Buying an apartment with a trade-in, and why this scheme will soon disappear

New buildings do not remain aloof from the general trend – rising prices. This means that the construction business, in order to make a profit from the residential building being built, needs to invest more and more resources. And then they introduced escrow accounts, which freeze the client’s funds until the registration of apartments in a new building begins. This noble gesture towards shareholders, who can sleep peacefully, has significantly complicated the lives of developers. Or rather, it led to an increase in their initial investment. And business is concerned about how to quickly return and increase what was spent. Therefore, the trade-in scheme is not very popular now.

What is a trade-in?

Although trade-in is translated simply as “trade,” this term is used by car and real estate dealers to describe a kind of mutual offset: they sell a new product, reducing the price by the amount of the cost of the old analog provided. Participation in a transaction of old and new cars or apartments is its distinctive feature.

The classic real estate scheme of this type involves freezing the price of a new apartment while the developer sells the old one. Typically, the implementation period ranges from 3 months to six months, and less than 5% of buyers used this mechanism.

Accelerated options

In conditions of inflation, it is not profitable for builders to wait a long time, so today trade-in is often used in an accelerated form: the developer himself buys the client’s old home, which he sells independently and without his approval.

The fast algorithm is successfully competed with the super fast or instant algorithm. A company that has its own experts makes an assessment of the “testable” object literally in a day and buys it back within a week. This mechanism is used along with long-term buyout, extending it, in addition to apartments, to apartments and other commercial real estate.

Declining popularity of the tool

The past year will be remembered for the boom in preferential mortgage lending. It has given a boost to housing demand even in the uncertain economic climate of the pandemic. But developers have become more cautious, reducing the volume of proposals. The struggle for buyers has become less intense, reducing the importance and use of the trade-in scheme.
But mortgages are not the main reason for the decline in popularity of this mechanism.

The biggest impact on reducing its use has been the introduction of project finance and escrow accounts. Now, in order to quickly fill them, it is profitable for developers to immediately receive the full cost of the home. Because of this, the “pit” stage, which was so attractive before, has become more expensive, and many discounts and bonuses have been cancelled.

And although buyers today are more interested in the “offset” scheme than before due to the long-term preservation of prices, builders are less and less interested in it for the same reason.

Forecast for the future

Thus, the future of this mechanism is a big question, which upsets buyers. Indeed, in addition to the price fixed for a fairly long period, the scheme has other advantages:
relieves the client of the hassle of finding a buyer for an old property and the process of selling it;

– allows you to combine this option with others, which also make it easier to purchase new real estate. We are talking about the possibility of attracting a loan, installment payment, assignment of debt.

In a situation where more and more construction companies ignore this tool not out of whim, but due to objective escrow reasons, we can only take comfort in the fact that it also has negative aspects:

– the sale price of an apartment, taken as part of the cost of a new building, is often significantly lower than the market price;
– offset is beneficial only in the case of more than one dwelling; otherwise, during the sale of the old one and the construction of a new one, it is necessary to rent premises for temporary residence;
– the choice of objects offered under this scheme is quite limited;
– an advance of 5 to 20% is often required to be made at the very initial stage, even before the sale of the old property.

Whether this or that mechanism lives or dies is dictated by the market. Which, in turn, responds to changes in the economic situation and legislative framework. Therefore, it is problematic to draw an unambiguous conclusion about the prospects of the “offset” apartment mechanism. But…a holy place is never empty: outdated business initiatives are always replaced by new ones.

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