New procedure for using escrow accounts in single-family home construction becomes effective

Individuals (customers) using escrow accounts for settlements in the course of single-family housing construction will enjoy the same rights as customers purchasing an apartment in a multifamily building under construction:

– the contractor will only receive the funds from the escrow account upon registration of the title to the constructed property (if the contractor fails to fulfil its obligations for any reason, the individual will get the refund); and

– escrow accounts will only be opened with banks having an adequate credit rating and the funds will be insured for up to ₽10 million.

Individuals will have the right to discontinue single-family housing construction and receive the money back from the escrow account upon compensation of the expenses on materials and works incurred by the contractor.

Loans under the Family Mortgage programme may be issued to households only if the funds to be used for payments under construction contracts are deposited in escrow accounts. In view of this, the Bank of Russia expects that the mechanism will be in demand not only among individuals but also among developers.

The contractors working in accordance with the new procedure will be obliged to publish detailed information in the Unified Housing Construction Information System, including data on the legal entity, projects of single-family houses that may be built as well as the expected construction costs and period, and the authorised bank opening the escrow account.