Law on guard By purchasing real estate under construction, the average home buyer acts as an “unprotected” lender to the developer. That is, the interests of the client in relation to receiving the funds invested in the project come after the interests of “protected” and “privileged” creditors (employees of the developer company). One way to get into the category of “protected” buyers is to use mortgages. “In order to be on the safe side, it is very profitable to take out mortgage loans,” says Yulia Titova, head of the foreign real estate department at BEST-Real Estate, “since the bank additionally checks the reliability of the developer.” Fortunately, in countries with developed legislation and financial systems, off-plan property buyers' rights are protected at the state level. “In a number of countries of old Europe - England, France, Austria and Switzerland - all projects under construction are subject to compulsory insurance, and in the event of a developer's bankruptcy, the state will compensate the buyer for the amounts paid,” explains Igor Indriksons, director of the investment department in foreign real estate at IntermarkSavills. - The insurance is paid by the developer, and it is already included in the price of the property. Such a mechanism is the most effective, but in most European countries and in the United States there is no state insurance for construction. " A common method in international practice that allows you to protect yourself from an unscrupulous or "problem" developer is to use an escrow account. In this case, the money from the buyer goes to a special account (the bank is a third, uninterested party) and is transferred to the developer only after the completion of the next phase of construction and the fulfillment of the conditions specified in the contract. “Since 2008, a law has been in effect in Dubai that obliges developers to charge fees only in stages and through escrow accounts,” says Zhanna Huseyn, head of the overseas property department at Peresvet-Invest. - Previously, many people paid money right away to get a discount, sometimes even before construction began, now this is prohibited by law. Now, if the object does not yet exist, no more than 5% is charged on the deposit, then, after receiving a notification from the developer that a certain stage of construction has been completed, the next part of the amount is paid. The last installment is made only at the moment of handing over the object and receiving the keys. " The practice of escrow accounts exists in most Western European countries, however, for example, in Italy or Spain, it will not be easy to draw up an agreement on these conditions, as Igor Indriksons notes. On the other hand, individual development projects with a payment system through escrow accounts can also be found in less developed markets: in Croatia, this is how the Punta Scala Residence project of the Austrian company Falkensteiner is being implemented. As in a bank In Italy, Spain, Cyprus, another mechanism works - bank guarantees of the company conducting the construction of the facility. The developer, as a rule, opens a credit line in the bank before the start of work, which allows him to complete the project, regardless of the sales results. In Italy, the monetary relations between the developer and the buyer of off-plan objects are regulated by State Decree 122/2005: a bank guarantee is opened for all amounts paid in advance. If the developer defaults on obligations, the client receives money from the bank or insurance company, and he does not have to demand a refund from the seller. For example, the construction of the Le Dune complex in the Italian region of Abruzzo is financed by the bank of the city of Pescara, which is responsible for the actions of the developer and guarantees buyers a refund if the project is not completed. In Cyprus, all major development projects are financed against the collateral of the land on which construction is taking place. Since the crisis has barely affected the Cypriot banking system, work at the facilities continues, despite the decline in sales. The system of bank guarantees is also legally approved in Spain. “The purpose of the current law 57/68 is to protect buyers from losing their investment if, for any reason, the construction is not completed. Guarantees are usually provided by the major savings banks that finance the developer's projects. However, in practice, bank guarantees may not always provide the required level of protection, as provided for in the law. There is a number of subtleties of design, which will be difficult for the buyer to figure out on his own, therefore, when buying real estate at the construction stage, the help of a lawyer is especially important, ”says Marina Vasilyeva, director of the foreign real estate department of the Adveks corporation. Not all at once How can the buyer himself minimize the risks? One of the ways is to choose an object through a real estate agency, which checks the reliability of the developer and the project and can provide complete information about the object, sources of financing, construction plans. You should also definitely visit the construction site. “The buyer will be able to personally verify whether the work is underway, at what stage the object is, see the showroom, where you can get acquainted with samples of building and finishing materials, learn about additional options,” says Marina Vasilyeva. The main and most common protection mechanism for off-plan home purchases is a phased payment. Usually, when drawing up a contract, it is necessary to pay 10-30% of the value of the object. The rest of the payments are made as the construction progresses: after the construction of a certain floor, the completion of work on the building frame, brickwork, decoration, etc. In order for the buyer to trust the seller more, webcams are installed on some objects. Paying in increments is not a cardinal solution to the problem, but at least it reduces risks and serves as an incentive for the developer. In the purchase and sale agreement, in addition to an accurate description of the property with an indication of the area of housing, finishing materials, the amount of the deposit, the payment schedule, there must be information about the responsibility of the parties. “Usually the construction period is 12-18 months,” says Marina Vasilyeva. "In the event of a delay, penalties and the seller's obligation to return all amounts paid by the buyer must be spelled out." Yulia Titova advises to make the list of force majeure circumstances in the contract as short as possible: “In practice, most developers attribute their delay in delivery of projects to force majeure circumstances. The most common option for unsubscribing is climatic conditions, despite the fact that the climate has not radically changed anywhere over the past two or three years. " Zhanna Huseyn talks about the situation in one of the most problematic markets in this regard - Dubai, where as a result of the crisis the construction of a large number of objects was frozen: “Developers do not pay fines under the contract, appealing to force majeure circumstances. But many are trying to normalize relations and offer alternative options in their already implemented projects. " You need to understand that no matter how far-sightedly the contract is drawn up, it will still not be possible to return the invested funds on demand. “The money transferred to the developer, in case of non-fulfillment of the terms of the contract, can be demanded only through the courts. In Bulgaria, for example, now the courts for such requests from buyers are appointed for 2013, ”says Igor Indriksons. On the other hand, overseas deadlines are rarely delayed for more than two years, while for Russia this is almost the norm. Therefore, the clients of BEST-Real Estate, who have finally received finished housing in the Bulgarian complex Paradise Dune (planned completion date - June 2008, actual - May 2010), are sincerely surprised: why the real estate company has refused to implement this project at the moment?
Protection mechanisms
Can a buyer protect themselves from the unfinished?
01.01.2012
Author: Marina SHONIA
64
Investments in projects under construction often promise a good profit, but always involve risks. Phased payment, escrow accounts and bank guarantees to reduce the risks, but such mechanisms work not in all countries.
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