‘The old way is difficult, the new way is impossible’: what is changing in private housing construction market?

Echo of the pandemic

The volume of housing commissioning in Tatarstan for 8 months of this year decreased by 2.7% compared to the same period last year. The drop could have been more noticeable, but it was possible to keep the volume of construction due to an increase in the share of private housing construction. The commissioning of individual housing construction increased by 23% compared to the same period last year and approached 2 million square metres — this is an absolute record for the last 5 years.

Housing commissioning in Tatarstan over the past 5 years

Tatarstan Statistics Service data

The previous peak in the growth of private housing construction occurred in 2022. At that time, experts explained the trend as an echo of the 2020 pandemic, when people, having suffered in quarantine in an apartment, took a new look at houses and set themselves the goal of moving out of town. As a result, the commissioning of residential housing in 8 months of 2022 increased by almost 60% compared to the same period in 2021. In 2023, there was a slight decline in the private housing construction segment, and in 2024 this segment showed growth again.

The expert believes that interest in private housing construction will continue. “There are also state preferential programs here — it is planned to continue rural mortgages, IT and Family mortgages apply to residential housing," she listed. “With the same budget, today it is possible to purchase a higher-quality object in a residential complex than the same apartment in an apartment building. Private housing construction developers are more willing to make installment payments for their facilities and, unlike developers, these installments do not increase in cost.”

Not everything is so rosy

“The private housing construction market has completely recovered in the last 3 months. New construction projects are not being launched practically, as the key rate is high now. At the moment, no one is starting to build new projects in the residential housing market," he assessed the current situation.

“In 2024, we may not see a decline in the private housing construction sector yet, because those construction projects that have already been launched will continue to be registered," he predicts. “We will feel the decline only in 2025.”

According to Gimadov, there is a transitional period in the private housing construction market, many banks are beginning to transfer contracts with residential housing developers to escrow accounts.

The government decided to introduce an escrow account mechanism in order not to receive a wave of deceived buyers in the private housing construction market. The scheme with escrow accounts looks like this: the customer, the contractor and the bank sign a tripartite agreement, according to which the money for the house goes to the escrow account and will remain there until the contractor builds the facility. At the same time, the developer builds a house at his own expense or takes out a bank loan. When the customer signs the transfer and acceptance certificate, the construction company receives its money from the escrow account.

So far, the use of the mechanism is left to the participants of the construction process. The contractor decides for himself whether such a payment system is suitable for him, and the customer — whether they want to protect themself with its help. However, if the owner of the house wants to use government support programs, then the use of escrow accounts becomes a prerequisite.

“Today, not all banks have launched it yet," says Ilyas Gimadov. “The second problem is that contractors are not yet used to innovations, many construction companies are closing down and refusing to work according to the new rules, changing their niche. The third point is to understand that the key rate is high, and many preferential programs have been suspended, either the initial payment has increased to 50 percent, or the amount of limits has become insufficient to buy a house. Therefore, the private housing construction market is down. We'll wait and see what happens next.”

Consumer extremism and other “gaps”

“In recent years, a lot of houses have been built in Tatarstan, many companies have appeared, both conscientious and not so good, and, unfortunately, there are precedents when people were left without houses and money," explains Arthur Khafizov, the director general of Little Tokyo PLC. “The initiative to introduce escrow accounts is good and should have a positive impact on the residential housing market — on the quality of construction, customer protection and the liquidity of such real estate. In general, this initiative will contribute to the growth of this market.”

The new law unequivocally whitewashes the private housing construction market: “Those contractors who used to work informally, now, building housing under the new law, will be forced to officially spend their expenses, banks will control their expenses, including the purchase of materials.” This, in turn, will lead to an increase in the cost of construction.

“Prices in the private housing construction market will rise for those contractors who worked in the gray: they had various tax optimisations that reduced the cost of a house for the end consumer. But this is a violation of the law, and the rise in price in this case is the restoration of justice. No one has cancelled taxes," explains Khafizov.

While the private housing construction market is really on pause, he confirms. Many developers who have experience and understand the situation have suspended work because there are gaps in the new law that can be used against the interests of the contractor.

Besides, the client may not terminate the contract, but begin to make claims and find fault, he continues. “In this case, a penalty of 1 percent per day of the cost of the entire facility begins to apply. If the developer has installed something incorrectly, then, of course, he must eliminate it, but consumer extremists often act today, this is a whole market with experts and lawyers who offer their services, especially in apartment buildings. If this happens here, the consequences will be very sad. The house stands on the client's land plot. If the house is not accepted, it is a penalty. Plus, the developer has loans, he pays interest. Two or three such cases and a small company will be brought to bankruptcy.”

A working group has been established under the Ministry of Construction of the Russian Federation, which tries to find operational solutions that will protect not only construction customers, but also contractors. However, the fact remains unchanged that as a result, the price of houses will rise, and the gap that now exists between the price per square metre in apartment buildings and in one's own house will begin to decrease rapidly.