QUESTION: New buildings: how does a shared construction agreement (DDU) differ from other forms of purchase?
Purchasing an apartment in the primary housing market differs significantly from acquiring secondary real estate both legally and financially. Regarding new buildings, potential buyers have many questions about which documents regulate relations with the developer and why the shared construction agreement (DDU) has become the main tool for protecting citizens' rights. Building a sound housing purchase strategy usually works according to a tried-and-tested scheme:
A shared construction participation agreement, abbreviated as DDU, is an agreement whereby the developer undertakes to build an apartment building within a stipulated timeframe and, after receiving a permit for commissioning, to transfer the shared construction object to the participant. The main feature of the DDU is that this agreement is subject to mandatory state registration with Rosreestr. Until such registration takes place, the transaction is legally considered not concluded, which protects the buyer from double sales of the same apartment by unscrupulous developers.
In addition to the DDU, other forms of attracting citizens' funds can be found in the real estate market, but they carry significantly more risks. Historically common but dangerous instruments included preliminary purchase and sale agreements, investment agreements, promissory note schemes, and housing-construction cooperatives. These alternative forms were often used by developers to bypass the strict requirements of Federal Law No. 214-FZ, which regulates shared-equity construction, leaving buyers virtually without legal protection in the event of the construction company's bankruptcy.
Modern legislation has practically forced out gray schemes through the introduction of escrow accounts. Now, when purchasing under a DDU, the buyer's money does not go directly to the developer's accounts, but is deposited in a special bank account. The construction company builds the house using its own or borrowed bank funds, and can withdraw the equity holders' money only after the house is completed and at least one apartment is registered as property.
To properly approach the selection and execution of documents when buying a new building, it is recommended to follow this algorithm.