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Maria Nikolaeva commented on the effects of escrow accounts on elite housing

It has been almost five months since the coming into force of the new rules of handling of equity holders’ funds. The elite housing market turned out to be the least affected by the amendments.

Nikolay Pashkov, the CEO of Knight Frank St Petersburg says the transition to escrow account system had virtually no effect on the elite real estate market, since most facilities (almost 80%) are either at a high stage of completion or are put in commission.

Oksana Kravtsova, the CEO of Yevrostroy Group of Companies also says that she hasn’t noticed any substantial changes in the last four months. ‘It is partly connected to the fact that over the last year Yevrostroy conducted extensive preparation in order to adapt to new realities. Besides, we work in the elite and premium real estate sector, which, unlike mass market, is less prone to sharp changes related to volatile market conditions,’ she explains.

She said that since July 1 real estate worth over 600 mn rubles has been sold in Yevrostroy’s completed facilities and construction projects. ‘Our only business class facility is NEXT apartment complex, where sales in July through October increased by 58% compared to the same period in 2018,’ she added.

Roman Miroshnikov, executive director of Oikumena Construction Company, is also certain that the changes haven't yet affected the market in any way. ‘All facilities are being erected under old rules; besides, major sales of elite housing are effected at a high stage of completion. Which is why the market will be able to see the changes no earlier than in a year or a year and a half,’ he believes.

Experts say that as of the moment the market has been affected not so much by the amendments to the FZ-214 law, but rather by the expectation of the same in the months leading up to their adoption. It influenced both the dynamics of consumer demand and the introduction of new projects. For instance, in 2019 only 13 relatively small elite facilities have been put up for sale. 12 of them were listed in the first 6 months. Vera Serezhina, RBI Group Strategic Marketing Management Director, points out that the sales dynamics have not been steady: more active demand at the beginning of the year and wait-and-see attitude of buyers immediately before the introduction of escrow accounts.

However, Lawyer, Partner and Head of Real Estate, Construction, Investment Practice of Pen & Paper Attorneys at Law Maria Nikolaeva believes that the main notable and expected effect of the amendments to FZ-214 will be an increase in housing prices. We can even say that prices went up not after, but in the lead-up to introduction of amendments,’ the lawyer notes. “Elite housing is not an exception, but actually somewhat of a flagship. At the same time if this spring we saw a surge in buyer activity, now the real estate market is a little ‘frozen’. It seems that everyone who had available funds for purchase of housing has already invested them. It is quite possible that in a while the prices will go back down, but it’s unlikely to concern elite housing.

Another lawyer Yelena Legashova, a Managing Partner of Yusland Attorneys at Law does not agree with Ms. Nikolayeva. She thinks at this stage it’s premature to draw conclusions on the effects of amendments to FZ-214 on the elite real estate market. ‘The expected sharp increase in prices, which was announced by everyone in the first six months in connection with the new procedure for employment of equity holder funds, didn’t happen. We believe it to be connected with a number of factors. The first factor is the decrease in effective demand with relatively high supply on the real estate market, including elite real estate. The second has to do with the fact that a number of developers continue to follow the old rules. The law allows developers to sell on the previously existing terms, and the amount of such projects among offers is quite large,’ the expert concludes.

Oleg Privalov