The landscape of individual housing construction (IHS) in Russia is undergoing notable changes as the escrow account mechanism officially expands its operations starting March 1, 2025. This change is intended to enhance consumer protection; however, it has also sparked a wave of criticism among market participants. Concerns about increased costs and bureaucratic processes are prevalent, particularly as smaller companies may find it challenging to compete against larger developers familiar with the system.
Recent reports have included troubling statistics—around three thousand families who secured loans for private home construction have faced challenges due to unscrupulous developers. This has raised questions about the accountability and regulation of the existing housing market. The new law aims to rectify some of these issues by implementing rules requiring contractors to undergo state accreditation. This means they must submit detailed information about their operations to a unified national database, thereby ensuring transparency in the industry.
Among the key objectives of the new law is to provide robust protection for consumers, especially in a market where disputes could previously lead to lengthy court battles. In the lead-up to this change, many buyers have already faced financial losses due to inadequate protections against fraudulent practices. According to Ruslan Khairov, the director of the Ulyanovsk regional fund for the protection of the rights of shared construction participants, past practices have left many consumers vulnerable to contractor mismanagement. "Contractors could either fail to deliver quality work or simply disappear with the clients' money, often leaving them nowhere to turn for recourse," he explained.
Currently, the system is designed to eliminate contractors who do not possess adequate financial reserves to guarantee their operations. Ivan Fadeev from the real estate agency Etazhi Ulyanovsk argues that while the implementation of the escrow system may enhance safety for customers, it places pressure on smaller companies that may not have sufficient funds to comply with these new regulations. He noted, "The escrow system is primarily beneficial to buyers, but it could also push smaller contractors out of the market."
Some industry experts have criticized the introduction of escrow accounts into the private home building sector as superfluous, as many contractors were already working under similar financial scrutiny. Svetlana Ponomareva highlighted that the new laws could attract major developers to shift their focus from high-rise construction projects to the individual housing sector, where they might be more competitive due to their familiarity with escrow processes.
Despite these discussions, data from Etazhi indicates that most developers of multi-family housing do not seem to be pivoting toward the individual housing market. Vladislav Perfiliev, the CEO of the MN Group, a major Ulyanovsk construction company, confirmed this sentiment. He asserted, "Developers are content with their existing projects in the multi-family housing sector. There is no urgent shift toward individual construction at this point."
The nature of construction financing is likely to change significantly with the adoption of the escrow account mechanism. Accredited contractors are eligible for preferential loans at 1% interest per year, which are contingent on strict construction timelines and oversight. This presents a double-edged sword: while it may stabilize financing options, it also introduces additional layers of complexity that smaller contractors might struggle to navigate.
Interestingly, although there is anticipation that costs will rise due to the new system and its requirements, experts agree that the greatest price drivers remain outside of regulatory changes. Khairov estimates that costs could increase by about 20% as construction financing becomes more complex and challenging for those without sufficient capital. He warned, "For smaller contractors, lacking private financial resources means they will have to resort to costly loans, which will ultimately impact the price paid by consumers."
Currently, about 55,000 square meters of private housing are under construction using the escrow mechanism, with regions such as Tatarstan, Rostov-on-Don, and Bashkortostan taking the lead. According to Bank DOM.RF’s recent disclosures, contractors in these areas have already received loans totaling more than 20 billion rubles, with a significant proportion allocated toward new housing projects.
In Tatarstan alone, around 6,500 square meters of individual homes have been financed through escrow accounts, showcasing the regional enthusiasm for this financial model. Other notable regions include the Sverdlovsk region and Moscow, demonstrating growing acceptance and reliance on this new mechanism.
In conclusion, while the new escrow regulations for individual housing construction aim to fortify consumer rights and ensure project integrity, it remains to be seen how these measures will impact small developers and overall housing prices. The adjustment to new bureaucratic procedures and financial expectations will undoubtedly be a crucial factor in shaping the future of individual housing construction across Russia.
