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- Rural exodus: mandatory escrow accounts for residential housing will displace a third of developers from the market
Rural exodus: mandatory escrow accounts for residential housing will displace a third of developers from the market
After the introduction of mandatory escrow accounts for individual housing construction, 20 to 40% of developers may leave the market, analysts polled by Izvestia expect. First of all, small and medium—sized players who do not have access to project financing. Since March 1, 2025, the mechanism has become mandatory for developers when applying for a preferential program by the buyer. "The house.The Russian Federation and the Bank of Russia have proposed extending escrow accounts to all types of mortgages for the construction of private homes. What will happen to prices and who will remain on the market is in the Izvestia article.
How have escrow accounts already affected the market
Currently, 11.2 thousand companies engaged in individual housing construction are registered in Russia, according to data from the Dom.RF portal. However, not all of them actually work with escrow. When constructing private homes, such bills were made mandatory in March 2025, but only if the borrower has issued a preferential mortgage for the purchase of such real estate. If the client took out a loan on market terms or used his own money, then escrow accounts are still optional.
The principle of operation of this mechanism is that the buyer or the mortgage bank deposits money, the agent credit institution freezes the amount until the facility is put into operation, and the contractor receives funds only for the finished house, explained Evgeny Shavnev, CEO of the Flip real estate investment company. This helps to secure the money of shareholders — in case of termination of construction, they will not be left without money and without housing. However, as a result, the contractor bears all the costs of the facility from its capital, which is quite burdensome for small developers.
To build a house, an organization needs to have its own money or use borrowed funds, the expert added. Loan servicing and interest payments increase the cost of construction in direct proportion to the cost of the loan, eventually it can reach up to 20%.
Of the approximately 7,000 contractors who declared their willingness to work with escrow accounts for residential housing with preferential mortgages, only about 3.2 thousand actually entered into transactions, said Valery Tumin, Director of Russian and CIS Markets at fam Properties.
At the same time, 44% of them built only one or two houses. This is due to the fact that many companies have no credit history or collateral — banks refuse project financing, and mortgage loans approved by buyers are suspended without execution, he explained.
At the same time, Russia is proposing to extend escrow accounts to all types of mortgages for the construction of private homes. This initiative was made on March 26 by the First Deputy General Director of Dom.Russian Federation" Alexey Nidens at the round table in the Federation Council. On the same day, presenting the annual report on the Central Bank's activities to the State Duma, this measure was supported by the Chairman of the Bank of Russia, Elvira Nabiullina.
— We have consistently advocated for escrow accounts to be introduced into residential housing when loans are taken out. Since March last year, such a requirement has been introduced only for preferential mortgages," said the head of the regulator.
Izvestia sent a request to the Central Bank and the Ministry of Construction to find out if they see risks to the market in the event of the introduction of mandatory escrow accounts.
How many contractors can't stand the competition
The expansion of residential housing escrow for all mortgages may lead to the fact that every fifth company will leave the market, says Evgeny Shavnev from Flip. According to Kristina Kopylova, head of partner relations at the federal residential housing company Etagi, 15-20% of developers from this market have such risks.
First of all, small contractors who do not have enough managerial competencies and available funds to switch to escrow accounts will suffer. They will either leave altogether or merge with larger players. Large companies have adapted — 90% of contractors in this category now work according to the new rules, Kristina Kopylova explained.
The main problem of small contractors is that banks are not ready to lend to companies without a history of loans and collateral. As a result, small players will either leave the market or lose their competitiveness, Evgeny Shavnev concluded.
Valery Tumin gives a more rigorous assessment. According to the expert, the realistic volume of losses is from 25 to 40% of existing players, especially if new support mechanisms are not introduced in parallel.
Vladimir Mironov, an expert on the trust management of investments in residential real estate, calls the figure of 20% a conservative lower bound. At the same time, there may be even more victims among the smallest and financially weak companies, he believes.
Which companies will remain on the market
Most likely, the final consolidation of the residential housing market will take place in the next 3-5 years, and a full transition to escrow accounts may speed up this process, Kristina Kopylova believes.
Maria Ermilova, an international financial advisor and associate professor at Plekhanov Russian University of Economics, shares this forecast. Already, banks impose strict requirements on contractors (at least three years of experience, audit, and debt-free), which cuts off "garage workers" and one-day firms. According to the expert, a significant reduction in the number of independent contractors is expected within one to two years after the introduction of the new rules.
However, consolidation will not be quick, noted Valery Lukinov, founder of the expert club "Suburban Development". There are no truly large contractors in the IHS in terms of apartment construction: a company with a portfolio of 200-300 houses per year is considered the leader here. It will take at least 5-7 years for developers of the scale of apartment buildings to be able to work effectively with escrow, the expert believes.
The market is not yet ready for the total transfer of all residential housing to escrow, it will take 5-7 years, Valery Tumin added. To force this process without a transition period and adaptation tools means to get a local shortage of contractors, the expert warns.
At the same time, credit organizations support the initiative. The press service of Sberbank (Domclick) noted that their total portfolio of mortgage loans for residential housing with escrow exceeds 182 billion rubles. Already 98% of the bank's mortgage loans are issued using such accounts, and the demand for market mortgages with a secure construction mechanism has reached 60%.
What will change for buyers and are there any alternatives?
For buyers of an escrow account, this is primarily an increase in the security of the transaction, Vladimir Mironov believes. This mechanism reduces the risk of freezing the facility and losing money: of the houses built with this system, 93% were completed on time, an indicator that was previously unattainable in the "wild" residential housing market, Valery Tumin confirmed.
However, you will have to pay for protection. The contractors who switched to escrow increased the cost of services by an average of 20-25%, Kristina Kopylova estimated. The rest will do the same, predicts Evgeny Shavnev. Valery Lukinov expects a 15-20% increase in construction costs, while Vladimir Mironov expects a 10-20% increase in the most sensitive segments.
The contractors themselves openly say that when working with escrow, they raise the price by at least 10-15%, Valery Tumin noted. Interest on loans is added to the price (if the contractor attracts borrowed funds), which can increase the cost by another 2-4%, the expert said. But there are still alternatives for small contractors, said Kristina Gudym, an analyst at Finam. These include umbrella guarantees, contractor liability insurance, government subsidization of loans for builders, and step-by-step financing under performance guarantees. These tools can reduce the cost of financial support for construction and mitigate the cost increase for the buyer.
An umbrella guarantee is a mechanism in which one organization (the guarantor) assumes obligations for loans from several borrowers to a bank. The guarantor covers part of the risks, which allows banks to lend to companies that do not have their own collateral or loan repayment history. In the field of residential housing, such guarantees help small contractors to obtain project financing for the construction of houses. If the contractor fails to meet its obligations, the guarantor reimburses the bank for the agreed part of the losses.
Most market participants expect that escrow will be introduced for all residential housing mortgages in the next one to two years, Maria Ermilova said. The initiative is actively supported by major banks and development institutions. However, it may be adjusted to prevent a sharp reduction in supply, the expert believes. For example, by adding support measures.
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