Equity insurance
Construction equity insurance was previously a right, not an obligation, of developers. But since 2014, everything has changed, and now they are required to carry out this procedure. Otherwise, it is a violation of the law. The norm is contained in Federal Law No. 214.
Full liability insurance for the developer during shared construction is carried out as follows:
- with the help of a mutual insurance company,
- with the participation of a credit institution,
- with the help of an insurance company.
If the developer provides insurance with the help of the society, he is forced to pay membership fees. Participants bear collective responsibility. Insurance from a bank is rarely used, as it requires compliance with more serious conditions from both parties. For example, the applicant will need a lot of documents and payment of a security deposit.
Insurance by a developer of shared construction with the help of a financial institution implies the presence of additional restrictions. First of all, they concern the bank.
- The institution must operate for at least 5 years.
- The bank's capital is no less than a fixed amount (200 million rubles).
- The value of the institution’s total property is at least 1 billion rubles.
Finding a bank that meets the legal requirements is not easy. Many construction companies prefer to issue loans that automatically come with insurance. But then it is difficult for shareholders to receive compensation when an insured event occurs.
Construction insurance by a company is most often carried out with the help of licensed firms. There is no need to pay a deposit, the interest rate does not change throughout the entire period. If an insured event occurs, shareholders have the right to receive funds.
Information: the developer bears all costs for registration and payment of insurance. But shareholders have the right to demand information about the terms of the insurance agreement.
Ensuring payments is also carried out with the help of Rosreestr, because the relationship between the developer and the insurer must be registered. The agreement is registered as an official document containing the conditions necessary for cooperation. The rule also applies to preschool education. Without this, further relationships are impossible, as stated in Federal Law No. 214.
Shareholders themselves can take out insurance. This is permitted by law, but such a procedure is voluntary and not mandatory. In this case, the participant acts as a beneficiary and policyholder at the same time. And the construction company, that is, the developer, acts as the insurer.
There are differences between the insurance of the shareholder and the developer. In case of voluntary insurance by the participant, compensation (in the event of an insured event) depends on the funds invested by shareholders. With OS, compensation does not depend on the money of shareholders. With voluntary insurance, it is difficult to change the terms of the agreement.
The main change: risks are insured by shareholders
The main change: the risks of shortfall will be redistributed between the insurers of equity holders, and not of developers:
- strict requirements have been defined for development companies: now, in order to attract equity capital, they must have a minimum portfolio of their own funds of 1,000,000,000 rubles;
- for shareholders, insurance in case of unfinished real estate they purchase becomes mandatory for concluding a share participation agreement;
- Clause 214-FZ, which obliges development companies to insure their obligations to shareholders, is declared void (loses force).
Features of the new type of compulsory insurance
The new type of compulsory insurance for shareholders is described in more detail in the draft. In accordance with the points of the project, five key (most significant for the policyholder) conditions can be identified.
- No franchise. The insurance buyer cannot assume part of the financial risks.
- Tariffs for compulsory insurance of shareholders are set by specific insurance companies and depend on the developer’s performance indicators.
- Control of amounts. The insured amount of the policy must be equal to the value of the property in the DDU (share participation contract), but its size cannot be set below the average market price of housing (determined for each region and calculated from the average cost per square meter).
- The insured - the shareholder - pays for the insurance service (previously it was paid by the developer and included in the price of the apartments).
- Fixed deadlines. The shared participation insurance agreement begins to be valid from the moment of registration of the contract with the developer and ends two years after the delivery of the object (in the event of an insured event occurring after acceptance of the apartment).
An important point is the strict requirements for the insurance companies themselves, which have the right to conclude such contracts. As now (for now, it is the developers themselves who must insure themselves, and not the shareholders), the first condition for the insurer is experience in the market, it must be at least five years. The remaining points relate to the financial situation of the insurance seller:
- the authorized capital of the insurance company is at least 120,000,000 rubles;
- own funds of at least 1,000,000,000 rubles.
Only if these three conditions are met (and a license is available) does the insurer have the right to work with applications from equity holders for construction insurance. The list of companies that meet the listed requirements will be publicly available on the Bank of Russia website.
When will innovations start?
The draft amendments to 214-FZ have passed the stage of discussion in the relevant departments. He was accepted by the Central Bank, the Ministry of Finance, and the Housing Loan Agency. On Wednesday, November 11, the project reached Igor Shuvalov, First Vice-President of the Russian Federation. On Friday it became publicly available.
Discussion of the bill's provisions will last until December 7. If, upon completion, the project is approved, insurance of financial risks of shareholders will become mandatory starting next March, 2020.
Insurance against "unfinished construction"
Information about the terms of the insurance agreement must be publicly available to shareholders. Insurance of a completed share participation agreement implies insurance against unfinished construction. According to the above-mentioned regulation, the construction company undertakes to take responsibility if the house is not delivered on time or is built with violations.
Damage insurance means that the developer is financially responsible for the cessation of its activities in the event of bankruptcy or liquidation. This is important for shareholders, since in this case they can return the invested funds.
More details about insurance of developers under 214-FZ
The construction sector is one of the engines of the economy: every year, millions of square meters of residential real estate of various classes are leased in different regions. The activity of developers is largely explained by the mechanism of equity participation, which allows shareholders to reduce the cost of purchasing housing, and developers to avoid the need to obtain a loan at a high interest rate.
However, shared construction has a big drawback - the risk that the developer will not fulfill his obligations. To reduce this risk, amendments to Law 214 were adopted at the legislative level. The essence of these amendments is that the developer is now obliged to provide security for its obligations. Two documents can serve as collateral - a bank guarantee or a civil liability insurance policy.
The choice of security option is entirely up to the developer, but due to the unstable economic situation, obtaining each type of security may be difficult.
You can avoid these difficulties by using. Our clients can obtain insurance under 214-FZ in record time and on the most favorable terms.
Risks and insurance of the object
After the law on participation in shared construction came into force, many shareholders began to fear the impact of insurance on the value of real estate. It had to grow, which increases the size of participants' contributions.
But the insurance of the executed share participation agreement was drawn up in such a way that there was no increase in the price for shareholders. The company spends no more than 1% of its available funds on insurance, and this does not affect the cost of square meters.
The developer is obliged to answer to the shareholders with all his property. There are two ways to insure a property under construction: the entire house at once or each apartment separately. When an insured event occurs, this choice plays an important role. In practice, developers prefer to insure apartments - this makes it more convenient to find compromises with each shareholder.
What is DDU insurance?
Insurance has always been common in the construction business. Risks oblige both developers and future residents to look for ways to minimize them. But having insurance was not always a mandatory requirement. Everything changed in 2014 with the adoption of Federal Law No. 214, dedicated to the participation of citizens in shared-equity housing construction.
The most important provision of this law obliges all developers to insure their financial liability to people who wish to act as investors. In addition, it was established that there could be no other way to raise money in favor of the developer from individuals. persons, except under a share participation agreement.
Today, there are only 3 ways to insure the developer's obligations . They are regulated by Federal Law No. 294. The options are as follows:
- bank guarantee. It involves the introduction of a third party, in the form of a credit institution, which will return the money to shareholders in the event of force majeure;
- mutual insurance society. It is usually abbreviated to OBC. A non-profit organization that must deal exclusively with emergency insurance;
- classic insurance. It is carried out through any of the insurance companies on the market that have a license for this activity and are actually ready to provide such services.
Attention! Despite the fact that all agreements concluded since January 1, 2014 provide for the insurer as an “invisible” third party, it is not necessary to notify him when registering the assignment of rights of claim under an equity participation agreement.
There is a distinction between insurance of an individual share participation agreement and the entire construction project . However, in practice the second option does not occur at all. There are three objective reasons for this:
- it is much more expensive. Often, the cost of the insurance fee may differ several times from the total amount of all contributions by individuals;
- Some of the apartments will be sold only after the signing of the transfer deed for the entire building. What proportion of housing is sold at different stages of construction depends on many factors;
- the difficulty inherent in the agreement itself in determining the beneficiary.
It is more convenient to draw up contracts for each apartment both for the developers themselves and for ordinary investors, who receive evidence of their personal guarantee.
The developer itself will not be able to raise money for the construction of the facility without providing the state registration authorities with documents indicating the availability of one of the two types of insurance, or a bank guarantee.
Attention! This practice is forced. The development and subsequent adoption of the law was initiated in connection with frequent cases of deception of ordinary investors, as well as the stopping of construction for objective reasons.
Home insurance in new buildings
Until the crisis hit, no one thought about home insurance in new buildings. Real estate prices grew by leaps and bounds, about 20 percent per year. This imposed its own difficulties in calculating the insured amount; in addition, to evade taxes and pay other deductions, many came up with various “gray” schemes. However, the demand for apartments in new buildings was frantic and few people thought about insuring such housing. Neither sellers nor buyers were interested in the possibility of insuring apartments. But after the global economic crisis broke out, which also affected the real estate sector, it prompted us to start insuring real estate in new buildings. This was especially true among those who participated in shared-equity construction.
In the case of insurance of apartments in new buildings, the contract implies compensation, in the event of force majeure, of the entire cost of the object, or the amount of credit debt. Each case of home insurance in the primary real estate market is individual, which means that the insurer will privately assess its possible risks. There are not many insurance companies on the Russian market that offer the service of insuring apartments on the “pit”. For example, today there are a huge number of companies on the insurance market, but those who provide insurance services for apartments in new buildings can be counted on the fingers of one hand.
Among other things, when visiting the websites of insurers, you will not find a single name for the home insurance service in new buildings: insurance against bankruptcy of developers, failure to fulfill obligations by the developer, insurance of unfinished construction projects, etc. For comparison, you can pay attention to car insurance, where you will find only two definitions. Experts say that the lack of prevalence of insurance services in the construction industry is primarily due to the fact that it is extremely difficult to make calculations to determine the level of risk. In addition, insurance cases arise quite often, and as one of the owners of the insurance company stated, they had to eliminate this type of service due to the fact that it is not profitable. Even if a company decides to engage in insurance services for unfinished housing, it will need to form a whole staff of highly qualified underwriters with extensive experience in this field. In addition, it would not be superfluous to keep statistics on the number of insurance cases that have arisen, however, this implies making a number of mistakes. Specialists calculating risks in the area of apartments in new buildings must be prepared for very specific developments in the situation, for example, a developer may freeze the construction of a house due to violations found during prosecutorial inspections. The insurance company specialist must be sure that the developer company keeps its accounting books correctly and properly prepares all the necessary documents.
The main concern of those who are ready to insure an apartment in an unfinished building is the development of events when the owner does not receive it at all.
Some insurance companies work only with those buildings that have already been partially erected or belong to ready-made residential complexes. Exceptions may be situations where the developer has invested a large amount of money in the development of communications of the house and is developing infrastructure; this, to a greater extent, shows a serious interest in completing the construction of the house.
The main concern of those who are ready to insure an apartment in an unfinished building is the development of events when the owner does not receive it at all. Such precedents are not uncommon in the post-Soviet space, but there are a huge number of reasons why they occur. These include force majeure situations, when the building is damaged during any event, or various legal frauds: double sales or violations of contracts between contractors and subcontractors.
Not a rare case of violation of the contract between the developer and the participant in shared construction is the failure to deliver finished apartments on time. Compared to the previous risk, this scenario is not so terrible, although it is very unpleasant. Unfortunately, in the Russian equity construction market it has become the norm to miss the delivery deadlines for new buildings, so insurance for such cases will be a relevant service.
But insurance companies also have experience in these matters and are aware of the possibility of failure to meet deadlines, which is why most insurance contracts will contain a so-called waiting period. For example, the delivery of the property, according to the agreement between the developer and the shareholder, is scheduled for March 1, 2013. If the deadline was missed, then, in fact, the shareholder has the right to contact the insurance company (if he is insured for such cases) to recover losses. But in reality, everything is different; the insurance company writes its contracts in such a way that after the delivery deadline is missed, a certain waiting period will pass. Only after this period, if the object has not been delivered, will the insurance company begin to compensate for losses.
Since insurance services for unfinished housing are not particularly developed in Russia, prices, accordingly, vary greatly. The maximum fee for using such services is exactly 15% of the cost of unfinished housing. This extreme figure makes purchasing an apartment in a new building unprofitable, so those insurers that offer their services stop at 2-5%.
Tax deduction when purchasing a new building
How to solve the housing problem
"Titled" apartments
So, if you decide to insure your home and have found a suitable insurer, you must first draw up an insurance contract for possible financial risks. This agreement protects the participant in shared construction from failure to fulfill obligations on the part of the developer under the investment agreement. Reasons for failure to fulfill obligations also include those that do not depend on the developer himself. However, one should not think that this is a panacea. Many insurers will pay claimed losses only if the developer goes bankrupt or the company is liquidated due to unavoidable situations (economic crisis, natural disasters, wars, etc.).
The amount of payments for an insured event usually varies within the amount of investment in an unfinished property, which means that the shareholder will receive only the amount of money invested in the apartment, but not a new similar housing.
Before undertaking insurance of unfinished housing, the insurer must carefully study all the necessary documentation to assess possible risks. This will take some time, after which a decision will be made. By the way, to assess risks, insurers use a number of factors, such as: the total cost of the apartment, the layout of the house, the complexity of the project, the reputation of the developer and many others.
Russian realities claim that concluding an agreement with an insurance company is not a problem; difficulties arise when an insured event occurs. Many different problems may arise in this case, but the shareholder will not know about their existence until the very end. If the developer freezes construction, this is not an insured event. It often happens that the “freezing” of objects under construction can last for years. If the developer went bankrupt and made errors in the documentation during the process of completing this procedure, then their corrections may also take an indefinite period of time.
Now there is no need to talk about any changes in the insurance market in the field of new buildings. This is due to a large number of uncertain risks for insurance firms, which make their work unprofitable. When using this article, be sure to use a direct link to the site
Favorable insurance conditions
We were able to provide such attractive insurance conditions for developers thanks to reliable partners, professional staff and strict compliance with Russian laws.
A large number of companies have used the developer liability insurance service under 214-FZ in our company, and thanks to it they were able to put their houses into operation on time and in full.
To be among them, you only need to contact our specialists through a channel convenient for you - telephone or email. Our employees will conduct an initial consultation regarding the types and costs of insurance, after which they will draw up an agreement.
Real estate insurance
If you purchase housing that is still under construction, there are two types of insurance . The first of them is carried out when you have invested your funds in a share of the construction and are a co-investor. Then you have the right to insure financial risks. That is, in the event of delays in the delivery of the house and registration of property or bankruptcy of the developer, you will receive compensation, but will lose the right to an apartment in a house under construction. In this case, you make 2-4.5% of insurance premiums from the amount of the purchased housing, depending on the insurance rates company and the number of insured risks.
When purchasing an apartment under construction, you can insure the following risks : bankruptcy of the developer, failure to complete construction work on time (rating of companies based on delays), delay in occupancy of the property, the possibility of double sales, destruction or damage to the building due to various accidents, fires, explosions and other disasters.
Title insurance as protection of ownership rights to a new apartment is a type of insurance that is recommended if you take out a loan for housing under construction. In this case, the borrower’s ability to work and life, as well as the title, are insured. Typically, when taking out a mortgage, you need to insure your financial risks, but title insurance won't hurt either.
