In order to increase the level of consumer rights protection, a law was adopted that effectively deprives citizens of the opportunity to participate in construction. The corresponding changes will be fully operational in 2021. The innovations are designed to eliminate the possibility of new long-term construction projects, which are invested by private individuals. However, according to a number of experts, current legislative initiatives may contribute to a reduction in construction volumes. And citizens will not be able to solve their housing problems due to the lack of affordable real estate.
As part of the reform of the real estate market, the government initially planned to completely cancel the agreements on equity participation in construction. Such changes were supposed to come into force in 2021, eliminating this type of activity. But later, given the urgency of the issue, it was decided to make a smooth transition to a new model — project financing. In this case, the Bank will act as a guarantor of the successful completion of the construction project.
Companies will still be able to attract funds from private investors, which is not prohibited by the current law. However, payment for contracts will be made according to a different scheme. The funds will not be transferred to the developer, but to a special escrow account. And the Bank, in turn, will provide project financing for construction. The developer will be able to receive money only after the object is successfully put into operation. In this regard, they will be forced to carry out construction at the expense of their own resources or loans. If work stops or the developer declares bankruptcy, investors will be able to return their investment. But the shareholder, in turn, is deprived of the right to withdraw money ahead of schedule. According to the law, this can only be done if the construction company violates the terms of the project financing agreement.
On the one hand, such a legislative norm will help strengthen the market, since only strong players will remain on it. Small companies will not be able to attract financing and take out loans, so they will be forced to stop their activities. On the other hand, given the innovations, it is already obvious whether there will be shared-equity construction in 2021. In fact, this scheme will remain, but it will be significantly modified, which is provided for by the new requirements of the law. Due to low profitability, it will be unprofitable for companies to build houses at the expense of private investors. And they will switch to a different business scheme, which will help to achieve a more impressive economic effect.
The government decided not to aggravate the situation and developed a plan for a phased transition to project financing. According to the adopted amendments to the law on equity participation in construction, in 2021, the company will be able to complete the project under the old rules if::
- shareholders have made at least 10% of their investments, and the facility is at least 30% ready.%;
- the readiness of the property is 15%, but the project plans to develop the allocated area in a comprehensive way (for example, a school, kindergarten, or polyclinic will be built).);
- readiness from 6%, but the work is carried out by a systemically important, large company (in particular, if it finishes the construction of a problem real estate object of another developer with deceived shareholders).
In order to continue construction under the equity scheme, the company will need to obtain an appropriate permit from the regulatory authority. A discrepancy in at least one criterion is enough, and the developer will have to change the scheme of work.
The implications for the market
Experts suggest that shared-equity construction will lose its relevance for citizens due to the changes adopted by the government, so from 2021 the attractiveness of investing in housing construction will significantly decrease. Previously, as shareholders, they could count on a more favorable cost of square meters at the initial stages of construction. If companies build buildings with their own funding, citizens will be deprived of this opportunity. They will be forced to buy more expensive apartments, having no other available alternative.
A reduction in the supply volume will contribute to a widespread increase in prices in the real estate market. This trend will be observed in both the primary and secondary housing segments. Accordingly, citizens with relatively low incomes will not be able to purchase new housing. And they will have to save more money for such a purchase.
The issue of improving housing conditions is still a priority for many American families. Therefore, the government does not intend to abandon the implementation of a number of social programs. Most likely, instead of full-fledged shared-equity construction, citizens will be offered a preferential mortgage with more favorable rates. The validity period of such a program has been extended until July 1, 2021. But, given the great interest of citizens, the government will continue to allocate funding for its implementation.