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Transformation of the construction market of the Far Eastern Federal District
How the transition to escrow accounts will affect developers in the Far Eastern Federal District
According to the Central Bank, from Russian developers for the project financing of housing construction, banks received almost 2,8 thousand applications. According to the new rules, the money of participants in shared construction deposited on escrow accounts is intended for funding a credit line. With a wide spread, the average rate for developers in the country is 12%. Developers perceive the tool aimed at protecting equity holders ambiguously: some developers plan to leave the construction business in order to look around and make an informed decision about working in a new format, others cannot receive project financing, others get it, but are on the verge and are not sure that stretch the project. How the introduction of escrow accounts will affect the volume of construction in the Far East and whether the innovation will affect the prices of the new “square”, EastRussia understood.
Construction collapse of the Far East
For Primorye and the Khabarovsk Territory, the transition to project financing for the construction of shared housing and an escrow account does not look critical, experts say. So, multi-storey construction in the Khabarovsk Territory is carried out by 62 developer. According to old standards, 55 objects are being completed in the region, of which 78 are ready for more than 30%.
According to the calculations of the governor of the Khabarovsk Territory Sergei Furgal, by the end of this year, housing commissioning should increase from 273,8 thousand square meters. meters to 310 thousand. In order to minimize the negative consequences of the adaptive period, the Ministry of Construction of the region was instructed to develop a “road map” for developers, allowing bona fide contractors to continue working and get rid of unscrupulous developers. At the same time, it is supposed to improve the supply of developers with local materials. This should reduce the cost of construction work and improve the quality of project documentation.
The transition to project financing in the Primorsky Territory is becoming more complicated due to local restrictions: zones of military forestry, restrictions on construction in the city, restrictions on zones of cultural heritage, zones of integrated sustainable development of territories. The transition to escrow accounts will transform the construction market completely, however, the rise in price of apartments would have occurred without switching to project financing. The cost of housing in Vladivostok has been growing vertically since 2013 of the year.
If in some regions of Russia the cost of new homes in 2019 increased by 15-22%, then in the Far Eastern regions it traditionally exceeded the average Russian by 20-40%. This is “facilitated” by the remoteness of suppliers of construction and finishing materials, as well as complex logistics in the Sakhalin Region, Kamchatka, Magadan, Yakutia.
The period of adaptation of developers to project financing using escrow accounts began at the beginning of this year. The decrease in construction volumes will be quite noticeable, while in Primorye, taking into account local factors, the price increase may be higher than in other regions of the Far Eastern Federal District. It can be changed by state intervention with national projects on accessible land, construction of infrastructure, and affordable mortgage.
“Today, in the Primorsky Territory, only large construction companies that have serious own funds, equipment and proven contractors are building housing. New players do not enter the region, but not only because they can’t get a loan from the bank, but also because of the many risks, for example, the inability to get a plot for construction, the shortage of skilled construction workers, the inability to get a town planning plan and start building without a quarter planning project, and the like, ”said Denis Vlasov, chairman of the Vlasov & Partners Bar Association.
In itself, the introduction of escrow accounts only obliges the developer to comply with a number of requirements that are quite feasible for a professional and put them into operation at home on time. However, many experts continue to say that escrow accounts will lead to higher prices and lobbying for the interests of large businesses. At the same time, 100% security guarantees for buyers should not be expected. Primorsky Krai is no exception. Vladimir Zakurko, General Director of Metra Academy of Sciences, explains that there are still a sufficient number of houses under construction and under construction in the region, where you can do without escrow accounts, but this is a matter of several years.
“The construction market will not collapse, but the fact that large federal builders and new players — foreign investors with colossal assets — will express their desire to enter the Primorye market, is quite an expected and predicted scenario,” Vladimir Zakurko is sure.
According to him, escrow accounts have already raised the cost of housing and will continue to do so. However, speaking of Vladivostok, other factors influenced the price tag there.
“After the capital of the Far Eastern Federal District was moved from Khabarovsk to a city by the sea, the flow of people wishing to find work with us increased significantly. In the near future, several thousand people are expected to move from the Khabarovsk departments and representative offices, respectively, and their families will go with them. Since last year, the cost of rental apartments has increased significantly. And if a fabulous presidential mortgage is earned at 2%, the growth in the cost of sq. meter will become normal practice. Although, if there is no change down on mortgage rates, then perhaps in February the market will “freeze” a bit and will win back apartment prices, ”said Vladimir Zakurko.
Bank does not give a go-ahead
The developers of the Far East began to plan their participation in project financing in advance. It soon became clear that only a few of the largest banks in the country were converted to escrow accounts: Sberbank, VTB, Dom.RF and Otkritie Bank. Of the 2,8 thousand applications filed by developers for loans, according to the Central Bank, 519 loan agreements totaling 640 866 million rubles were approved and concluded. And judging by the numbers, the Far East was an outsider. As of October 28 of 2019, in the Far Eastern Federal District, only 23 loan agreements were signed with developers for the total amount of 11 328 million rubles. This is the penultimate result from the federal districts, the situation is worse only in the North Caucasus, where they concluded only three loan agreements worth 1291 million rubles.
“The problem of the low level of creditworthiness of the construction industry comes more from content. Builders are not engaged in trade or production, they are building. And the result of construction are apartments - goods for sale. But if for these apartments the money goes to escrow accounts, then the developer has nothing left. Therefore, banks, under the new project lending scheme, take these apartments and the plot on which the developer is building as collateral, ”explains Alexei Isakov, Deputy General Director of Vostochny Luch LLC.
This format of work is fundamentally different from the typical project financing and lending scheme. Moreover, if the selling price of apartments is low, the margin of the projects is low. Banks refuse to lend such projects.
“The Bank, as an intermediate institution between the developer and equity holders, is a normal practice that is applied throughout the world. In order for the developer to be able to adequately represent himself in the market, by and large, it is not necessary to use the money of a potential buyer directly. For this, there is an escrow account mechanism. I am sure that for a stable company joining the project financing program will not be a problem. For example, we are not the largest developer in the Vladivostok market, but without special problems we pass accreditation at the bank. Of course, each case is individual. For our facility, which we are currently building, the requirements of the bank are quite stringent - equity financing with own funds is about 20% of the value of the object 700 million thousand rubles - this is about 190 million rubles. We take these conditions calmly. In our situation, we are talking about a business-class residential project, when the bank, analyzing the concept of the facility, takes into account certain own risks and increases the percentage of the guarantee, ”comments Alisher Abbasov, CEO of Sistema.
However, not all developers are doing so well. So, the Armada group of companies has been trying to enter the project financing program for more than three months. Banks were not ready for the fact that the complex development, which is led by Armada, is being converted to a point building.
“On three hectares of land we are building an integral residential complex, united by a single parking, a children's and sports ground, a green zone. According to the project, the residential complex is divided into three phases of construction, since from an economic point of view, building in stages is the most reasonable solution. But banks still can not figure out the issue of the land itself, which is defined for development, which should act as a pledge on a loan. We are being confronted with the fact of compulsory cadastral division of this land into three independent plots. That is, we must attach an individual parking lot, a playground for each house, and there can be no talk of complex development in such a situation, ”said Evgeny Pimenov, Director General of Armada Group of Companies.
The developer is offered to take a loan secured by all three hectares in the presence of 15% of its total value. However, only giant construction companies can afford such expenses.
“Small developers with a house worth 100 million rubles are unlikely to suffer. It is not so difficult to find your own 15 million to show the bank initial capital investments. Large companies building on 20-30 hectares will not suffer either. The conclusion is this: project lending strikes mid-level companies. And if the enslaving conditions of banks in terms of dividing the plots into sub-sections will not change, it will not lead to anything good. Such land surveying does not make it possible to build in a complex, leads to the point of development. And complex development needs phased financing, ”the developer believes.
Growth to be?
Anton Bykov, the chief analyst of the Center for Analytics and Financial Technologies, explains that even with a growing interest in lending to developers, banks approach this issue with their usual accounting care, preferring large companies.
“Banks cannot be blamed for this, they still risk their money, but perhaps having received a sufficient level of competence in the construction industry, they will be more willing to start working with regional construction enterprises,” commented the expert.
According to banks, the number of projects that have received approval for project financing in the Primorsky Territory has not reached ten. This is due to the fact that most developers are still working on an interim scheme using special accounts.
The base rate is set by banks in 12%. Then, through the scoring system, the bank can reduce it. For example, when replenishing escrow accounts or with a high credit rating of the developer and its contractors. For some developers, the special rate can be set by banks at 6%, while construction is included in a special program for lending at 8,5%. Therefore, reliable developers will receive loans at a good interest rate, which will help keep lower housing prices. Next year will show how this will actually work.
“A bank can give a low rate on a loan if the loan amount is covered by funds in escrow accounts. As soon as money is credited to the accounts, the rate is reduced. With 100% coverage, the rate will be at the level of 4%, ”said Nikolai Dolgushev, manager of the Far Eastern branch of Otkritie Bank.
The press service of VTB Bank said that the requirements for developers from banks are standard: the experience of implementing construction projects, the absence of “frozen” projects, formalized land rights and the availability of own funds in the project being implemented.
“As our own participation, we accept, including the market value of the land. The full list of requirements is always individual, because each residential project has its own characteristics, ”the bank noted.
The volume of commissioning and sales of new housing in the Far East will show the end of the year. Experts predict good performance, since, despite the introduction of escrow accounts, some companies have an “old” supply of construction resources under the previous conditions. When the developers remain on the market, carrying out construction as part of project financing under the conditional 12%, a decline in construction volume and a significant increase in the cost of construction costs are inevitable.
“The demographic problems of the Far Eastern Federal District can seriously limit the speed of implementation of residential real estate facilities under the Far Eastern Directorate. And this in turn enables banks, in accordance with the mechanism of lending under escrow accounts, not to lower the interest rate on most of the financing of construction, ”said analyst Anton Bykov.