The issue of the fair value of construction is important.
Currently in the bill №7198 on compensation for damage and destruction of real estate as a result of hostilities, there is no transparent mechanism for using the Fund for the Restoration of Property and Destroyed Infrastructure. Serhiy Volkov, President of the Ukrainian National Mortgage Association (UNIA), writes about this in his article for ZN.UA – “How to prevent theft of compensation for damaged housing”.
According to Volkov, in order for all the funds allocated for compensation to be used for their intended purpose, the state needs to introduce financing of construction works in the next stages, only after inspections (carried out by banking specialists) of the previous stages.
The most common settlement mechanism in Europe, which involves the bank's participation in project financing. The bank, by financing the construction at the expense of the funds of the future homeowners deposited in the escrow accounts or issuing a loan, checks the documents and controls the targeted use of funds. Such a requirement is, for example, enshrined in the laws of Germany, Poland, Italy and France.
Under this mechanism, banks act as escrow agents to protect the interests of affected property owners, and the developer can dispose of their funds only if certain conditions are met. The bank pays in tranches, which significantly reduces the risks associated with the developer's failure to meet its obligations.
The affected homeowner (or association) enters into an agreement not only with the developer, but also with the bank, which will monitor the progress of construction and transfer compensation money from the escrow account in accordance with the schedule and timing of certain work actually performed. According to Central European practice, payments can be made at the following stages:
- 35% of the total amount after the foundation is filled (in our case it may be the demolition of a destroyed building);
- 40 % – after the completion of general construction works;
- 20% – after the final completion of the project;
- 5% – after the transfer of the object to the owner.
There is a very important question of the fair value of construction, which will satisfy the contractor and which will determine the amount of compensation.
Based on the Unified database of reports on the valuation of the State Property Fund or develop on its basis indicative price of one square meter of housing, which is set taking into account the design features of the object, its geographical location, official foreign exchange rate, and takes into account changes in market prices for basic building materials and other significant components of construction costs. This approach does not require a complicated and expensive evaluation procedure. Only in the case of major repairs will it be necessary to professionally assess the percentage of damage to the total cost of housing.
Read also: The mechanism of compensation for damage and destruction of property lacks transparency in the use of funds
With other materials Serhiy Volkov, President of the Ukrainian National Mortgage Association (UNIA) can be found at the link.
