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Published: 12/19/2017
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Russian legislation allows the possibility of purchasing an apartment in installments from an individual. In this case, the property will be pledged until the debt to the seller is fully repaid.
- Buying an apartment in installments: definition and features Is installment profitable?
- Registration of the contract
Often, buyers do not have enough money to purchase an apartment, and the seller does not want to waste time searching for another buyer. In this case, the seller may offer to conclude a purchase and sale agreement with installment payment.
Such transactions have not yet become widespread in the real estate market due to insufficient awareness of them. Many Russians mistakenly believe that only a bank issuing a mortgage loan can act as a lender.
More and more offers from developers
Developers are offering more and more different installment plans. According to Natalya Shatalina, general director, if before the crisis installment plans were little used in economy and comfort class projects, today 95% of mass-segment apartments in the Moscow region are purchased with it. The expert also notes that in almost 90% of residential complexes, developers offer interest-free installments for a period of six months before the completion of the project.
Also, home buyers in the mass segment can take advantage of interest-bearing installments, but it is not very popular in this market.
Managing partner of Metrium Group, Maria Litinetskaya, confirms that today, in almost all houses under construction, developers agree to provide installment payments without any additional fees. But, as the expert notes, in pre-crisis times interest-free installments were practically not offered.
As for business-class projects, everything is somewhat different here, says Shatalina. Although installment plans are a more common product for this segment, today they are offered in only 80% of new buildings. Interest-free installments are also the most popular here - in 90% of cases, buyers have this option. In addition, developers can relax the conditions on an individual basis – both in terms of payment frequency and terms.
Typically, when purchasing housing in installments in AFI Development club districts, you must make a down payment of 50%. According to Fedor Ushakov, sales director of the residential real estate department of AFI Development, installments for 6 months are provided at no additional cost. If the buyer takes out an installment plan before the completion of construction, he will have to pay 0.5% of the debt amount every month.
What interest rates and installment terms do developers offer?
In recent years, developers have changed the conditions for providing installment plans quite a lot. As Natalya Shatalina recalls, in 2016, when mortgage rates began to decline, developers began to offer interest-free installments instead of interest, but increased the down payment from 30% to 50-60%, thus increasing their own guarantees. Often the size of the down payment depended on the cost of the apartment. For example, buyers in installments for “one-room apartments” were asked for 50% of its cost, “two-room apartments” – 40%, “three rubles” – 30%. That is, in absolute terms, the amount that buyers contributed was the same.
As already noted, today in most projects in the mass segment you can arrange interest-free installments, that is, in the end you will not overpay for the apartment.
Shatalina says that today there are only two options for interest-bearing installments. The first is a short-term installment plan at a low interest rate, about 2-3% per annum. Since rates are very low, it does not compete with mortgages. The second option is an installment plan at interest for up to a year or until the project is put into operation. In this case, you will have to pay interest as close as possible to the mortgage rate. Shatalina says that this gives the buyer a fairly favorable percentage, no commissions, and no need to collect documents, as is required when applying for a mortgage.
In almost all cases, developers are ready to provide interest-bearing or interest-free installments for a period not exceeding the signing of the apartment acceptance certificate. According to Capital Group experts, since this act confirms that the developer has fulfilled all obligations under the equity participation agreement, by the time it is signed, the buyer must pay the full cost of the property. Then the new owner can submit documents to Rosreestr to register ownership of the apartment. According to INCOM-Real Estate, when buying an apartment at the initial stage of construction, you can count on no more than 24-26 months of installments.
The period for providing installment plans in more expensive segments may be longer, both interest-bearing and interest-free. But until the full cost of the object is paid, it cannot be registered as ownership. Don-Stroy Invest explains that the buyer of an apartment in a business class project can receive an installment plan for up to 5 years with a fairly comfortable rate of 4%. In this segment, installment plans as a sales tool have shown their effectiveness, and today in some projects keys are being issued even before the end of the payment.
Practical advice
- Write or ask to write the document in your own hand, this is important, as it will allow for a handwriting examination;
- Indicate the place where the document was drawn up and its date;
- Full name, passport details, registration or place of temporary registration, contact details, all this must be indicated and verified;
- Monetary amounts are written in numbers, and in brackets must be indicated in words, as well as monetary currency;
- The text must specifically state what is confirmed by this receipt;
- Specify the expiration date of the installment plan period;
- If possible, verify the receipt with the signatures of witnesses or a notary;
- Do not leave empty spaces to exclude the possibility of adding anything there.
Deferment and installments - what's the difference?
Installment plans help developers attract buyers. In addition to installment plans, today there is also a deferment from the developer, which has a slightly different approach.
With deferment there are no monthly payments. According to Evgenia Akimova, general director of IKON Development, the total amount of debt is divided into three parts; they must be paid within one and a half to two years, depending on the day the deferment was granted. For example, the buyer of an apartment in a completed building must pay half of its cost, another 20% within three months, and the remaining 30% must be paid in equal installments monthly or quarterly (at the client’s choice) until the end of August 2021. No interest is charged in this case.
Akimova says that developers are trying to meet the buyer halfway and approve the conditions for granting a deferment on an individual basis.
The expert recalls a case when the initial payment of the shareholder was only 10%, but he paid 80% in the second payment and the remaining 10% in the third. Others want to pay the amount in three equal installments. Since deferred payments are considerable, the buyer calculates the schedule based on the time of receipt of funds - this could be a bonus at work or the sale of an old apartment.
Installment plan or mortgage – which is more profitable for the buyer?
Experts note that in terms of the size of payments and the size of the down payment, installment plans from the developer, even provided on the most favorable terms, cannot be compared with a mortgage. But in the case of interest-free installments, the client can avoid overpayment, which will inevitably occur when applying for a mortgage.
Therefore, if the buyer already has a fairly large amount to purchase a home, and he is ready to pay the balance in fairly large payments, even an installment plan with interest will be beneficial, since the rate is still lower than in the case of a mortgage.
For example, when applying for a loan from Sberbank for a period of one year to purchase an apartment worth 5 million rubles at a rate of 7.4% (under the subsidy program, taking into account the electronic registration service and an initial payment of 20%), the overpayment of interest will be 162,141 rubles. In this case, 346,845 rubles must be paid every month.
Installment plans are suitable for buyers who can pay a fairly large amount each month. In addition, when paying in installments, you can avoid red tape with documents - certificates confirming employment and income are not required.
Evgenia Akimova says that to provide a deferment or installment plan, it is enough to show your passport. Therefore, such options are perfect for, say, foreigners who have difficulties getting loans in Russia, the expert notes.
Installment payment is a good alternative to a mortgage if for some reason the buyer cannot obtain a loan. Banks may reject a mortgage application if the borrower, for example, has little work experience. Installment plans are also popular when selling secondary apartments, when a person can immediately pay the bulk of the cost, and plans to pay the rest after selling the old home within a few months.
Installment plan from the developer’s point of view: more buyers, but higher risks
It is generally more profitable for the developer when the buyers are mortgage holders than when they use installment plans. The reason is that with a mortgage, the developer immediately receives the full cost of the apartment, and with an installment plan this happens after a few months.
As Tatyana Podkidysheva, sales director, explains, this is why some developers charge interest - they compensate for the delay in receiving funds from the buyer.
However, experts emphasize that thanks to installment plans, developers are expanding the circle of potential buyers. The tool helps to attract, for example, citizens who were denied a mortgage or who have problems with documents.
Compared to a subsidized mortgage, when the developer compensates the bank for a certain percentage, when paying in installments, the company does not incur costs, but risks not receiving the full cost of the apartment from the client. At the same time, the developer cannot insure himself in case the buyer does not pay the debt in installments.
Buying an apartment in installments: definition and features
The features of the purchase and sale of an apartment with installments are as follows:
- The seller acts as a lender.
- The buyer pays for the apartment not at once, but in installments.
For the buyer, this option of purchasing an apartment has many advantages: he does not need to take out a mortgage for the apartment and bear the costs associated with this procedure.
In particular, collect documents to confirm solvency, look for guarantors and additional security, and most importantly, overpay interest for the use of borrowed funds.
Not all buyers are able to obtain a mortgage loan even at higher rates.
Buyers may be attracted to an installment plan deal if they expect a large amount to arrive in the near future: for example, an annual bonus, proceeds from the sale of a car or a country house, etc. As part of such a deal, they do not have to wait until the entire amount is accumulated; they can deposit funds for real estate in stages, without fear that the apartment you like will be sold to someone else.
It is also becoming increasingly difficult for sellers to sell apartments due to declining demand. Therefore, offering a flexible payment scheme can attract buyers and sell real estate faster.
Sometimes sellers agree to pay in installments out of fear that the apartment may become cheaper in the near future.
Is installment beneficial?
We can say that such an installment deal is very beneficial for the buyer, while for the seller it has many risks. Therefore, the seller is primarily interested in the competent conduct of the transaction and the proper execution of the installment contract. Indeed, if the buyer fails to fulfill his obligations to make payments for the apartment, such an agreement will become an evidence base in court.
After concluding a deal with installments, the buyer has the right to live in the apartment he purchased.
At the same time, certain restrictions are established on the disposal of real estate: he will not be able to resell it until he has made all payments.
The apartment will be pledged to the seller until the debt is fully repaid, which creates certain guarantees for the former owner. In accordance with Russian law, such a transaction is called a mortgage transaction, although there will be no bank involved.
An apartment can be sold in installments on both the secondary and primary real estate markets. In the first case, the subjects of contractual relations are an individual, in the second - the developer and the buyer. But usually the installment plan is provided by the developer until the object is put into operation (for the construction period).
Therefore, in this case, an agreement for the purchase of an apartment in installments is not concluded (since the apartment itself does not legally exist yet), but an agreement for shared construction.
The developer meets halfway: options for difficulties with debt repayment
According to Vladimir Kashirtsev, general director, if payment by installments is late, the buyer faces penalties, fines and even termination of the contract, in which case the developer will retain a certain amount.
Tatyana Podkidysheva warns that if the payment deadline is violated, the law obliges the shareholder to pay the developer a penalty (penalty) in the amount of 1/300 of the Central Bank refinancing rate, which is in effect on the date of fulfillment of obligations, of the amount of the overdue payment for each day of delay. But we are talking about buying an apartment under a shared participation agreement.
If an apartment is purchased under a sales contract, the developer and the buyer themselves determine the amount of the penalty, notes Maria Litinetskaya. She says that for late payment, as a rule, a penalty is imposed in the amount of 0.1% of the debt amount for each day of delay. Moreover, with the mere fact of delay, the buyer may be required to pay an additional fine in the amount of 10% of the cost of the property, and the developer has the right to terminate the contract.
The borrower can take the initiative and insure in case of unforeseen circumstances: installment plans from the developer do not require mandatory insurance, but if desired, the buyer can use the services of insurers.
According to the developers themselves, they are willing to meet the buyer halfway and, as an option, can offer him to convert the installment plan into a mortgage.
Evgenia Akimova says that IKON Development takes this step in 99% of cases when the buyer cannot pay on time. The expert notes that in three years of work she saw only two cases when the deferment agreement had to be terminated. The reason was difficult life circumstances when a person urgently needed a large sum of money. Akimova says that the client received all the deposited funds without any sanctions.
If the client who took the installment plan still does not pay the debt, the developer may take radical steps and terminate the purchase and sale agreement. In this case, all previously paid money is returned to the buyer’s account, and then the developer goes to court to collect a penalty in the amount of fines for non-payment.
List of required documents for installment plan
A purchase and sale transaction involves the re-registration of ownership rights from the seller to the buyer in Rosreestr. To conclude a transaction, it is necessary to collect a certain set of documents, which includes:
- Technical passport of the apartment. It is issued at the BTI within a month and is valid for a year. The cost of a passport is 1.5-2.3 thousand rubles.
- An extract from the house register containing information about all registered/discharged persons. It can be done at the passport office at the location of the property. It is preferable that at the time of entering into a transaction there are no registered persons in the apartment.
- A copy of the financial and personal account confirming the absence of debt for utility services. It must be obtained from the EIRC.
- An extract from the Unified State Register of Real Estate confirming the legal status of the owner and the absence of encumbrances in the form of pledge and arrest.
- Seller’s title documentation: previously concluded purchase and sale agreement, gift agreement, etc.
- A document confirming the rights of the representative, certified by a notary (when selling an apartment by power of attorney).
- Consent of the spouse to the transaction (if the apartment is jointly owned) or the guardianship authorities (if there is a minor among the owners).
- Agreement for the sale and purchase of an apartment with payment in installments.
- Application for re-registration of property rights from the parties (from the seller about the alienation of property rights, from the buyer about entry).
- Receipt with paid state duty in the amount of 2000 rubles. It can be paid by the buyer or seller. Payment can be made after submitting documents for state registration within 5 days.
Thus, to conduct a transaction for the purchase and sale of an apartment by installments, a standard set of documents will be required.
Is there a demand for installment plans?
Well, in general, today installment plans are not particularly popular: this option is chosen by 3% to 10% of clients, depending on the project, and their share in the mass segment does not exceed 5%. About 50-60% of apartments are purchased with a mortgage, and in some projects their share exceeds 90%.
They say that in business and premium classes, installment plans are more popular: about 20% of transactions are concluded with its use. That is, every fifth apartment in this segment is sold in installments.
But developers note that with a decrease in mortgage rates, buyers’ interest in installment plans also decreases. Experts say that while the share of installment plans gradually increased to 20% over the past year, at the beginning of this year it fell to 10% as buyers prefer mortgages.
According to Vyacheslav Priymak, head of the development of mortgage programs at Igrad Group of Companies, buyers of apartments worth 2-7 million rubles choose a mortgage. But when the amount exceeds 7 million, clients increasingly prefer flexible installment mechanisms, the expert says.
Still, in expensive segments the share of transactions using installment plans is also small. For example, in Don-Stroy Invest last year only 9% of apartments were sold in installments. The most popular installment plan is in the elite and premium segment – here it accounts for 14% of sales.
MIEL-Novostroika experts note that three categories of clients resort to installment plans. The largest category of “installment plan buyers” are those who already have 60-70% of the cost of housing. They plan to contribute the rest when they sell some property, receive a bonus, or simply earn money in the near future, since they have a fairly high level of income.
The next category is businessmen who cannot immediately withdraw a large amount of money from their business, or people who have a fairly large amount on deposit, the expiration date of which is coming to an end.
Another category consists of buyers who were denied a mortgage. These could be people with a bad credit history or with good earnings, but a low official salary.
When is a receipt needed?
When might a promissory note for payment of funds in installments be needed? Firstly, it is formalized when one person lends money to another. That is, in this case, it actually represents one of the options for drawing up a loan agreement between private individuals.
If it is drawn up correctly, then in the event of non-repayment of funds by the borrower, it can be used in court as evidence that the transfer of money took place. And there are obligations to return them in a specific amount within a specified time frame, and if this is provided, then with interest.
If, when making a loan, a written agreement is drawn up, this does not mean that you can do without a receipt if the money is transferred from the lender to the borrower in cash. If the funds are transferred to a card or current account, then the proof will be a bank statement certified by its seal and signature of the responsible person.
As for transferring cash from hand to hand, you cannot do without a receipt for payment of funds in installments. In this regard, you need to know about the requirements for this document, without which it will not serve as evidence in court.
Let's sum it up
It is worth noting that installment plans are just one of the tools for selling apartments, thanks to which the developer can expand the circle of potential buyers and increase sales, but at the same time his risks increase. Although not too much, since in case of non-payment of the debt, the apartment remains with the developer: the buyer can register the property (even in an already completed house) as his own only when he pays its full cost.
Despite the low demand, some buyers still use installments: for some clients it is more profitable than taking out a mortgage, for others it is the only possible option. At the same time, the risks of buyers of an apartment in an unfinished project when paying in installments are no higher than in the case of obtaining a mortgage or paying in full. Experts note that if the developer fails to fulfill its obligations, the buyer is protected by law 214-FZ.
