They want to protect the rights of investors in the primary housing market in a new way
This is a bill to protect the rights of investors-home buyers (i.e., a project for the future, it will not apply to existing long-term construction projects).
The development of the relevant document began after hearings in the profile committee, which were held in November 2019, as a result of which a significant amount of materials and recommendations were developed.
A separate working group was created to process the entire data set, headed by the drafter of the bill – Deputy Chairman of the Parliamentary Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning Olena Shulyak (Sluga Narodu faction).
In addition to her, the working group includes all market participants: affected investors, developers, representatives of local and central authorities, people’s deputies, experts, etc. It is on behalf of the profile committee and with the direct participation of its many private individuals that the bill on protection when purchasing future real estate is being prepared. Therefore, one can be sure of the support of the profile committee.
Moreover, the deputies-co-authors of this bill planned to register it in parliament in the first quarter of this year. But quarantine made its own adjustments.
However, according to Olena Shulyak herself, when the Verkhovna Rada returns to normal operation in the near future, the project will be registered and voted on without delay. For now, it is a project and even now there are discussions about specific provisions, including figures and methods, but we will give the main interpretations of the document:
- The draft law introduces a number of new concepts, the main of which is a component part of a divided object of unfinished construction, which implies an apartment purchased by an investor;
- the object of an unfinished (under construction) object becomes a separate object of civil rights;
- the alienation of rights to a divisible object can only be carried out by alienating its components. In relation to investors, this means that the alienation must take place with their full consent (for example, a change of owner of an unfinished object; it is not the unfinished object (house) that is alienated, but each apartment separately);
- the sale of apartments will now be possible only after state registration of the right of ownership of the construction object by the developer. In other words, the legal entity (developer company) that has registered the right of ownership of the unfinished construction object will be able to sell apartments;
- that is, the investor, in essence, becomes the buyer of the apartment under construction and has all the legal opportunities, if necessary, to defend his interests;
- According to the document, the purchase / investment will be significantly limited only to contracts for the sale of future real estate. In other words, the buyer buys an apartment in a future building, and not the right to claim m2;
- the contract for the sale must clearly indicate the identifier of the future real estate object in the Unified Electronic System, the registration number in the State Register of Property Rights to Real Estate with an indication of its characteristics, etc., up to the indication of the location of the apartment on the floor, the cost of the object and methods for its determination, the deadline for completion of construction and the obligation to transfer the apartment to the buyer, liability for failure to fulfill the terms of the contract;
- separately prescribed compensation for changing the actual area of the acquired object: if the actual area turns out to be more than 10% larger than specified in the contract, the developer has no right to demand an additional payment from the client.
If the area turns out to be smaller, then no later than a month before the facility is put into operation, the developer will be obliged to pay the buyer for the overpaid area;
- Registration of ownership of a construction object by the customer occurs automatically after receiving the right to perform construction work, and registration of ownership of individual components (apartments, commercial premises) of the future real estate object occurs according to the same principle.
That is, each apartment purchased during the construction phase receives automatic registration;
- registration of encumbrances on future real estate objects is included in the guarantee part – these objects are prohibited from being alienated before the object is put into operation;
- registration of the transfer of ownership from the construction customer to the investor;
- the guarantee part, which will still be discussed, is proposed to be set at 10% of the entire area of the future real estate object (with risk insurance), or 13% in the absence of insurance.
Simply put, before the facility is put into operation, the developer has no right to sell 10-13% of the area, as this should become a guarantee volume in the event of force majeure, bankruptcy of the developer, etc. The guarantee part may be higher, up to 20-25%, but this is a matter of discussion. On the one hand, the buyer receives more guarantees that the facility will be completed, but the developer will be forced to significantly increase the starting prices to cover his construction costs, to cover 1/4 of the funds not received at the construction stage);
- registration of ownership: the state registrar registers ownership after receiving information about the commissioning of the facility; during registration, the ownership object changes from “unfinished construction object” to “real estate object”.
The state registrar is obliged to notify the right holder about the registration of the ownership right, and the encumbrance of future real estate objects included in the guarantee part is also terminated, in other words, the developer will be able to sell guarantee apartments / commercial premises after the registration of the ownership right. That is, the main innovation here is the registration of ownership rights to future real estate objects;
- The bill provides that the design documentation for a future facility must necessarily indicate all the numbers of future apartments or commercial premises;
- any changes in the design documentation (for example, the total area of the apartments) must be agreed with the investor;
- the law regulates the advertising of a future facility: it provides that the construction customer is obliged to place on its website information about the construction facility, the date of commissioning of the facility, the progress of construction, information about apartments, etc. Premises that have already been sold and are still being sold.
The advertisement must include the customer’s website.
When will it come into force and what will change? It is planned that the law will come into force 6 months from the date of its adoption and will apply to all construction sites, the right to perform construction work for which will be obtained from the date of its entry into force. In fact, the authors of the bill say that for developers the innovations will be minimal. They will concern changes in the rules on the market towards more transparent and responsible ones.
The main thing is a change in approaches to the rights of citizens who wish to purchase housing in a new building. “We do not limit the rights or opportunities of the developer to build. But if the developer wants to start selling apartments even before the facility is put into operation, according to the scheme that is currently the most common, he must protect buyers.
To do this, the developer must at least register both the house and each apartment as a separate object of property rights. And also guarantee future buyers that they will receive exactly the project for which they pay, “- said Olena Shulyak.
According to the draft law, the investor will receive protection from the moment the transaction is executed – he will immediately become the owner of the future apartment. The developer, in turn, also has the right to build at his own risk with his own or loan funds, without even registering each individual apartment.
But in this case, he will not have the right to sell apartments to people before the house is put into operation. Each alienation of premises in a construction site must be accompanied by registration by the investor of the ownership rights to the object purchased by him. Otherwise, the transaction will be considered invalid. That is, in terms of alienation, rules similar to those currently in force in the secondary housing market are introduced.
If the construction customer fails to fulfill its obligations to investors, the premises included in the guarantee share can be sold, and the proceeds can be used to complete the facility, say the drafters of the bill.
“All information about the construction customer and the construction site (including construction permits, construction design documentation, information about construction suspensions, fines imposed on the construction customer, etc.) will be publicly available on the portal of the Unified State Electronic System in the field of construction from December 1, 2020 and will be available to the investor,” Olena Shulyak told us.
The owner of the apartment will be only the one who pays the full amount under the contract. In the case of payment in installments, an encumbrance is registered in favor of the investor, after payment of the full amount, the encumbrance is removed and the ownership right is registered.
The construction customer acquires the right to sell apartments, other residential and non-residential premises in the construction site immediately after state registration of ownership rights to them.
“On the affordability of housing, even if prices increase in the early stages of construction, we are also working on this. I am sure that the declared more affordable mortgage at 10 percent or less per annum will become a reality in the fall. Both the deputies and the government are working on this, and the NBU has already significantly reduced the discount rate, although few people believed in it a year ago,” Olena Shulyak summed up for us.
