Content №3 от 2020
Impact of the new escrow account-based model of financing home construction on the primary real estate market
The article aims to identify how a newly introduced financing model based on escrow accounts will impact the expenditures of residential housing developers and purchasers. The research includes an interview with a representative of a bank engaged in construction lending. This interview helped identify a typical cost structure for building projects and housing price characteristics.
We evaluate cost changes by using the method of sensibility analysis to examine changes in prime costs, sales margin, and increases in housing prices.
The research demonstrates that the cost of construction and real estate prices will grow no more than 10% on average. The profitability of construction companies will also decline by no more than 10%. We see no foreseeable decrease in the discount to finished residential property purchased at an early stage.
It can be argued that the purpose of the new funding model was not to make homes more affordable but to reduce social risks associated with developers’ inability to carry out construction obligations with minimal cost to the state. Banks are the main beneficiaries of the new financing scheme.
