Schemes to choose from

In the first years after the adoption of the Federal Law No. 214-FZ developers were trying to find the best possible sales schemes. However, the time of experiments is long gone, and currently there are two main schemes in housing sales, that are stipulated by the legislation.

Presently, within the limits of active legislation there are two basic schemes of housing implementation on apartment houses construction market – the scheme of equity participation in construction, regulated by the Federal Law No. 214-FZ, and the scheme of share accumulation by joining building and housing cooperative. There is also the possibility of special housing certificates release. The latter method is rarely used in practice. "If a developer sells the apartment based on “other” schemes, most likely it acts outside the existing legislation," says Irina Onishchenko, Sales Director of “Etalon Group”.
"Basically sales made in accordance with the Federal Law No. 214-FZ reach approximately 80% of the market, and in recent years the situation has not changed a lot. There are developers that traditionally use the scheme of building and housing cooperative, and their market share is 20% respectively," says Stanislav Krivenkov, CFO at AAG Group.
Svetlana Lezhneva, head of marketing research Pioneer Group in Saint-Petersburg, says there are only three main sources of building financing: first, developers’ own funds; secondly, attracted funds from equity construction participants; and third, bank financing (project financing, loans for the parcel of land purchase).
"The shares between funding sources are distributed generally as follows: companies’ own funds account for 15-20% of project capital – interest-holders’ funds account for 20 to 80%. Banks’ shares account up to 80%. Fundamentally new market schemes have not appeared yet," says Ms. Lezhneva.
Stanislav Krivenkov estimates that only half of construction projects involve project financing. "In making an assessment of shares, first, it is necessary to exclude foreign-owned developers and members of the financial-industrial groups. They are financed by parent companies and banks they are affiliated to.
Secondly, project financing is virtually unavailable for small developers.
If a bank agrees to finance a project, then, in addition to the pledge of the parcel of land on which the construction will be carried out, the bank requires the collateral: owner or third party’s guarantee a pledge of other assets that are not involved in the project.
This requirement, strictly speaking, does not permit to consider financing, attracted in this way, as a project financing.
Third, in recent years, due to the economic situation banks have toughened their requirements, which reduces the possibility of obtaining project financing by developers.
Now we do not see constructed housing share growth in the total size of the market participants’ supply.
At the end of 2013 and in the first half of 2014 sales have increased substantially, but in the future, admitting the possibility of consumer activity decline, an increase in the proportion of unsold apartments is quite possible," said Mr. Krivenkov.
Polina Yakovleva, director of new houses department, NAI Becar, says: "The share of project financing is still small, I think it does not exceed 10%. This share is unlikely to increase, since this scheme of housing implementation carries a large number of risks, such as bankruptcy".
Galina Garaeva, CEO Continent, believes that the project financing as a tool to attract funds is available to mainly large companies that have established partnership with banks since long ago.
"Noncompliance with banks requirements and lack of capital maintenance are considered to be the main difficulties hindering companies to get project financing," she says.
Alexei Bernikov, marketing analyst CJSC Prime Group, says that it is difficult to specify the exact percentage of project financing, because developers are reluctant to disclose the projects financing sources. The volume of investments is generally known or can be estimated, meanwhile the type of investments – own funds, borrowed ones or investors’ ones – is usually not specified.
"Crediting of projects under construction is used by majority of developers – approximately 70% of the market players take such loans. Both small companies and large developers open credit lines equally willingly," says Mr. Bernikov.
However, the share of property that goes on sale after house completion does not change significantly and remains at the level of 1-2% of the total supply. This strategy is only used by one of the developers in St. Petersburg.