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- Housing conversation: apartment buyers in installments will be allowed to switch to a mortgage
Housing conversation: apartment buyers in installments will be allowed to switch to a mortgage
Apartment buyers in installments will be allowed to switch to a mortgage and refinance the loan without taking into account the debt owed to developers. Developers will be required to indicate in the contracts the full cost of housing and the amount of overpayment. Such provisions are contained in the revised draft law of the Ministry of Construction and the Central Bank. Currently, installments for the purchase of housing are practically not regulated. According to experts, increasing the transparency of the terms of transactions may complicate sales, but installments will remain a sought-after tool in the real estate market amid high mortgage rates.
Why do they want to introduce installments into the legal field?
Russians will be able to switch from installments when buying a home to a mortgage without taking into account debts owed to developers. In addition, developers will be required to disclose the difference between the value of real estate when buying in installments and for a one-time payment. The contract will also need to specify the amount, amount and timing of payments. Izvestia got acquainted with the new version of the draft law on regulating the sale of apartments in installments and the protocol of the results of the discussion of the initiative with representatives of banks, businesses and regions. The document was developed by the Ministry of Construction together with the Central Bank and submitted for public discussion at the end of August this year.
Installment payment when buying a home is a payment method in which the buyer pays the cost of the apartment in installments within a pre—agreed period. The main difference from a mortgage is that the contract is concluded directly with the developer or seller, and not with the bank. At the same time, the term of full payment is usually shorter than with a mortgage — from a year to several years. Often, the final payment is timed to coincide with the time when the house is put into operation.
"The draft law has been finalized, it provides for the obligation of the developer to provide the buyer with information on the difference between the price of such an agreement and the price of an agreement providing for payments on other terms before concluding an agreement on shared construction with installments," the final document on the consideration of amendments to the initiative says.
In addition, the possibility of switching to a mortgage without double counting of debt is planned to be fixed in regulatory legal acts, in particular in the instructions of the Central Bank of the Russian Federation. The bill also provides for a procedure for the interaction of an authorized bank with the developer and the registration authority, which, according to the document, should strengthen the protection of real estate buyers.
Among the rejected proposals is the rejection of an exclusively electronic form of a real estate purchase and sale agreement. According to the authors of the initiative, such a requirement restricts access to installments for citizens who do not have an electronic signature. They also did not support the proposal to abolish the installment period limit of three years from the date of obtaining permission to put the property into operation.
In addition, the proposal to release developers from the obligation to transfer installment payment information to the Credit History Bureau (BCI) was rejected. According to the bill, this information should be sent by an escrow agent bank.
— Indeed, the key proposals of the banking community are not taken into account in the new version of the draft law. At the same time, the Central Bank supported the proposal of the Association of Banks of Russia to grant banks the right to set the share and installment payment parameters, including at a level of less than 25% of the project area, as well as to eliminate the need to obtain the developer's consent to transfer mortgage rights to the bank if there are grounds for early repayment of the project loan, the press service explained to Izvestiathe service of the association.
They also noted that it was recognized that it was necessary to develop a standard for the provision of installments with the participation of the Ministry of Construction, although the Ministry itself rejected this proposal.
The press service of the Bank of Russia informed Izvestia that the regulator is actively involved in the work on the draft law.
"Without proper legislative regulation, the widespread use of installments from a developer can carry both social risks associated with the loss of housing by citizens and risks to financial stability associated with the servicing of loans by developers for project financing," the press service of the Central Bank explained.
The press service of the Cabinet of Ministers told Izvestia that the bill has not yet been submitted for review. The Ministry of Economic Development clarified that the document is still undergoing a regulatory impact assessment procedure. The Ministry of Construction had not responded to the editorial's request at the time of the preparation of the material.
How does business assess the initiative?
The very appearance of installment payment regulation is logical and timely, since its market share is already too large to remain outside the legal framework. The Bank of Russia estimates the amount of obligations of citizens for the purchase of housing under construction in installments at about 1.5–1.6 trillion rubles, Elena Kabesheva, Deputy General Director for Commercial Activities at Tavrida Development Group, told Izvestia.
— The regulator also explicitly points out the risks of opaque conditions, large residual payments and excessive penalties. Therefore, disclosure of full information on the transaction is absolutely the right direction. However, it is important to clarify: the task of regulation is to make installments transparent, and not similar to mortgages," the business representative explained.
According to her, these tools solve different tasks and are suitable for different financial scenarios of buyers. Therefore, it would be a mistake to make such a transition mandatory, Elena Kabesheva emphasized. She noted that many buyers choose installments precisely because they do not want to take out a bank loan.
—Many banks had previously regulated the installment rate, and developers openly showed the value of real estate without installments and with installments, without limiting the transition to mortgages," explained Ksenia Sadkova, Marketing and sales Director at Legenda.
According to her, any restriction in one way or another leads to a reduction or redistribution of demand, which will inevitably affect the price. Installment payment terms are now more balanced on the market: formats with a minimum down payment or long-term deferred payments have gone, as they increased the risk of contract termination, she added.
Izvestia sent inquiries to the largest developers asking them to give their assessment of the bill.
The regulation of installments for the purchase of new buildings is necessary, especially after the tightening of the terms of preferential mortgage programs, Dmitry Khalin, managing partner of Intermark Urban Real Estate, told Izvestia.
— Today, installments provide up to 20% of transactions under equity participation agreements in the Moscow market, and in high-price segments where mortgages are unavailable, up to 70-80%. The law is important so that the buyer clearly understands how much the apartment costs for a one-time payment and what margin he pays when using installments. There is no such clarity now," the business representative said.
He also noted that specifying the initial cost of the apartment would be fair to buyers. According to Dmitry Khalin, many of them mistakenly believe that installments for two or three years are worthless, although in practice this is not the case.
— Time is money. Therefore, today developers and banks "sew up" the value of money over time in installment payments. And in the current conditions, it is very high," the businessman believes.
The appearance of an obligation to indicate the full cost of installments in the contract will not have a negative impact on their demand, says Dmitry Proskurin, commercial director of Metrium. According to him, the most serious change will be the inclusion of this sales tool in the credit history, similar to a mortgage. Thus, developers will have to take into account the scoring rating of potential buyers who are being provided with a loan to buy an apartment.
— In addition, it will be mandatory to confirm the official income level corresponding to the amount of installment payments. Undoubtedly, this will lead to a significant decrease in demand for this marketing tool. But the transparency and reliability of the installment market will significantly increase," said the business representative.
Sergey Razuvaev, founder of GMK and co-founder of the Association of Real Estate Market Professionals REPA, believes that it will be more difficult for developers to sell an apartment in installments if buyers can track its real value. At the same time, in his opinion, such a mechanism will still be in demand on the market.
— Mortgages and installments are two fundamentally different housing purchase tools for different audiences. The first option is used by those who are unable to buy an apartment in a short period of time. The second is those who have either the full amount of necessary funds or partial; they understand the sources of their income and are not ready to overpay for mortgage interest," the expert argues.
At the same time, he admits that some buyers will benefit from the transition from installments to mortgages, which is proposed in the bill.
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