A new project funding system using escrow accounts will become mandatory in two months for all residential development market members. However, credible players switch to new rules in advance - they have already obtained the support of proven banks and started residential construction as per stricter requirements. UralDomStroy, which implements the Newton quarter residential development project has received Sberbank's approval for use of escrow accounts and project funding.
Switching to the escrow account system, which is provisioned by the presale development laws, will be staged. Until July 1, 2019, real estate developers may choose the model for running business: raise participants’ funds directly as before or switch over to the new system. Effective July 1, 2019, use of escrow accounts will be mandatory. New requirements apply to the real estate developers, which obtain construction permit after July 1, 2019 or which residential buildings are completed to less than 30% by this date.
Participants’ funds will be deposited into escrow account and handed to the developer only after fulfilling the construction project obligations. Such special accounts can be opened in authorized banks approved by the Bank of Russia. If contract with developer is terminated or developer is bankrupt, all money is returned by the bank to participant. Protection of participant's funds against bankruptcy of the bank is provided by the insurance of the Deposit Insurance Agency. If bank faces financial problems, the participant will be able to receive their deposit; maximum amount is 10 million rubles.
Use of escrow accounts will allow the developer to employ bank funds for implementation of the project. However, changes in presale development laws make the requirements for real estate developers stricter. In order to be qualified for use of escrow accounts, a company shall comply with several conditions. If in the past developer was able to implement construction projects using 100% raised funds of participants, now it shall invest minimum 10% of own funds into the project. Amount of own contribution may be higher and is determined by partner bank during assessment of new construction project. Another key condition is minimum 3-year experience of developer or its holding company in construction of apartment buildings. This will allow to drive out unreliable players and fly-by-nighters of the market.
In spite of stricter requirements some developers are already switching to new escrow account system before mandatory rules become effective. There only seven construction projects in Perm, which have obtained project funding using escrow accounts. Tow of them are apartment buildings 3 and 4 of the first stage of Newton residential estate on Engels street. The project is implemented by UralDomStroy, which is a part of the UDS Group holding. The developer has received Sberbank's approval for use of escrow accounts and construction project funding. Own investments of the company will comprise over 15% of project cost.
— Obtained Sberbank's approval indicates that the Newton residential estate project is well-grounded and calculations are maximum transparent. Before the approval was obtained, we have completed pledge, legal and construction expert reviews. Our project meets all the town-planning requirements. All necessary permits from local authorities are obtained, which means that there will be no problems with commissioning of the apartment building - explains Dmitriy Lysov, Deputy Director General for Economics and Finance, UDS Group. Top manager notes that apartment building, which is approved by the bank is guaranteed to be constructed since the project is secured by 100-% funding. Developers will have an opportunity to implement construction projects irrespective of sale rates, quickly and with maximum reliability and quality.
At that, agreement between bank and developer does not limit the buyer in choosing mortgage products - future residents are free to apply to any bank for mortgage. At the same time, the buyer can be sure that there are no risks associated with purchase of the apartment: project economics and other aspects have been carefully examined by the bank, which provided project funding to the developer.
According to Dmitriy Lysov, Deputy Director General for Economics and Finance of UDS Group, switchover to project funding is a breakthrough stage in residential construction: “Market will be formatted, and, thus, only professional and transparent companies will remain. We are ready for these changes, summarizes Mr. Lysov.
Source: https://www.kommersant.ru/doc/3 965 866
Newton residential estate project disclosure statement is available on official website: www.newton59.ru. Real estate developer: OOO Newton Sales agent: OOO UralDomStroy-Service
