Additional payment and payment

Builders say that today it is rare that real estate is put into operation within the period specified in the contract. A delay of up to six months is called planned and usually does not cause any particular complaints from the customer or private investors. But if the matter with the delivery and registration of property rights does not move for longer, then it’s time to worry - in most cases this is a sign of financial problems for the construction company.

"We detain, but we don't deceive anyone"
At one of the last meetings of the Moscow government, the head of the capital's construction complex, Vladimir Resin, threatened to break contracts with companies that missed the deadlines for delivering houses. Among these were “New World” and “Construction Initiative”. The sites can be taken away from them and put up for auction. Previously, municipal authorities simply stopped working with such violators. Now they will also be fined in accordance with the law “On the Protection of Consumer Rights”: 3% of the market value of the area due to the investor for each day of delay, but not more than the total cost of the apartment. Violators blame officials (long approval times) and general contractors (delays in construction work) for their problems.
Participants in the shared construction of a 22-story brick-monolithic building in Chersky Proezd (Moscow) were supposed to move into their apartments at the end of 2002. The house was handed over in April 2004, but the investor, the New World financial corporation, refused to sign acts of allotment of shares (a document giving the right to register ownership) with the buyers. And in August, a notification was received from the company “On covering additional general expenses incurred as a result of the construction of a residential building.” Buyers were asked to contribute an additional approximately 113.5 million rubles. As Yuri Nikolaev (Knyazev and Partners), the lawyer for the shareholders, told Denga, they were actually offered to pay an additional 50% of the cost of the apartments (in 2001-2002, buyers paid $750 per sq. m., now they are being asked to pay another $350 per sq. m. m). “It turns out that at the beginning of construction the company received an interest-free loan from shareholders, and now it is trying to sell their apartments at market value,” says lawyer Nikolaev. Last Thursday, September 9, one of the shareholders sued the company demanding the transfer of ownership of the apartment and a fine in the amount of its value. Novy Mir did not comment in detail on financial relations with shareholders. As the head of the company’s marketing department, Alexander Rekut, told Denga, “we detain, but we don’t deceive anyone.” According to him, there are no companies on the market that do not experience problems with delivery deadlines: “Shareholders, investing in real estate at the zero cycle, take risks, and they must understand this.”

“I don’t want to give money to someone who cheated me once”
Those who invested in the construction of houses in the town of Troitsk near Moscow faced a similar problem. In 2001, the administration of Troitsk and the capital investor CJSC PSF Nord entered into an investment agreement for the construction of two 17-story residential buildings (more than 23 thousand sq. m). The delivery of the objects was planned for March 2004. However, now only the frame is ready for one building, and construction of the second has been suspended since spring at the tenth floor level. As Mikhail Barashkov, who bought a one-room apartment last year, told Dengi, Nord representatives said that it would take six to seven months to complete the first building, and ten months for the second. In addition, they asked buyers to pay extra, since “the company does not have the funds to continue the work.” Almost all 340 apartments in these buildings have already been sold; about $3.5 million is needed to complete construction. Thus, buyers will have to shell out another $150-200 per square meter. m (at the zero cycle, a square meter cost $350-400). Andrey Khokhlov, head of the primary housing market department of Kondr LLC (an agent for the sale of Norda properties), points out that the agreement with the buyer of the apartment does not provide for any additional payments. The Troitsk administration is confident that when determining the amount of additional payments, conflicts will arise between buyers. The fact is that the houses are signed by one contract, but since their degree of completion is different, buyers of apartments in the building where the box was erected may refuse to pay the same amount as buyers from the neighboring one.
“Perhaps I personally am ready to pay extra, since there is no other choice, but I don’t want to give money to someone who has already deceived me once,” says Mikhail Barashkov. Another buyer, Inna Bykovets, points out that due to the sluggishness of the developer, she has to incur additional expenses: “We were supposed to move into the apartment at the beginning of the year, but all this time we continue to pay for rented housing.” Officially, “Nord” does not comment on the situation. Deputy General Directorate of the customer's management Vyacheslav Gershvald told Dengi that "the company will definitely not go bankrupt - it has temporary financial problems."
Let us note that such “financial problems” seem, let’s say, dubious. After all, almost all standard new buildings are sold out at the construction stage, but there are not many companies experiencing the mentioned difficulties. Marketing director of the Inkom-Real Estate company Sergei Eliseev says that if at least half of the apartments in a building are sold at the initial stage, then the funds collected are usually enough to complete the construction of the facility. “This is either malicious intent or a gross miscalculation,” he is sure.

Individual approach
Experts believe that equity participation is not the most effective construction financing scheme, since apartments at the zero stage are sold at a price below the market price. There are few companies on the market that build only with their own money, these are Don-Stroy and small developers entering the market with one or two objects. Large companies and holdings - Inteko, PIK, SU-155, KROST - partially use their own funds and raise borrowed funds from banks. According to Sergei Sviridov, head of the information and analytical department of Vizavi Investment Company, construction loans are usually issued according to individual schemes: each company has its own approach - taking into account financial indicators, market position, and the availability of industrial assets. Since most developers cannot provide collateral in its pure form, banks are more willing to lend to large holdings that have industrial enterprises in their assets. The average rate of such a loan is on average 20-25% in rubles, the term of use is about three years. Typically, the bank controls the loan selection schedule: 20% of the credit line is allocated for the zero cycle, 40% for the construction of the box, etc.
Due to the record growth rates of the Moscow real estate market, many banks have become actively involved in the construction business in one way or another. According to Sergei Sviridov, “a loan of $1 million is unlikely to be of interest to an enterprise in the oil or gas industry, so the bank is seeking to invest it in real estate.” Construction banking looks like this: loans are issued to a construction company, and later the bank buys the claims; or the bank itself opens a subsidiary investment company. Typically, in the first year of using the loan, the borrower does not make any payments (or pays only interest), they begin with the first sales of apartments.

Crisis of mistrust
Construction with borrowed funds involves risk not so much for banks as for the builders themselves. At one of the latest press conferences, vice-president of the Russian Guild of Realtors (RGR) Konstantin Aprelev said that a number of Russian banks refused to extend credit lines to some developers. The reason for this was the banking “crisis of confidence” in July. Due to the outflow of funds from legal entities and individuals from banks, banks began to reduce the share of developers in loan portfolios. In particular, some banks now lend to construction companies only against the security of “secondary” housing, that is, already built housing, and apartments under construction are not taken as collateral. Thus, lending continues, but in significantly smaller amounts, since the amount of “secondary” is limited.
Meanwhile, market participants say that a number of banks' "construction" loans can reach half the volume of all loans issued. However, according to Sergei Sviridov, after the “crisis of mistrust”, banking liquidity has not yet been restored, and some banks that were actively involved in lending to developers were forced to make changes to the schedules for providing resources within the framework of already opened credit lines, and interest rates on newly opened lines increased . According to Sergei Eliseev (Inkom-Real Estate), “banks are afraid that depositors may come for money, and are trying to close long-term loans, thereby creating excess liquidity.”

Going to the debt market
This year, a number of Moscow construction organizations have attempted to enter the public debt market. The companies SU-155, Inteko, Glavmosstroy, Stroymetresurs issued bonds totaling more than 8 billion rubles. In addition, debt obligations of the First Mortgage Company (750 million rubles) and the Agency for Housing Mortgage Lending (more than 2.5 billion rubles) are in circulation on the market. and the Moscow Mortgage Agency (RUB 2.2 billion). According to the head of the department for organizing the issue of securities of the Bank of Moscow, Igor Frolovsky (the Bank of Moscow is the organizer of bond issues of the companies SU-155, Capital, Glavmosstroy-finance and the record-breaking 3 billion loan from Inteko-Invest), builders are mastering a more civilized form of borrowing: “Builders evolutionarily go through the same stages of business as other industrial enterprises. Currently, costs at the initial stage of development have increased significantly - builders are forced to relocate people, demolish old housing, etc., and the period of the entire construction increases accordingly ", the implementation of projects requires long-term money. Bonds allow you to receive funds from a wider range of investors. They are issued for a strictly defined amount and have a maturity date specified in the prospectus." The procedure for registering bond issues with the Federal Financial Markets Service and entering the public financial market requires issuers to provide detailed disclosure of their ownership structure and financial statements. But of the companies that placed their bonds this year, only Inteko disclosed the composition of its owners in full.
Loans placed in the spring of this year include the possibility of early redemption of bonds (offer) in a year. Issuers were forced to make offers to increase the attractiveness of their loans. Thus, they were able to get short-term money to finance long-term projects, but in less than a year, if investors present bonds for early repayment or changes in the debt market conditions, builders will again be forced to look for borrowed funds. Builders say that the time for excess profits is over for them and they are forced to share potential profits, taking into account the risks of their business. The rather high risk of investing in construction bonds is evidenced, in particular, by the fact that after entering the secondary market they fell in price below par, and this is not only due to the liquidity crisis.
In addition to placing ruble bonds, builders can cover the liquidity deficit by issuing bills. This is what the companies PIK, Stroymetresurs, and Social Initiative did. The most traded securities this spring were the bills of Stroymetresurs; in May their yield was 40% per annum. This yield was quite attractive for speculative investors, but, on the other hand, indicated that the security had an increased risk. At the end of June this year, when the debt market situation changed not for the better, the Stroymetresurs company issued a second bond issue for a total amount of 750 million rubles. However, the builders were able to obtain only 525 million rubles on the market, and in July the company announced the impossibility of repaying the bills and offered to restructure its debt - the average term for prolonging the repayment of bills was about six months. At that time, according to market participants, investors held promissory notes from Stroymetresurs in the amount of 500 million rubles. up to 1 billion rubles Some investors agreed to such conditions, while others went to court.
Most builders, faced with the problem of obtaining loans, are forced to look for additional ways of financing. However, so far none of the instruments they use adequately cover the shortage of funds. Experts say that correct conclusions and forecasts can be made no earlier than October-November: developers will either overcome the consequences of the banking crisis or begin to get rid of assets in order not to lose liquidity. In the worst case scenario, according to Konstantin Aprelev, many construction companies face bankruptcy.
BELA LYAUV, YULIA CHAIKINA

Magazine "Kommersant Money" No. 36 dated September 13, 2004, p. 74

Authors:

Yulia Chaikina

Themes:

Russian real estate market