Construction financing fund
Real estate operations fund
System specifications
The purchase of a new home is a very risky deal from the point of view of investments into construction and further legalization of property rights. You can invest in the construction of your future home only through specialized funds, and does not directly transfer to the developer. On the market there are dozens of schemes for investment in future housing, but none of them guarantees the timely completion of construction. Of course, there are legal schemes, there are semi-legal.
According to Ukrainian legislation, there are 4 legal investment mechanisms:
The most common in Ukraine are the first two schemes, which use the most of the capital city`s constructors. Consider them further.
Construction financing fund
In General, the activities of the СFF and the REOF is similar, the only difference in purpose of these organizations. Create or buy a Construction financing fund profitable, if the owner intends only to implement the transfer of housing in ownership by investors. In fact, the Construction financing fund accumulates money and later use them for the benefit of construction.
The CFF take part in system investments through:
- The contractor;
- The steward is a licensed financial institution that acts on its own behalf in the interests of the FSF and manages the money of the investor according to the legislation and the rules of the Fund;
- The investor – the person (or entity) investing in the construction of their home;
- Insurance company. This is not mandatory, however the insurance of commercial risks for the leadership of the CFF will be a huge plus for the investor.
So, if You are going to buy a Construction financing fund or invest through funds in future housing scheme of the FSF is as follows. The investor (owner of the apartment) enters into a contract with the Manager for the transfer of property in trust for the funding of construction. In turn, the Manager already has a contract with the Builder, in which the latter should construct the property and then transfer it to the investor.
In particular, CFF is obtained by the intermediary, which guarantees the investor commitments. So, if the developer violates the terms of the contract, its functions, including the right to change the developer, go to the Manager.
Real estate operations fund
Specified financial institutions who intend to implement income-generation owners of its certificates can create or buy a Real estate operations fund. The FREO attracts funds from individuals (physical and legal) that don’t want to buy a property and want to earn on operations with housing.
For the developer this is an effective way of raising funds for further implementation of their projects. Only financial institution with a special license to solicit funds can create the FREO. To do this he must produce certificates of FREO, which can later be sold to investors (persons wishing to invest in real estate). In fact, these certificates are securities and that`s why they can be bought and sold on the stock market including quotation on the stock exchange. This mechanism allows investors to make a profit even before the completion of construction by implementing their certification FREO.
The scheme of creating FREO is really difficult, however it is a very profitable business which moreover is popular in the real estate market. In most cases, to speed up the procedure of creating your organization more profitable to buy a Real estate operations fund .
System specifications
If in the case of the CFF, the investment comes directly from a future owner, then the FREO cooperates with intermediaries, which further implement the certificates on a particular property.
Undeniable advantages of the construction financing Fund are:
- clear legislative regulation;
- guarantee the execution of the contract from the Governor, because in case of trouble the functions of the developer are transferred to him;
- the investor’s right to refuse to participate in the CFF and to withdraw their funds;
- the opportunity to insure risks of the investor;
- in the event of bankruptcy of the financial institutions that invested funds are not lost.
There is a huge drawback that comes along with this course: the Manager and the contractor are linked very often in practice. In particular if planning to buy a Construction financing fund, or buy a Real estate operation fund. The stake involve profits are calculated in advance for all to minimize the losses that result in a close relationship with the leader. Unfortunately, this “little” nuance completely negates almost all the advantages of the schemes of financing, because the steward, instead of protecting investors ‘ rights and control over the work of the contractor, actually acts in the interests of the latter.
In conclusion, I want to say that if You do not fully understand the pattern of investment in the construction or God forbid, faced with the inadequacy of one of the systems, it is better not to do anything on their own. So Your decisions is not turned to a loss, so refer to the lawyers, and then Your issue will likely be solved successfully.