Big construction site: how escrow accounts are used in residential housing

DOM survey.The Russian Federation and VTsIOM, conducted in November last year, showed that only 12% of Russians know about the escrow account mechanism, which can protect against risks during the construction of their homes, and another 20% have heard something. Meanwhile, the construction industry is preparing to switch from March 1 to a mechanism for financing the construction of individual homes with escrow accounts. DOM Bank, which is specialized for the market.The Russian Federation has made changes to the contractor's loan program.Market participants and experts positively assess the innovation. The details are in the Izvestia article.

A new house with new rules

Federal Law No. 186 "On the Construction of Residential Buildings under Construction Contracts using Escrow Accounts" comes into force on March 1. Experts are confident that the introduction of escrow in residential housing will have a beneficial effect on the safety of private house construction and will significantly increase the number of clients among contractors using the new mechanism.

At the same time, some construction companies are already working in accordance with the new rules, as they see benefits in them. For many, escrow has provided an opportunity to attract additional customers who were previously afraid of losing money during construction. Concessional lending, a mechanism for "ruble incentives" in the form of subsidized bank loans, which was offered by the state even before the law came into force, also stimulated contractors.

Developers from the south of Russia, Dom Yug company from Rostov-on—Don, have been working with escrow accounts since last year.

— This approach ensures transparency and security of financial flows, which is beneficial both for us, developers, and for clients, — says CEO Dmitry Svetashov. — Previously, the risks of delays or misuse of funds were higher for clients, as financing was not transparent. Now, with the use of escrow accounts, funds are frozen until the end of construction, which encourages us to comply with the deadlines and quality of work. It also increases customer confidence.

The developer emphasizes that the transition to escrow accounts allows the contractor to more accurately plan its resources and construction stages, since funds are credited to the account only after all stages of work have been completed and verified. It also eliminates the possibility of conflicts with customers due to delays or unfair use of funds, which has a positive effect on the company's reputation.

— In general, we believe that the transition to escrow accounts and changes in the lending program for residential housing contractors are important steps that will strengthen confidence in the individual housing market, increase its transparency and attract more customers. This is an opportunity for our company to work in more stable and predictable conditions," Dmitry Svetashov summarizes.

According to Alexander Svitenkov, CEO of Suburban Real Estate of the Urals LLC, the company has long been preparing to introduce an escrow account mechanism in residential housing, realizing its importance for increasing transparency of transactions and protecting customers.

— In June 2024, we became the first company in the Urals to successfully implement such a deal in a pilot format. It was a challenge for us to be the first, and we proved that we are fully prepared to work with escrow accounts. This tool not only minimizes risks for both buyers and developers, but also makes the process of acquiring real estate as transparent and reliable as possible. We are confident that the introduction of escrow accounts will become a new stage in the development of the industry and will increase customer confidence in the suburban real estate market," the contractor believes.

The expert emphasizes that bank transactions to obtain credit limits for escrow contracts are fast and efficient, providing convenience and security for all participants.

Another Ural developer, the company "Build with us" from Yekaterinburg, also uses a new tool and considers it an excellent solution to protect customers from unscrupulous contractors. Vladimir Fomintsev, head of the company's sales department, believes that using this mechanism will help reduce the number of unfinished facilities.

— Our company's experience in working with escrow can be called positive. Everything went pretty smoothly with the loan, the transaction was simple, and all interaction with the bank was quite fast," says the developer's representative.

Alexander Tsyganov, Professor of the Department of Mortgage Lending at the Financial University, is confident that all this will make both the financing process and the construction itself more reliable, which will give buyers and contractors confidence in the quality and timing of work and the receipt of funds earned by the performers.

— The effects of using secure escrow accounts have clearly manifested themselves in the shared-equity construction of apartment buildings and will now manifest themselves in residential housing. Taking into account the expansion of opportunities for participation in the loan program for residential housing contractors, interest in building houses should increase, the quality of suburban housing and its liquidity should improve, which buyers will also benefit from, the expert notes.

How banks encourage the use of escrow in residential housing in rubles

A year before the law came into force, DOM Bank was the mainstay for the construction market.The Russian Federation began to use secure escrow accounts in the residential housing market and offered construction companies to use preferential loans from a subsidized state-owned DOM company.Russian Federation at the rate of 1%. According to experts, such "ruble stimulation" has served as a driver for the development of the civilized private housing market.

Dmitry Svetashov, CEO of Dom Yug, emphasizes that preferential loans to residential housing contractors under escrow contracts help reduce the financial burden.

— This is especially important in the context of current economic challenges, when access to finance is becoming a key factor in the success of projects. Simplifying lending procedures and lowering interest rates allow us to launch new projects faster and offer customers more affordable conditions," the expert notes.

On the eve of the new law coming into force, Bank DOM.The Russian Federation has upgraded its program of preferential loans to residential housing contractors, among the key changes is an increase in the maximum loan amount available to a contractor without collateral for real estate.

The bank has doubled the maximum loan amount from 50 to 100 million rubles. This will allow large companies to simultaneously carry out more projects using credit facilities.

— DOM Bank.The Russian Federation took an active part in the development of the mechanism for financing private housing construction using escrow accounts and became the flagship of the application of this mechanism in the market. We continue to increase the availability of the loan program for residential housing market participants and improve the customer experience. Changes in credit conditions will significantly expand companies' access to financing on preferential terms and will have a positive impact on the pace and volume of individual housing construction. According to the subsidy program implemented by DOM.In the Russian Federation, the bank has signed loan agreements for the construction of private homes in the amount of 18.1 billion rubles. These funds will be used to build more than 540,000 square meters of individual housing across the country," said Deputy Chairman of the Board of DOM Bank.Russian Federation Anton Medvedev.

The Bank is DOM for today.The Russian Federation has signed loan agreements for the construction of private houses under contracts using escrow accounts with 460 construction companies in 52 regions.. The largest number of loan applications are received from contractors from St. Petersburg and the Leningrad Region (268), Ufa (182), Kazan and Tver (136 each), the Moscow Region (135), Perm (126) and Yekaterinburg (111).

Anatoly Nesterov, General Director of TSTN, notes that the modern market of individual and low-rise construction is in the process of rebirth. On the one hand, builders and customers have gained experience, and on the other hand, customers have more serious demands on terms, quality, cost of construction and real guarantees. In these conditions, increasing the availability of bank loans to contractors who are ready to build residential housing with escrow will serve as a good incentive for the market.

— Undoubtedly, the expansion of construction companies' access to concessional financing will have a positive impact on the market, giving it a new impetus to development. Contractors will receive more favorable terms, and customers will receive the desired guarantees provided by construction using escrow accounts. It is no secret that in the last few years we have seen a surge of interest in residential housing, and such initiatives will further stimulate demand for facilities in this segment of housing, the expert emphasizes.