Housing built on shared equity: the Legislative Chamber sends the bill to the Senate, buyers' money to be held in an escrow account
According to a message, the Legislative Chamber has considered the draft law “On the construction of multi-apartment buildings and other real estate on the basis of equity contributions” (unofficial translation of the title) and sent it to the Senate. The bill provides that participants' money goes into an escrow account at a bank rather than to the builder. The bill has not yet been adopted.
According to a message published on a Telegram channel, the Legislative Chamber has considered the draft law “On the construction of multi-apartment buildings and other real estate on the basis of equity contributions” (unofficial translation of the title) and sent it to the Senate. The rules described in the message are explained below in plain language. This is a draft law: it has not been adopted and has not entered into force.
How does the participant's money move?
According to the message, the bill provides for the following flow of money:
| Step | What happens |
|---|---|
| 1 | The participant pays into an escrow account at a bank, not to the builder |
| 2 | Until the building is commissioned, the money stays in the escrow account |
| 3 | Only after the building is commissioned is the money transferred to the builder |
An escrow account is a special account in which a bank holds money until an agreed condition is met. Here the condition is the commissioning of the building.
What conditions are set for the builder?
According to the message, a construction company will be able to start collecting money from the public only if all three conditions are met at the same time:
- it has registered in the Unified Information System;
- it has signed a master agreement with a bank;
- it has made its project declaration public.
All details about the project and the builder are published in that system.
What protects the participant?
- The agreement between the participant and the builder is certified by a notary and entered in the state register. According to the message, this procedure is meant to rule out selling the same home twice and deals that contradict the law.
- If the builder collected money in breach of the law, the participant may demand the amount paid back, plus interest for the period the money was used.
- Where necessary, it will be possible to replace the bank or the builder without interrupting the financing of construction.
From when and to which projects will it apply?
According to the message, once the law enters into force it will apply to projects for which a construction permit has been obtained. The document has not yet entered into force, so the new rules do not apply by themselves today to people buying housing on a shared-equity basis. The final text and the date of entry into force will become clear after the Senate's decision.
What is worth asking before buying a home?
The message advises finding out before buying:
- whether a construction permit has been issued;
- whether the builder has an agreement with a bank;
- whether details of the project and the builder are published openly.
A note for accountants and entrepreneurs
Author's opinion: according to the message, the builder receives the money only after the building is handed over. If the rule is adopted in this form, the way construction companies selling housing on a shared-equity basis receive funds will change, and this may affect their cash-flow planning. We do not have the official text of the bill, so we draw no conclusions about accounting or tax aspects.
Note
The material is based on a message on a Telegram channel, not on the bill itself. The official text and number of the bill, and the date on which the Legislative Chamber considered it, are not given in the message. Details may change in the final law.
Official source
For information only; check the official text at the source.