Salwator's solution
A new program from Salwator Capital Group aims to improve the quality of contract negotiations on sales of real-estate projects in development. The current economic climate in Poland has given rise to a developer's market in which the terms of sales contracts are dictated primarily by investors looking to maximize their profits.
In recent years, it has become the norm for all units of a residential complex to be sold out even before ground is broken. However, buyers can be called on by investors to pay out more money to cover increases in the price of building materials or labor, months after a sale has closed. A number of them find their contracts have been nullified by a developer who has decided to resell to another client at a higher price. The profit gain in such situations overrides all penalties.
Salwator addresses the conflict with a scheme in which money is paid into a closed fund which cannot be accessed by the developer until the keys are handed over to the owner. Marcin Rams, the director of the management board of Salwator City, explains, "As per a notarized agreement, payment is made in two phases. The initial payment consists of five percent of the apartment cost, which is paid into a closed trust. The second and final payment is made once the apartment is complete and only then can the developer access the funds."
Once the property is ready, the buyer pays the remaining 95 percent of the set purchase price and the company is required to hand over the keys within two weeks of that date. The customer will also have time to evaluate the finished property and make a final decision regarding the purchase.
Rams believes that the measures are necessary to revitalize consumer confidence in an industry tainted by accusations of bad business practices on the part of investors. He emphasizes that the program is the first of its kind on the Polish market and precedes all government efforts to regulate the industry.
Mikołaj Martynuska, director of the residential department at CB Richard Ellis says, "There are a handful of firms employing such practices at the moment. The program itself appears reasonable as it raises negotiations to the level of banks, which increases the security of the transaction and balances the equation of power among the two parties. However, financing development projects will inevitably grow more expensive as developers have to dip into their own resources. This will certainly have an effect on prices on the whole."
The Polish government is expected to implement legislation in the fall requiring companies to set up a similar structure, based on the establishment of an open or closed fund, accessed by the developer after a project's completion. The government is also planning to call for companies to file insurance policies to protect clients from being affected by losses incurred by the developer.
