passing all approvals. The mayor’s office is also trying to recognize the objects in Degtyarny Lane in the Tverskoy District and in Perevedenovsky Lane in the Basmanny District of Moscow through the court as objects of unfinished construction. Recognition of apartment complexes as unfinished construction projects is one of the scenarios in the authorities’ fight against unauthorized constructions.

This situation has arisen, among other things, due to the uncertain status of the apartments, says Ruslan Syrtsov. In order not to purchase lots with which problems may arise, it is necessary to check the purpose of the land. The permissible type of permitted use of such a site is “hotel service,” he points out.

General Director of RKS Development Stanislav Sagiryan confirms that if projects are sold as offices or without a specific functional purpose, buyers may later lose their ownership rights. When choosing apartments, he adds, it is worth focusing on the sales mechanism: projects implemented in the legal field are sold under equity participation agreements (EPA), and not under investment or purchase agreements for a future property. Just as in the case of apartments, it is worth taking into account the reputation of the developer, his experience and portfolio of completed projects.

In addition, the purchased property must have its own cadastral number, and not a share in the common premises, notes the founder of Best-Novostroy, Irina Dobrokhotova. Purchasing a share in the premises, she points out, will not allow the property to be disposed of without the consent of the remaining owners of such shares. “Problem” premises are deliberately offered at a reduced price in order to attract as many people as possible, notes Vyacheslav Klimov. Accordingly, he concludes, the low price is a reason for caution and careful examination.

Daria Andrianova